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Daily briefing - 23 April 2019

Is it open season on capitalism? When Jamie Dimon is arguing that capitalism is not the solution to everything, we mortals should pay attention. What an election 2020 is shaping up to be in the US: Donald Trump will be unable to believe his luck as he sets out his stall as the last defender of capitalism. There's even talk that the Bank of England will select a new governor who once praised an anti-capitalist protest. What is the world coming to? Bank of England governor Mark Carney once promised to stick around to help get the Bank through Brexit, but realising that he might be stuck in London for the foreseeable future, Mr Carney is signalling his intention to be gone soon. Reuters takes a look at possible replacements, including Andy Haldane, the chief economist at the Bank of England, who has taken the bank on the road to speak and listen to opinions outside of London. He also took the unusual step of explaining to the public how banking actually works. Andrew Bailey, previously seen as a likely candidate as head of the FCA, has become embroiled in the RBS scandal. "But heading the FCA is fraught with risks. Lawmakers in parliament's Treasury Committee criticised Bailey for not publishing all of a report into alleged misconduct by bank RBS," reports Reuters. "Bailey has cited privacy restrictions." Haldane, of course, mostly comes into focus where Labour is concerned, as he's thought more likely to be palatable to Labour's finance spokesperson John McDonnell. "In 2012, he praised the anti-capitalist Occupy movement for suggesting new ways to fix the shortcomings of global finance. Haldane has experience of both sides of the BoE, having served as executive director for financial stability, overseeing the risks to the economy from the banking system. But he might be seen as too much of a maverick to take the job of governor."A popular slogan on t-shirts favoured by fintech revolutionaries is 'get shit done', which is a way of expressing how deeply insecure most fintechs feel, at least until they get a banking licence. But according to the FT, the bad boys of Revolut have quietly dropped the 's' and the 'h' from their in-house 'get shit done' slogan, and are now all focused on being compliant. In an interview, chief executive Nikolay Storonsky tries to come across sympathetically, explaining that as the company scaled rapidly, it spent a lot of time (symbolically) putting out fires. ""We were fighting for our survival — there were a lot of fires," Storonsky tells the Financial Times. "We didn't really have enough budget to hire a lot of great people in compliance." It's hard to imagine established banks getting away with this sort of excuse (but of course, they do, and we've written extensively recently about the after-the-fact demand for compliance offices in places such as Denmark.) Although banking is about risk and compliance, this stance has not deterred investors from continuing to pour funds into Revolut. Other concessions now include offering a phone number to customers, which serves as a reminder that all the promotion of AI for customer service is driven by a relentless cost-cutting agenda that is now looking unsustainable. India's banks are continuing to serve as a drag on the economy, writes Credit Suisse strategist Neelkanth Mishra, who says that state-owned banks control two-thirds of banking assets. "The problem is that state banks continue to have a very large role in the economy," he writes. "As they slow, they drag down the economy, too; private-sector banks simply can't grow fast enough to make up the difference. For a time, non-banking finance companies could help: Shadow banks were responsible for nearly a third of incremental loans in the system over the past three years. But, since September last year, when a funding crunch forced them to focus on survival, credit growth in the system has slowed."Can China's fintech giants help digitalise the country's banks?

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Daily briefing - 18 April 2019

