The Double Irish
While Big Tech and emerging Fintechs enjoy the Irish hospitality, traditional banks may beg to differ.
Welcome back, to Fintech Weekly.
This week we are taking a look at JP Morgans's latest upgrade to its blockchain project, we look at the CFPB’s rack down on Big Tech, and we review Klarna’s response to Moody’s criticism of BNPL.
The main subject of this week’s newsletter is the Irish Fintech ecosystem. Ireland has been praised for its appealing regulatory environment as Fintechs and Big Techs alike have set up shop on the island. However, as Ireland attempts to lean into this further with an application for the EU AMLA, two companies that may view Ireland less favourably are Yapilly and Cash App.
What are Programmable Payments? 🤨
Who are the CFPB targeting to bring under their regulatory oversight?🎯
How do BNPL loans from mortgages?💰
When could Ireland become the EU HQ for AML?🇪🇺
Where did it go wrong for Yapilly?🚫
Why is Cash App not expanding in Ireland?🇮🇪
What are Programmable Payments? 🤨
Back in July, we covered the story that JP Morgan upgraded its blockchain project JPM Coin by introducing euro-denominated payments for corporate clients. The system allows wholesale payment clients to transfer euros and dollars, to and from their various JP Morgan accounts around the world, or make payments to other JPM customers, using blockchain rather than traditional payments. This week, JP Morgan announced a further upgrade as Onyx, JPMorgan's blockchain business unit, launched programmable payments. Programmable payments automate transactions based on preset rules, eliminating the need for manual checks. Given the current interest rate environment, programmable payments represent an opportunity for treasurers to earn more income on deposits. German multinational Siemens AG is the first to employ the new technology with FedEx and Cargill, expected to use the feature in the coming weeks. Last month, JPM Coin reached a milestone, processing $1 billion in daily transactions, however, this figure is routinely reported to account for a fraction of JP Morgan's payment volume. Programmable payments have long since been a proposed use case for blockchain payments, however making anything programmable comes with the risk of making errors in the implementation that will be executed automatically to disastrous effects. It will be interesting to observe how this feature is adopted over the coming months, and the processes companies put in place to mitigate this risk.
Sources:
Read more on Coindesk, Decrypt, The Block
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In Other News:
Who are the CFPB targeting to bring under their regulatory oversight?🎯
To follow up on a story from earlier this month, the primary regulator for consumer finance in the US, the Consumer Financial Protection Bureau (CFPB) announced that they are targeting Big Tech firms including Apple and Google to come under the score of their regulatory oversight for their digital payments and financial services. The bureau has now published a proposed rule that would see non-bank financial companies that handle more than five million transactions per year face the same rules as large banks and credit unions.
"Today's rule would crack down on one avenue for regulatory arbitrage by ensuring large technology firms and other nonbank payments companies are subjected to appropriate oversight," - CFPB Director Rohit Chopra.
The regulator estimates that the rule would apply to 17 companies which account for a staggering 88% of market share. This announcement came a matter of weeks after the Bureau unveiled their long-awaited ‘Open Banking Law’, representing another significant shake-up in the push for improved competition in the sector.
Sources:
Read more on the story in The Financial Times, The Wall Street Journal, Reuters
How do BNPL loans from mortgages?💰
Last week we covered the story of how Buy Now Pay Later provider Klarna posted a net profit of 90 million kronor ($8.3 million) for Q3. The company’s first profits since 2019 were attributed to an increase in revenue of 30% to SEK6 billion while credit losses fell 46% to SEK800 million. Admittedly, when covering BNPL-related stories in the past I have been guilty of a sceptical tone as BNPL is not regulated as credit, something that governments around the world are actively looking to address. This view is shared by financial services firm Moody’s who stated in a recent report that credit losses may start rising for buy-now pay-later lenders due to high inflation making delinquencies more likely. To balance this viewpoint, we must acknowledge the response put forward by Klarna that
“BNPL loans tend to be very low value and extremely short duration (30 to 60 days). That makes it much less risky than a higher value, longer-term debt, even if that debt is secured on some form of collateral.”
As Klarna discussed concerning their reduced credit losses, their ability to assess credit risk is improving with advanced technologies, and their relatively short loan periods make them extremely dynamic compared to financial institutions offering long-term loans like mortgages. As they said in response to Moody’s assessment,
“When Klarna changes our underwriting policy, 50% of the balance sheet is underwritten on the new model within two months.”
Sources:
Read more on Yahoo Finance
When could Ireland become the EU HQ for AML?🇪🇺
We have discussed several times over recent months how Ireland has established itself as a popular choice for fintech firms to set up their European Headquarters. Coinbase, Gemini, and OpenAI are among the emerging tech companies that have started to lay foundations in Ireland, while Dublin is already awash with Big Tech companies like Google, Meta, and TikTok. Not only is Guinness great, but the regulatory environment, particularly as a member of the EU is a key selling point to these companies. To further boost the country’s reputation as a global leader in financial services compliance, the Irish Government is in the running to host the headquarters of a new EU Anti-Money Laundering Authority (AMLA). The decision on which country will host the AMLA will be made by the European Parliament and the EU Council. This institution is expected to be formally established in 2024, although it is not expected to be fully operational until roughly 2026.
Sources:
Read more on the story on Silicon Republic
Where did it go wrong for Yapilly?🚫
On the other hand, I doubt Synch Payment would agree that Ireland has a favourable regulatory environment. Synch was the company behind a joint venture involving AIB, Permanent TSB, Bank of Ireland and the former KBC Ireland to launch an instant person-to-person payment through a new app called Yippay with a view to rivalling neobanks like Revolut and N26 which have taken a significant share of the Irish market from traditional commercial banks in recent years. The venture got the green light from the Competition and Consumer Protection Commission (CCPC) back in the summer of 2022, however this week the banks pulled the plug on the project after they were met with significant roadblocks and delays. The final nail in the coffin was when the Central Bank said the planned new service needed to be authorised by it. A total of €17m has been invested by the shareholders, according to filings in the Companies Office. While Synch stated that
“A combination of factors has contributed to an elongated timeframe to launch which makes the original Synch proposition no longer viable”
The Central Bank has come out to justify its decision by saying
"Any company offering this type of payments service requires appropriate authorisation and in this case, Synch was engaging with us but had not started the application process. We stand ready to promptly engage with all firms seeking to be authorised in Ireland.”
The decision provides an additional boost to Revolut which continues to expand into traditional banking products as it grows its market share. In contrast, traditional banks in Ireland continue to struggle, notably, one of the original members of the Synch venture, KBC, has departed the market in the interim, thus reducing competition further.
Sources:
Read more on this story from Irish Independent and Newstalk
Why is Cash App not expanding in Ireland?🇮🇪
Another project that has failed to launch in Ireland is Cash App. Part of Jack Dorsey’s fintech group Block, Cash App enables users to send and receive funds in both fiat and cryptocurrency. The company has been in pursuit of a virtual asset service provider (VASP) licence from the Central Bank of Ireland to operate cryptocurrency services since 2021. The company is already operating in the US and UK markets and has a small office based in Dublin. Following their withdrawal for a VASP, a spokesman for Block declined to comment further on how this may impact Cash App’s European plans. This all comes against the backdrop of Dorsey taking a more hands-on approach to running Block, especially after shares in the Fintech are down 80% from their peak in 2021 and Alyssa Henry, the head of the Square unit, stepped down from the position back in September.
Sources:
Read more on the story on The Irish Independent and The Wall Street Journal
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