FinTech Blockchain Market Booms: US$ 325.6 Billion Revenue

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FinTech Blockchain Market Booms: US$ 325.6 Billion Revenue

November 4th, 2024 Market.us Leave a comment

According to the findings of Market.us, The Global FinTech Blockchain Market is set for remarkable growth, projected to surge from USD 7.2 billion in 2023 to an impressive USD 325.6 billion by 2033, achieving a robust CAGR of 46.4% over the forecast period (2024-2033). This rapid expansion highlights the increasing adoption of blockchain in financial services, driven by its potential to streamline transactions, enhance security, and reduce operational costs. In 2023, North America emerged as the leading region, holding over 38.5% of the market share and generating USD 2.7 billion in revenue.

This dominance is attributed to the region’s advanced financial infrastructure, high investment in blockchain technology, and regulatory support that encourages innovation. North America’s leadership in this space underscores the region’s role in pioneering blockchain solutions that continue to shape the future of fintech globally.

FinTech Blockchain refers to the application of blockchain technology in the financial services sector. Blockchain’s decentralized and immutable ledger system enhances financial operations by allowing for secure, transparent, and efficient transactions without the need for intermediaries like banks or clearinghouses. This technology supports various functions such as digital payments, automated billing, and enhanced security measures. FinTech companies leverage blockchain to streamline processes, reduce costs, and maintain comprehensive and tamper-proof records, which help in building trust and compliance with regulatory standards

The FinTech Blockchain market has witnessed significant growth, particularly with the rise of cryptocurrencies, Non-Fungible Tokens (NFTs), and an increased focus on digital financial services. The market’s expansion is driven by the need for secure and swift transaction methodologies that blockchain technology offers. As financial institutions increasingly adopt blockchain for a range of applications from cross-border payments to fraud prevention, the market continues to evolve with new innovations and integrations.

The primary driving factors of the FinTech Blockchain market include the demand for reduced transaction costs and improved transaction speeds. Blockchain technology eliminates the need for intermediaries, which lowers transaction fees and reduces transaction times, thus facilitating faster financial exchanges across the globe. Moreover, blockchain enhances data security and integrity, which are crucial in the financial sector, given the sensitivity of financial data.

Key takeaways revealed that, In 2023, Payments, Clearing, and Settlement led the application segment, holding 34.6% of the market share. This leadership is largely due to blockchain’s ability to streamline transactions, reduce processing times, and minimize costs, making it a highly attractive option for financial institutions seeking operational improvements. Blockchain’s inherent transparency further enhances trust, a critical component in the payments and settlement process.

The provider segment saw Infrastructure and Protocols Providers at the forefront, capturing 42.5% of the market in 2023. These providers are essential to blockchain’s growth, establishing the core architecture on which various blockchain applications operate. By building and maintaining the foundational elements of blockchain networks, these companies enable robust, scalable, and secure systems that support a wide range of financial applications.

Market demand for FinTech Blockchain is fueled by the growing need for transparency and security in financial transactions. Businesses and consumers alike seek systems that minimize the risk of fraud and ensure the integrity of transactions. Blockchain’s inherent features, such as decentralization and cryptographic security, address these needs effectively. Additionally, as digital transactions continue to increase globally, the demand for blockchain solutions that can support high volumes of transactions securely and efficiently is also rising.

There are significant opportunities in the FinTech Blockchain market related to the expansion of blockchain applications beyond traditional financial services. Innovations such as smart contracts, tokenization of assets, and decentralized finance (DeFi) platforms offer new ways to invest, manage, and secure financial assets. Additionally, the integration of blockchain with other emerging technologies like AI and IoT presents further opportunities to enhance financial services and develop new products.

Technological advancements in blockchain are continually enhancing its application in FinTech. Upgrades in blockchain protocols, improvements in smart contract functionality, and the integration of blockchain with artificial intelligence and machine learning are paving the way for more sophisticated financial services. These advancements are making blockchain more accessible, efficient, and secure, thereby expanding its use in the financial sector.

Key Market Segments

Application Analysis

In the FinTech blockchain market, Payments, Clearing, and Settlement applications are notably prominent, holding a 34.6% segment share. This is largely because blockchain technology drastically improves the efficiency and security of financial transactions.

By automating and securely processing transactions without the need for traditional banking intermediaries, these applications not only speed up financial dealings but also enhance transparency and reduce the potential for fraud. This segment’s dominance reflects its critical role in revolutionizing financial interactions in a digital economy.

Provider Analysis

The Infrastructure and Protocols Providers segment is another significant part of the blockchain ecosystem, commanding a 42.5% market share. Providers in this segment develop the underlying technology that supports all blockchain applications – from basic transaction ledgers to sophisticated smart contracts.

Their work forms the backbone of blockchain networks, ensuring stability, security, and scalability. The dominance of this segment underscores the importance of robust and reliable infrastructure, which is essential for the broader adoption and functionality of blockchain technology.