Not long ago, Lafferty News recently received birthday wishes by email from a hotel where we stayed last year. Somehow the hotel thought this it a good idea to remind us that it's still got all of our details in its system, waiting to be hacked. But we're now in a world of tension between proof of identity and storage of identity documents. "European anti-money laundering legislation means customers and businesses are required to provide potentially sensitive documentation to prove their identities," writes Forbes. "But how safe are the methods of sharing and storing those documents? Are these attempts to strengthen security creating security and privacy risks of their own?" Europe will attempt to solve some of these problems in September, when another chunk of PSD2 will kick in, requiring strong customer authentication (SCA). Young Dublin company TouchTech Payments, which specialises in SCA solutions, was yesterday acquired by Stripe, which is building an engineering operation in Dublin. "It develops customer verification solutions that try to strike a balance between user experience and security and is already working with companies such as N26 and Transferwise," reports Fora.ie. "The financial terms of the deal have not been disclosed. The startup, which was backed by Enterprise Ireland, will be absorbed into Stripe's Dublin engineering office." Have the SCA requirements made Facebook re-think its P2P Payments business on Messenger? The company said it will close the service, which is running in the UK and France, in June, and the reasons are not entirely clear. "Facebook does not explain why it decided to pull back on the strategy, but apart from question marks over just how popular the service actually was, there have been other developments at the company and the wider payments space in Europe that could potentially have been factors," writes TechCrunch. The broader Facebook business has in the meantime added payments to WhatsApp, in some cases in partnerships with banks. But the real move here — and the reason behind Zuckerberg's frantic efforts to mash WhatsApp, Messenger and Instagram together — is to offer payments via FacebookCoin, or whatever Facebook's stable coin will be called. And have no doubt, Facebook is already falling well behind in this regard. In the cryptoworld, specialist businesses such as Chainalysis have emerged to offer KYC services to banks and financial institutions that provide financial services to blockchain and digital asset businesses. Japanese banks continue to shadow the digital assets world, with KYC taking an increasingly central role in the meeting of traditional banks and digital assets. "New York-based cryptocurrency compliance startup Chainalysis has raised $6 million in funding from Japanese financial group Mitsubishi UFJ Financial Group Inc and venture capital firm Sozo Ventures, the company said on Tuesday. Chainalysis hopes the strategic investment will help it further its expansion plans in Asia, Chief Executive Michael Gronager, said in an interview." Mr Gronager said Chainalysis hopes to open an office in Japan in the coming year. Of course, the irony is that Japan's banks are the last place to be looking for innovation on cryptocurrencies. But online services in Japan and South Korea, including Line, are among the most advanced in dealing with cryptocurrencies. Now Rakuten, sometimes described as the Amazon of Japan, is making a radical move with the launch of Rakuten Wallet. "Rakuten Wallet was previously known as Everybody's Bitcoin, an exchange Rakuten acquired for $2.4 million last August. A rebranding of the entity to Rakuten Wallet took place on March 1, at which time the older service was closed," writes Coindesk. "Rakuten said last August that it believes the role of cryptocurrency-based payments in e-commerce, offline retail and in P2P payments will grow in the future." The company said it believes provision of a crypto exchange will allow the payments system to function smoothly.Lafferty News will return on Tuesday 23 April.

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Daily briefing - 15 April 2019

JPMorgan reported record 2019 first quarter profits on Friday. "But J.P. Morgan's results showed that it still benefited from the Fed's last move to hike its benchmark rate in December, the fourth time it raised rates last year," says CNBC. "That was most clear in the bank's consumer lending division, one of the two biggest segments for the company. Profit rose 19 percent to $3.96 billion as revenue climbed 9 percent to $13.8 billion. The division grew the profit margin on deposits and grew loans across credit card and auto units. Meanwhile, the provision for credit losses stayed flat from a year earlier at $1.3 billion."Let's talk automation and work for a moment, because there's something that doesn't entirely add up in this brave new world where automation will apparently sit alongside highly-skilled human workers doing robot-length shifts. JPMorgan is an enormous spender on technology, and has been blunt about automation and the future of work. At last week's Congressional appearance, JPMorgan boss Jamie Dimon was rattled by questioning from congresswoman Katie Porter, who challenged Dimon about the earnings of an entry-level JPMorgan bank worker. Dimon promised to investigate and barked back when challenged by the New York Times, asking what it paid as minimum wage. The federal minimum wage in the US is $7.25 an hour. Bank of America had just announced a rise in its minimum wage to $20 an hour. Amazon, rarely seen as a beacon of employee goodness, pays $15 an hour. "Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage," Jeff Bezos wrote last week. Dan Bartlett of Walmart answered: "Hey retail competitors out there (you know who you are ) how about paying your taxes?"Why is this significant? The United States of America is headed to the left, and has been for some years — Donald Trump's victory notwithstanding — even if its democratic socialists would sit comfortably in the centre of European politics. JPMorgan is an American behemoth, but even its money market can't touch its biggest global challenger Ant Financial. Right on cue Ant Financial founder Jack Ma waded into the debate on workers' conditions. The story comes from a forum on Github which invited Chinese tech workers to post their experiences with what's dubbed the 996 culture, where employees at Huawei and Ant Financial are encouraged to go beyond the mandatory 40-hour work week and do 9am to 9pm six days a week. "The 996 schedule — which means working 9am to 9pm, six days a week — is 'a huge blessing that many companies and employees do not have the opportunity to have' Ma said in an internal event on Thursday, according to a transcript published on Alibaba's official WeChat account," reports SMCP.com, an Alibaba-owned newspaper. "Ma defended 996, saying such a schedule has helped Chinese tech giants like Alibaba and Tencent grow to become what they are today, drawing on his own experience of working long hours in the industry. He went on to call on his employees to dedicate themselves to the work ethic. 'If you join Alibaba, you should get ready to work 12 hours a day, otherwise why do you come to Alibaba? We do not need those who comfortably work 8 hours,' he said." Ironically, this all started in Silicon Valley, with its lab rats culture of "free food" and sleeping pods. Plus ça change, plus c'est la même chose.

