Lexpert Magazine

60 LEXPERT MAGAZINE | SEPTEMBER 2016 Partnering is also an option. "We're working with a Big Five bank that is part- nering with tech companies who have de- veloped algorithms for instant credit lend- ing," says McGowan's Toronto partner, Stephen Redican. Nowadays, then, compa- nies like Mogo are on the banks' horizon. "ey've been talking to us about partner- ing with them," Feller says. So there's no lack of incentive for start- ups. "Personal banking has traditionally had a high profit margin of about 40 per cent," Feller says. "And as Amazon put it, your margin is my opportunity." So much so that competition from the fintech sector has moved from the lending and investing space to the deposit-taking business. In January 2016, Vancouver-based fi- nancial start-up Koho, in partnership with Visa and Peoples Trust Co., launched its mobile bank to compete with entities like Scotiabank's Tangerine and CIBC's PC Financial. It offers direct deposits, bill pay- ments and electronic money transfers for free, as well as budgeting tools aimed at its young target market. A chartered bank holds the funds in partnership with Koho, which makes its money when clients use their Koho Visa prepaid card at establish- ments that pay a portion of the purchase price to the company. PLAYERS AND TARGETS Fintech has been disruptive, there's no doubt, but it hasn't achieved revolution- ary status quite yet. "Our business isn't aiming at eating the banks for lunch," says Mike Martin, CFO at Grow Fi- nancial Inc., a Vancouver-based online lender. "Instead, we partner with finan- cial institutions because we can do things more nimbly than they can." Revolution, it appears, will likely come only if and when the public is prepared to embrace cryptocurrencies and blockchain on a large scale, opening the door for alterna- tive payment systems. Indeed, according to EY's FinTech Adoption Index, consumer adoption rates for fintech in Canada have lagged behind five other developed countries, including the US and the UK. Still, Vancouver has become something of a fintech hub in this country. "We're seeing a lot of start-ups and angel investments in the fintech arena," says Kareen Zimmer of Fasken Martineau DuMoulin LLP in Vancouver. at, however, won't stop financial in- stitutions from behaving as if they are in fact under threat. "Before 2015, few ma- jor financial institutions had announced investments in the sector," write Don and Alex Tapscott, co-authors of Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World. "Today Commonwealth Bank of Australia, Bank of Montreal, Société Générale, State Street, CIBC, RBC, TD Bank, Mitsubishi UFJ Financial Group, BNY Mellon, Wells Fargo, Mizuho Bank, Nordea, ING, UniCredit, Commerzbank, Macquarie, and dozens of others are invest- ing in [blockchain] technology and wading into the leadership discussion." According to the Tapscotts, "financial titans" are also playing venture capitalist in this arena. Among those who have made direct investments in start-ups or incuba- tors are Goldman Sachs, NYSE, Visa, Bar- clays and UBS. Citigroup, which initially teamed up with Lending Club, an online lender, has now set up its own unit, Citi FinTech. Overall, investment in the sector worldwide rose from $2 million in 2012, to US$2.2 billion in 2014, to almost US$6.8 billion in 2015. Signs that interest in blockchain tech- nology is ramping up are everywhere. In June 2015, the Canadian Senate's Com- mittee on Banking, Trade and Commerce released a report that explained why gov- ernments should embrace blockchain tech- nology. In the US, the National Confer- ence of Commissioners on Uniform State Laws released a dra of the Regulation of Virtual Currency Businesses Act. Even post- al services in the US, Australia and Estonia are looking at ways that blockchain tech- nology can improve their financial prod- ucts like money orders and international money transfers. In the private sector, meanwhile, e Linux Foundation — a non-profit orga- nization that enables mass innovation through its open-source approach — has recently announced a collaborative effort to advance blockchain technology. And accounting giant Deloitte has already in- vested in the technology. It's a train, in other words, that has al- ready le the station. THE SMART CONTRACT From a legal perspective, the "smart con- tract" aspect of blockchain technology may be of the most direct interest to in-house counsel and other lawyers. Here's how the Tapscotts define the concept: "Smart contracts are a form of a program that gives certain conditions and outcomes to money. If there is a transaction between two people, this program can be used to help verify the product or service and whether or not it was fulfilled. Once it has been verified, it can then be transferred to the person's account." According to a report by Mark Walport, the UK government's Chief Scientific Ad- viser, the distributed ledger technology underpinning blockchain offers the po- tential to reduce the cost of paper-inten- sive processes, including contracts. ese contracts, Walport has stated, can provide | IN-HOUSE ADVISOR – FINTECH | THEO LING > BAKER & MACKENZIE LLP In-house counsel better understand what the issues are, because many of their companies will have to adapt. Once they've identified the issues, they need to do the proper due diligence and analysis on the steps their clients are taking to confront the blockchain challenge, identify the potential risk and move to mitigate.

• Cover
• front
• back