Enterprise Size Analysis

Large Enterprises have a leading presence in the blockchain arena, with a 65.5% stake in the market. These organizations have the necessary financial resources, technological infrastructure, and managerial capacity to integrate blockchain into their operations at a significant scale.

Their dominance is indicative of the substantial investments required to implement blockchain technology effectively and the high value these enterprises place on its potential to enhance operational efficiency, reduce costs, and secure data.

Industry Vertical Analysis

In the industry verticals, Banking leads with a 46% share, showcasing the profound impact blockchain has had on this sector. Banks have been at the forefront of adopting blockchain to improve the security and efficiency of their transaction processes.

Blockchain provides banks with advanced solutions for handling the ever-increasing volume of digital transactions, combating fraud, and ensuring compliance with stringent regulatory standards. The significant share held by the banking sector reflects its commitment to leveraging cutting-edge technology to stay competitive in a rapidly evolving financial landscape.

Emerging Trends in FinTech Blockchain

1. Blockchain Identity Management: This trend focuses on creating secure, transparent, and user-centric digital identity solutions using blockchain. By distributing identity data across a decentralized network rather than centralized databases, it enhances security and privacy for digital interactions.

2. Financial Supply Chain Optimization: Blockchain technology is transforming financial supply chains by making them more efficient and transparent, which simplifies auditing processes and improves data management and security.

3. Decentralized Finance (DeFi): DeFi continues to reshape the financial landscape by enabling services like lending, borrowing, and trading to operate without traditional financial intermediaries, promoting a more accessible and transparent financial ecosystem.

4. Smart Contracts: These are self-executing contracts with the terms of the agreement directly written into lines of code. They automate and enforce contracts without the need for intermediaries, enhancing security and efficiency.

5. Cross-Border Payments: Blockchain technology facilitates near-instant cross-border transactions, reducing the need for intermediaries and lowering transaction costs. This innovation is crucial for making global payments faster and more cost-effective.

Top Use Cases for Blockchain in FinTech

1. Open Banking APIs: Open banking APIs are enabling new financial services by allowing secure and controlled access to financial data across different institutions, which supports the development of innovative financial apps and services.

2. AI-Powered Financial Advisors: The integration of AI and machine learning in personal finance is revolutionizing financial management, offering tailored budgeting, investing, and debt repayment plans through advanced analytics and personalized financial advice.

3. Regulatory Technology (Regtech): Regtech uses technology to enhance regulatory compliance, helping financial institutions meet legal requirements more efficiently and effectively, which is crucial for maintaining operational integrity and customer trust.

4. Fraud Detection and Management: AI and machine learning are being used to detect and prevent fraud by analyzing data to identify patterns that may indicate fraudulent activities, significantly enhancing the security of financial transactions.

5. Robotic Process Automation (RPA): RPA is being used to automate routine, rule-based financial tasks, which helps reduce the workload on human employees and increases efficiency and accuracy in financial operations.

Major Challenges

1. Regulatory Uncertainty: The evolving nature of blockchain has led to inconsistent regulations across different regions, creating compliance complexities for FinTech companies.

2. Scalability Issues: Current blockchain networks often struggle to handle a high volume of transactions efficiently, leading to slower processing times and higher costs.

3. Integration with Legacy Systems: Incorporating blockchain into existing financial infrastructures can be complex and costly, requiring significant changes to traditional systems.

4. Energy Consumption: Some blockchain networks, particularly those using proof-of-work consensus mechanisms, consume substantial energy, raising environmental and sustainability concerns.

5. Security Vulnerabilities: While blockchain is inherently secure, vulnerabilities can arise from smart contract bugs or inadequate security practices, potentially leading to financial losses.

Attractive Opportunities

1. Enhanced Transparency: Blockchain’s immutable ledger provides clear and traceable transaction histories, reducing fraud and increasing trust among stakeholders.

2. Cost Reduction: By eliminating intermediaries, blockchain can lower transaction fees and operational costs, benefiting both service providers and consumers.

3. Financial Inclusion: Blockchain enables access to financial services for unbanked populations, offering secure and affordable solutions in underserved regions.

4. Smart Contracts: Automated contracts that execute when predefined conditions are met can streamline processes and reduce the need for manual intervention.

5. Tokenization of Assets: Blockchain allows for the digital representation of physical and financial assets, facilitating easier trading and liquidity.

Recent Developments

April 2024 – Strategic Collaboration between GDF and FINTECH.TV

In April 2024, Global Digital Finance (GDF), a key player in promoting innovation in digital assets within the financial sector, announced a significant partnership with FINTECH.TV. This collaboration aims to leverage FINTECH.TV’s extensive media coverage to enhance awareness and education around finance, blockchain, technology, and sustainability. The partnership is expected to create a substantial impact on the global digital finance landscape by combining GDF’s regulatory and policy expertise with the broadcasting reach of FINTECH.TV.