Featured Articles

Arif Naqvi
Friday 12th April @ 9:55am

Intesa Sanpaolo chief executive Carlos Messina has a lot to say to the Financial Times in a fascinating interview. Italy is sometimes characterised as publicly poor but privately rich, as Italians learned how to survive a perennially tumultuous political system. Italian banks have traditionally tapped retail investors, who invest in bank securities along with keeping their savings there, and the Italian government has angered the ECB with its efforts to staunch losses among...MORE

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Wednesday 3rd April @ 9:03am

It's not insignificant that Germany's fintech capital is Berlin while its banking capital is Frankfurt. While the German press is absorbed in the slow-moving dinosaur rumble known as the Commerzbank takeover, Berlin's fintechs have been catching the attention of big dynamic Asian tech businesses such as Ping An and Tencent. As East Berliners note acidly, many of them grew up in the side of the city where it was easier to get to Shanghai than to Hamburg. In the great...MORE

Dubai
Monday 1st April @ 10:39am

What does the change of strategy mean at N26? The banking app start-up embodies the new business model of banking: with costs going to zero, scale can produce profitability in a transactional world and who needs to engage in risky lending anyhow? Well, banks. And for N26 to scale, it needs to keep its offering light. "In a change of strategy, N26 has decided not to offer its clients a wide range of other banking products for now, preferring to build up its international...MORE

IMG_3680
Wednesday 27th March @ 9:19am

Occasionally, we remind our readers (and ourselves) not to believe all the breathless hype that accompanies almost every press announcement about banking and payments. Take Mastercard, which clearly wants to do the right thing but goes about it in weird ways, announcing today that it is "vowing" to give consumers control of their digital identity. Hot on the heels of Apple's breathless announcement on Monday of a privacy-based credit card, with the added promise...MORE

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Tuesday 26th March @ 10:48am

Apple has entered the banking business with the launch of a credit card yesterday. Apple flagged several weeks ago that it had a credit card offering on the way, which it unveiled yesterday as a collaboration with Goldman Sachs, which will issue the card, and Mastercard. The Apple credit card will take physical form and also integrate tightly with the iPhone and Apple Pay. Apple has distanced itself from the voracious data gatherers at Facebook and Google with its insistence on...MORE

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Friday 22nd March @ 10:17am

Just as mobile wallets are driving adoption of digital currencies and digital assets, banks are going to drive adoption of stablecoins, digital currencies tethered to central bank currencies, aka stablecoins. Last week it was JPMCoin. The big news this week was IBM's offering of a Blockchain network and the ability for traditional banks to issue stablecoins based on dollars or central bank currencies. The notion that the private banking system, though a private blockchain...MORE

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