October 2023 – Ankr and XDC Network Partnership

In October 2023, Ankr, known for its robust remote procedure calls (RPC) services, entered into a crucial partnership with XDC Network, a specialized layer 1 blockchain platform. This partnership focuses on enhancing XDC’s capabilities in trade finance and asset tokenization. Ankr’s advanced RPC service is designed to boost XDC Network’s performance, security, and scalability by facilitating efficient cross-network communication, which is vital for applications operating across different blockchain environments.

Conclusion

In conclusion, while blockchain technology presents challenges such as regulatory uncertainty and scalability issues, its potential to enhance transparency, reduce costs, and promote financial inclusion makes it a compelling innovation in the FinTech industry. Addressing these challenges through technological advancements and regulatory clarity will be crucial for realizing blockchain’s full potential in transforming financial services.

Source of Information: https://market.us/report/fintech-blockchain-market/

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Global Trade Daily

Generative AI in Fintech Market Revenue Surges to USD 16.4 Billion in 2032

October 10th, 2024 Market.us Leave a comment

Introduction

According to the findings from Market.us, The Generative AI in Fintech Market is projected to experience substantial growth globally, with expectations to reach an estimated value of USD 16.4 billion by 2032. This marks a significant increase from its valuation of USD 1.1 billion in 2023. The market is anticipated to grow at a Compound Annual Growth Rate (CAGR) of 31% from 2024 to 2033.

In the regional analysis for 2023, North America has emerged as a major player in this sector, accounting for over 36.5% of the market share. This equates to revenue of approximately USD 0.4 billion, indicating strong adoption and integration of generative AI technologies within the North American fintech industry.

Generative AI refers to the branch of artificial intelligence that focuses on creating new content, data, or solutions based on training data it has learned from. In the financial technology (fintech) sector, generative AI is playing an increasingly pivotal role. It helps in various functions such as personalizing financial advice, automating customer interactions, and managing real-time data analysis.

The market for generative AI in fintech is growing rapidly as financial institutions continue to adopt these advanced technologies to gain a competitive edge and improve customer experiences. This market segment is seeing significant investment as companies seek to leverage AI for innovation in payment systems, risk assessment, and compliance management.

The growth of this market is driven by the increasing need for efficiency and automation in financial services, the vast amounts of data being generated in the financial sector, and improvements in AI model capabilities. As a result, both startups and established financial firms are integrating AI solutions to enhance their offerings and operational effectiveness.

The demand for generative AI in fintech is fueled by the need for more sophisticated, automated financial services that can handle complex transactions and personalized customer interactions. Financial institutions are increasingly relying on AI to process large volumes of data to derive insights and make predictive decisions, which enhances customer service and operational efficiency.

Generative AI has gained popularity in the fintech sector due to its ability to innovate and revolutionize traditional banking and financial services. Its capacity to generate new content and solutions, such as automated financial advice or customized investment portfolios, makes it a key differentiator in a competitive market.

There are significant opportunities for generative AI in areas like risk assessment, fraud detection, regulatory compliance, and customer relationship management. The technology’s ability to adapt and learn from data makes it ideal for fintech applications where regulations and economic conditions are constantly evolving.

The global expansion of fintech services, coupled with increasing digitalization of banking and financial services in emerging markets, provides a substantial growth platform for generative AI. As more businesses and consumers adopt digital financial solutions, the potential applications and reach of AI technologies expand, driving further market growth.

Generative AI in Fintech Statistics

The Global Generative AI in Fintech Market is forecast to escalate substantially, with projections indicating a growth to approximately USD 16.4 billion by 2032, up from USD 1.1 billion in 2023. This trajectory represents a robust Compound Annual Growth Rate (CAGR) of 31% during the forecast period from 2024 to 2033.

In 2023, the Software segment dominated the market, securing over a 61% share of the Generative AI in Fintech market. Similarly, the Cloud segment held a significant market position, capturing more than a 72% share.

The application of Generative AI in Fraud Detection proved to be particularly prevalent, leading the market applications in 2023 with a share exceeding 25%. Geographically, North America maintained a dominant stance in the market, holding more than a 36.5% share, with revenues reaching approximately USD 0.4 billion.

A notable 82% of financial institutions are currently either exploring or implementing Generative AI solutions to bolster their operations and customer services. Utilization of Generative AI for customer service and personalization is anticipated to potentially enhance customer satisfaction scores by 20% by 2024.

Furthermore, the application of Generative AI in anti-money laundering (AML) and fraud detection processes is expected to reduce false positives by 50% by 2024. Additionally, these technologies could augment the accuracy of credit risk assessment models by up to 25%, fostering improved lending decisions.

The demand for Generative AI solutions in regulatory compliance and reporting is projected to see a significant uptick, with an expected increase of 40% in 2023. In the realm of financial trading and portfolio management, Generative AI is poised to enhance investment returns by 10% by 2024, underscoring its transformative potential in the fintech sector.

The Global FinTech Blockchain Market is poised for extraordinary growth, with projections indicating an increase from USD 7.2 billion in 2023 to USD 325.6 billion by 2033. This surge represents an impressive Compound Annual Growth Rate (CAGR) of 46.4% during the forecast period from 2024 to 2033.

Similarly, the Global AI in Fintech Market is set to expand significantly. Starting from USD 11.8 billion in 2023, it is expected to reach USD 76.2 billion by 2033, growing at a CAGR of 20.5% over the same period.

Report Segmentation

Component Analysis

In 2023, the Generative AI in Fintech market experienced significant dominance in its Software segment, which held more than a 61% share. This predominance underscores the pivotal role software solutions play within the financial technology sector, particularly in integrating artificial intelligence to streamline and enhance financial services.

The software components of Generative AI are crucial for enabling sophisticated tasks such as automated decision-making, risk assessment, and customer service optimization. These applications not only improve operational efficiencies but also contribute to a more personalized user experience, driving the demand for advanced AI-powered software solutions. Furthermore, the continuous development of machine learning models and algorithms has bolstered the capacity of Fintech companies to offer more accurate and efficient services, reinforcing the growth of the software segment. This segment’s expansion is also facilitated by the increasing accessibility of AI tools and platforms that allow for rapid deployment and scaling, making it an essential asset for fintech enterprises looking to maintain a competitive edge in a rapidly evolving industry.

Deployment Analysis

The cloud deployment model marked a significant footprint in the Generative AI in Fintech market in 2023, capturing more than a 72% share. This substantial market share can be attributed to the multiple advantages that cloud-based solutions offer over traditional on-premises installations. Primarily, cloud platforms facilitate greater scalability and flexibility, essential for handling the vast data volumes that fintech applications generate and utilize.

Additionally, cloud environments significantly reduce the infrastructure costs associated with deploying AI systems, making advanced technologies more accessible to fintech companies of all sizes. The cloud’s capacity to support seamless updates and integration plays a crucial role in its dominance, as it allows financial institutions to stay at the forefront of technological advancements without substantial upfront investments.

The security enhancements and compliance with regulatory standards offered by major cloud service providers further augment the attractiveness of cloud deployment in the fintech sector, ensuring that sensitive financial data is handled securely and in accordance with global data protection regulations.

Application Analysis

In 2023, the Fraud Detection application within the Generative AI in Fintech market held a dominant position, accounting for more than a 25% share. This prominence highlights the increasing reliance on AI-driven solutions to combat financial fraud, a growing concern within the digital transaction space. Generative AI enhances fraud detection systems with its ability to analyze large datasets rapidly and identify patterns that may indicate fraudulent activity, which often eludes traditional detection methodologies.

The adaptability of AI algorithms allows for continuous learning from new transactions, thereby improving their accuracy and efficiency over time. This capability is crucial in adapting to the constantly evolving tactics employed by fraudsters. As fintech platforms proliferate and digital transactions increase globally, the demand for robust, AI-enhanced fraud detection mechanisms continues to grow, driving significant investment in this segment. Enhanced accuracy and reduced false positives in fraud detection not only protect financial assets but also build consumer trust in fintech services, further stimulating market growth

Top Use Cases of Generative AI in Fintech

Generative AI is significantly transforming the Fintech landscape by enhancing various aspects of financial services. Some of the prominent use cases include:

1. Automated Financial Advice and Risk Assessment: By analyzing extensive customer data, generative AI offers personalized financial advice and evaluates investment risks, enabling better informed decision-making tailored to individual financial goals and risk tolerances.

2. Fraud Detection and Regulatory Compliance: Generative AI excels in real-time monitoring of transactions, identifying patterns indicative of fraudulent activities. This not only helps in mitigating financial losses but also ensures adherence to evolving regulatory standards, safeguarding both the financial institutions and their customers.

3. Enhanced Customer Interactions and Support: AI-powered virtual assistants and chatbots provide 24/7 customer support, handling queries efficiently and enhancing customer satisfaction. These systems are capable of offering customized interactions based on the customer’s history and preferences, which improves service delivery and customer loyalty.

4. Streamlined Loan and Credit Processing: Through the intelligent analysis of data points like credit history and transaction patterns, generative AI can automate and optimize the loan approval process, offering a more accurate assessment of creditworthiness and reducing the time from application to decision.

Emerging Trends in Generative AI for Fintech

As generative AI continues to evolve, several trends are shaping its application in the Fintech sector:

1. Expansion of AI-Driven Personalization: The trend towards hyper-personalization is growing, where services are tailored to individual needs and preferences, driven by deeper data analysis capabilities of generative AI. This is evident in customized investment strategies and personalized banking experiences.

2. Integration with Regulatory and Compliance Frameworks: There is an increasing use of AI to navigate the complex regulatory landscape in finance, automating compliance processes and ensuring up-to-date adherence to regulations without extensive manual oversight.

3. Advancements in AI for Predictive Analytics: Predictive capabilities of AI are becoming more sophisticated, allowing financial institutions to anticipate market changes, customer needs, and potential fraud scenarios ahead of time, thus better positioning them to respond proactively.

4. Innovations in Financial Product Development: AI is also spurring innovation in product development, enabling the creation of new financial tools and services that meet changing consumer demands, such as dynamic pricing models and risk-adjusted insurance policies.

Business Benefits of Generative AI in Fintech

The incorporation of generative AI into Fintech offers numerous business benefits:

1. Operational Efficiency: AI automates and optimizes many routine tasks, from customer onboarding to transaction processing, significantly reducing the time and labor costs associated with these operations and allowing human resources to focus on more strategic activities.

2. Improved Decision Making: With the ability to analyze large datasets rapidly, AI enhances decision-making processes, providing insights that are not easily discernible through traditional methods. This supports more accurate and timely business decisions.

3. Enhanced Risk Management: AI’s predictive analytics help in better assessing and managing risks associated with lending, investments, and other financial services, thereby reducing potential losses and enhancing financial stability.

4. Customer Retention and Satisfaction: By providing tailored experiences and proactive customer service, AI technologies increase customer engagement and satisfaction, which in turn helps in retaining customers and enhancing brand loyalty.

Conclusion

The integration of generative AI into the fintech sector is significantly transforming financial services, driving demand, popularity, and market expansion. As these technologies continue to evolve, they offer substantial opportunities to enhance efficiency, compliance, and customer engagement. The future of fintech seems increasingly intertwined with generative AI, promising not only to streamline operations but also to innovate and personalize the financial experience for users globally. This alignment is expected to propel continuous growth and adoption in the fintech industry, making generative AI a cornerstone of future financial technologies.

Source of information : https://market.us/report/generative-ai-in-fintech-market/

About The Author

Mr. Yogesh Shinde is ICT Manager at Market.us. He oversees a comprehensive portfolio of ICT products and solutions, including network infrastructure, cybersecurity tools, cloud services, data center solutions, telecommunications equipment, software-defined networking (SDN), and Internet of Things (IoT) devices. With a focus on driving digital transformation and enhancing connectivity, Yogesh ensures that the company’s offerings meet the evolving needs of both industrial and commercial sectors. His expertise in information and communication technology is instrumental in delivering innovative and reliable solutions to clients worldwide.

Archives, Global Trade Daily, Technology

Could Salt Lake City Become a Future Fintech Hub?

July 27th, 2023 Peter Frerichs Leave a comment

Financial technology (Fintech) is chock-full of specialized algorithms that are not easily understood. But the objective of fintech could not be simpler – technology to improve the delivery and use of financial services. Applying for a mortgage, investing, taking out a car loan, or purchasing a cryptocurrency, fintech advancements make these transactions easy and highly accessible to hundreds of millions worldwide.

While the Bay Area and New York are still US fintech hubs, a surprising newcomer is attempting to grab some of their market share. Salt Lake City, Utah is best known as an outdoor paradise. Some of the best skiing North America has to offer coupled with national parks and hiking and biking, Salt Lake City has always attracted the sporty adventurer types. Yet, a new education center funded through the University of Utah is seeking to put the western outpost on the fintech map.

The Stena Center for Financial Technology offers fintech courses and will eventually serve as an incubator for university students and alumni alike seeking to establish fintechs of their own. The Stena Center obtained seed capital from Steve and Jana Smith of the Stena Foundation. Before the foundation, Steve was a co-founder of Finicity, an open-banking platform that was later acquired by Mastercard. Smith noticed during his time at Finicity that employees were well-versed in product development, financial regulation, and software engineering, but few commanded expertise in multiple areas. This is a critical trait when thinking about future products and services and one Smith seeks to foster in this novel fintech incubator.

Meanwhile, Salt Lake City is thrilled with the proposition. Mayor Erin Mendenhall had coined the city “Tech Lake City” and land-use laws are now favorable for research-and-development and lab-space centers to operate. One of the first firms to take advantage of Tech Lake City was Denali Therapeutics, a biotech firm focusing on neurodegenerative medicines. Perfect Day is another biotech company working on the development of animal-free proteins. Biotech was an initial entry, and now the focus is on complementing it with fintech.

Perhaps most interesting is the city has also made it easier for lenders to operate, thus fueling the creation of a fintech culture. Celtic Bank and WebBank are active lenders as are a host of industrial loan companies. Fintech-friendly banks provide nascent fintechs with a wider variety of options to scale. Moreover, state tax incentives give companies that expand operations or relocate a refundable tax credit rebate of up to 50% of new revenues over a pre-defined period.

As of mid-2022 tech and finance employed 180,000+ people in Utah. This is up 18% compared to five years ago. Salt Lake City was already a cheaper city than regional financial centers like Charlotte or Atlanta. By tapping into the state’s universities Salt Lake now has a talent pool and the foundations in place to become a serious fintech hub moving forward.

Archives, Banking, Global Trade Daily

Staffing Shortages are a Competitive Risk for Banking Institutions, Educating Frontline Staff can Provide an Edge

April 7th, 2023 InStride Leave a comment

If the pandemic has taught us anything, it is that we can’t function without our frontline workforce. But the next time you walk into your local bank branch and see a lineup of four tellers serving customers, know that one of those tellers won’t be working there this time next year. The annual turnover rate for frontline bank employees has risen to 23.4%. Coupled with pandemic-induced staffing shortages across industries, including banking, customer service at bank branches and financial service call centers is subsequently at a nadir. To delight customers, banks need to recruit and retain frontline talent by providing real, substantive learning opportunities tied to career advancement.

As we stand now, customers across our country are paying attention to this shortfall in customer service. A wide-ranging survey of 229,000 banking customers from Rivel, a data-driven consultancy, notes that the number of households that believe their primary banking institution is not responsive to their needs has risen by an astonishing 212%. Branch closures, happening at double the rate compared to before the pandemic, are now moving banking institutions further from their customers than ever before.

While the connection between depreciated employee bases and customer service is no surprise, the consequences to brick and mortar banking might be dire. Staffing shortages that lead to poor customer service in 2023 pose a significant risk to banking institutions which are facing pronounced competitive pressures from FinTech rivals. A key competitive differentiator for financial services companies has always been the ability to provide unrivaled, personalized care to customers with a diverse workforce that looks like the communities the bank serves. When customers no longer feel like their bank knows them and their needs, FinTech firms are poised to press the perception that they provide similar services at lower prices.

So how do banks compete with the tech sector’s increasing encroachments on established institutions? They can double down on what has always set them apart: their people.

Lowering the turnover rate for frontline staff and upskilling team members to be ambassadors of the benefits of experienced banking institutions can resuscitate customer experiences. As can attracting a diverse and inclusive workforce that can make meaningful connections, forged in mutual lived experience, with their customers. Fortunately, the pandemic has placed renewed focus on the people functions of companies and the CHROs who lead them. Attracting, retaining, and training diverse talent is possible and the financial services companies that excel in this will fend off FinTech’s attacks and in doing so, rise above others in the industry.

What FinTech companies generally fail to realize about employee benefits is that employees don’t place significant value on unlimited paid time off (which people don’t feel like they can actually use) and cold brew coffee on tap. Employees do place value on a company’s commitment to a worker’s career aspirations – and financial services institutions can outperform here. Due to their sheer size, a frontline worker can aspire to a long and fruitful career at a banking institution, but this is possible only if the bank creates career pathways for them.

For instance, Desert Financial offers employees 100% tuition paid up front for skill-building courses and undergraduate degrees, and up to $10,500 tuition coverage per calendar year for graduate degrees or graduate certificates. Investing in workers and tying educational attainment to career growth demonstrates a tangible commitment on behalf of the employer to the employee, leading to a reciprocal commitment. This is how high-performing staff, those who are homegrown, can and will create a powerfully positive customer service experience, whether at a teller window or in a call center.

A culture of continuous learning is not aspirational, it’s simply smart business. Recent surveys have shown that 68% of workers would stay with an employer if the employer offered opportunities for learning and upskilling.

The remedy for 25% frontline turnover and a reduction in bank branches is to double down on investing in the team members who directly interact with customers: the frontline.

Archives, Education, Global Trade Daily

From Execution to Insight: How Fintech is Shaping the Future of Accounts Payable

January 24th, 2023 Rick Fletcher Leave a comment

You have to spend money to make money. That’s an old adage, and it’s true. But actually making the payments takes up a lot of people’s time. It’s critical to your business operations, but it’s not why you’re in business.

That means there are opportunity costs. You have to spend money on the spending of the money instead of on revenue-generating activities.

There are also mindshare costs. Making vendor payments is a brute-force activity. Accounts payable (AP) teams are stuck on a hamster wheel, always having to scramble to get payments out the door and then reconcile them on the back end. They’re dealing with a lot of manual work and multiple partially-automated, partially-integrated systems. They spend a lot of time correcting errors.

It’s all about execution and dealing with all kinds of administrative details along the way. They don’t have the systems and the visibility they need to work more strategically.

But within the next ten years, AP will go from brute force execution to strategic decision-making, thanks to new fintech offerings.

We haven’t really seen true fintech offerings for business payments in the market until recently. To make business payments efficiently, you need three things: money, infrastructure, and process. A true fintech brings all three.

Most companies today still make payments through their banks, and there’s no question that they are at the heart and the soul of payments. But banks only help with about one-and-a-half of those three things. They have all kinds of lending products that can help you fund your spending, so they can help with liquidity.

They also have part of the infrastructure. They are chartered by governments to steward money and move money around. They invest significantly in licensing, regulatory compliance, networks to move money and data, and fraud protection.

But there’s one big piece of B2B payment infrastructure that they don’t have: vendor networks. That has meant that it has been up to each individual company to conduct its own enablement campaigns to move vendors to electronic payments. That’s holding companies back.

Fintechs are now building B2B vendor networks at scale. Companies can plug right into them and start paying about 80 percent of their vendors electronically right out of the gate.

Where banks really fall down is in the area of process. Process automation is where technology companies, on the other hand, excel. We’ve seen a lot of ERP, procurement, and invoice automation vendors start to offer payments as an add-on. It makes sense because people are already using their software to automate the workflow that leads up to the point of payment. But the software providers do not have vendor networks or the ability to offer liquidity.

This is why making vendor payments is such a disjointed process. Up until recently, no provider has offered the combination of the “fin” and the “tech” needed to address the process from end to end.

Today’s fintechs deliver technology and services that take costs and inefficiencies out of the process. They give AP teams visibility into the status of approvals and payments. But most importantly, they free up mindshare for them to be able to use payments as a strategic lever.

AP teams can get out of the payments processing game and still have all the visibility and control they need to run the business. They have the insight they need to become a management- and decision-making group. They have time to think, versus just trying to keep things moving.

They can use their knowledge of the inner workings of the company to contribute in any number of areas – cash management, job cost accounting, and cost and process optimization. The efficiency gains, combined with increased rebates from leveraging the B2B vendor network to pay more vendors by card, can turn the back office from a cost center into a revenue generator.

For far too long, companies have had to live with a set of back-office deficiencies that they are well aware of. They recognize the challenges of working with disparate systems. They know there’s too much manual, non-value-added work, and that the time-intensity on error remediation is significant. They’ve resigned themselves to these deficiencies because it’s been that way for decades, and there hasn’t been a better way.

There is now. It’s been a long time coming because business payments are complicated. To really solve the problem, you need to be a true fintech with a complete set of assets – the relationships with the banks and the credit card companies, the network, and the technology. You need to have them at scale because the volume of B2B payments is massive. It’s a new solution that’s been 50 years in the making. It means that vendor payments don’t have to be suboptimal anymore.

Rick Fletcher is Group President of Corpay Payables, which enables businesses to spend less through smarter payment methods.

Archives, Banking, Global Trade Daily

DeFi World has a new star called DAO

February 13th, 2022 Louis Lehot and Patrick Daugherty Leave a comment

As financial markets wrap up the year 2021 and launch into 2022 at warp speed, the “DeFi” world has a new star called the “DAO”.

Decentralized finance, short-handed as “DeFi”, refers to peer-to-peer finance enabled by Ethereum, Avalanche, Solana, Cardano and other Layer-1 blockchain protocols, as distinguished from centralized finance (“CeFi”) or traditional finance (“TradFi”), in which buyers and sellers, payment transmitters and receivers, rely upon trusted intermediaries such as banks, brokers, custodians and clearing firms. DeFi app users “self-custody” their assets in their wallets, where they are protected by their private keys. By eliminating the need for trusted intermediaries, DeFi apps dramatically increase the speed and lower the cost of financial transactions. Because open-source blockchain blocks are visible to all, DeFi also enhances the transparency of transactions and resulting asset and liability positions.

Although the proliferation of non-fungible tokens, or NFTs, may have gathered more headlines in 2021, crypto assets have become a legitimate, mainstream and extraordinarily profitable asset class since they were invented a mere 11 years ago. The Ethereum blockchain and its digitally native token, Ether, was the wellspring for DeFi because Ether could be used as “gas” to run Layer-2 apps built to run on top of Ethereum. Since then, Avalanche, Solana and Cardano, among other proof-of-stake protocols, have launched on mainnet, providing the gas and the foundation for breathtaking app development which is limited only by the creativity and industry of development teams.

Avalanche and its digitally native token AVAX exemplify this phenomenon. Launched on mainnet a little more than a year ago, Avalanche already hosts more than 50 fully-launched Layer-2 apps. The AVAX token is secured by more than 1,000 validators. Recently, the Avalanche Foundation raised $230 million in a private sale of AVAX tokens for the purpose of supporting DeFi projects and other enhancements of the fully functional Avalanche ecosystem. Coinbase, which is a CeFi institution offering custodial services to its customers, facilitates purchases and sales of the Avalanche, Solana, Cardano and other Layer-1 blockchain tokens, as well as the native tokens of DeFi exchanges such as Uniswap, Sushiswap, Maker and Curve. So formidable is DeFi in its potential to dominate the industry that Coinbase, when it went public in 2021, cited competition from DeFi as one of the company’s primary risk factors.

If DeFi were “a company,” like Coinbase, the market capitalization of AVAX would be shareholder wealth. But DeFi is code, not a company. Uniswap is a DeFi exchange that processed $52 billion in trading volume in September 2021 without the help of a single employee. Small wonder that CeFi and TradFi exchanges are concerned.

DeFi apps require “DAOs,” or Decentralized Autonomous Organizations, to operate. DAOs manage DeFi apps through the individual decisions made by decentralized validator nodes who own or possess tokens sufficient in amount to approve blocks. Unlike joint stock companies, corporations, limited partnerships and limited liability companies, however, DAOs have no code (although, ironically, they are creatures of code). In other words, there is no “Model DAO Act” the way there is a “Model Business Corporation Act.” DAOs are “teal organizations” within the business organization scheme theorized by Frederic Lalou in his 2014 book, “Reinventing Organizations.” They are fundamentally unprecedented in law.

Just as NFTs have been a game changer for creators, artists and athletes, our legal system will need to evolve to account for the creation of the DAOs that govern NFTs and other crypto assets. (NFTs are a species of crypto asset.) Adapting our legal system to account for DAOs represents the next wave of possibility for more numerous and extensive community efforts.

A DAO is fundamentally communitarian in orientation. The group of individuals is typically bound by a charter or bylaws encoded on the blockchain, subject to amendments if, as and when approved by a majority (or some other portion) of the validator nodes. Some DAOs are governed less formally than that.

The vast majority of Blockchain networks and smart contract-based apps are organized as DAOs. Blockchain networks can use a variety of validation mechanisms. Smart contract apps have governance protocols built into the code. These governance protocols are hard-wired into the smart contracts like the rails for payments to occur, fully automated, and at scale.

In a DAO, there is no centralized authority — no CEO, no CFO, no Board of Directors, nor are there stockholders to obey or serve. Instead, community members submit proposals to the group, and each node can vote on each proposal. Those proposals supported by the majority (or other prescribed portion) of the nodes are adopted and enforced by the rules coded into the smart contract. Smart contracts are therefore the foundation of a DAO, laying out the rules and executing the agreed-upon decisions.

There are numerous benefits to a DAO, including the fact that they are autonomous, do not require leadership, provide objective clarity and predictability, as everything is governed by the smart contract. And again, any changes to this must be voted on by the group, which rarely occurs in practice. DAOs also are very transparent, with everything documented and allowing auditing of voting, proposals and even the code. DAO participants have an incentive to participate in the community so as to exert some influence over decisions that will govern the success of the project. In doing so, however, no node participating as part of a decentralized community would be relying upon the managerial or entrepreneurial efforts of others in the SEC v. Howey sense of that expression. Neither would other nodes be relying upon the subject node. Rather, all would be relying upon each other, with no one and no organized group determining the outcome, assuming (as noted) that the network is decentralized. Voting participants in DAOs do need to own or possess voting nodes, if not tokens.

As with NFTs, there are limitless possibilities for DAOs. We are seeing a rise in DAOs designed to make significant purchases and to collect NFTs and other assets. For example, PleasrDAO, organized over Twitter, recently purchased the only copy of the Wu-Tang Clan’s album “Once Upon a Time in Shaolin” for $4 million. This same group has also amassed a portfolio of rare collectibles and assets such as the original “Doge” meme NFT.

In addition to DAOs that are created as collective investment groups, there are DAOs designed to support social and community groups, as well as those that are established to manage open-source blockchain projects.

As is true with any emerging technology, there is currently not much regulation or oversight surrounding DAOs. This lack of regulation does make a DAO much simpler to start than a more traditional business model. But as they continue to gain in popularity, there will need to be more law written about them.

The State of Wyoming, which was first to codify the rules for limited liability companies, recently codified rules for DAOs domiciled in that state. So a DAO can be organized as such under the laws of the State of Wyoming. No other state enables this yet.

Compare the explosion in digital assets to the creation of securities markets a century ago. After the first world war concluded in 1917, the modern securities markets began to blossom. Investors pooled their money into sophisticated entities called partnerships, trusts and corporations, and Wall Street underwrote offerings of instruments called securities, some representing equity ownership, others representing a principal amount of debt plus interest. Through the “roaring ‘20s,” securities markets exploded in popularity. Exuberance became irrational. When Joe Kennedy’s shoeshine boy told him that he had bought stocks on margin, Kennedy took that as a “sell” signal and sold his vast portfolio of stocks, reinvesting in real estate: he bought the Chicago Merchandise Mart and was later appointed by FDR to chair the SEC. When the stock market crashed, fingers were pointed. Eventually, a comprehensive legislative and regulatory scheme was built, woven between federal and state legislation and regulatory bodies. Almost a hundred years later, securities markets have become the backbone of our financial system, and investors and market participants have built upon the certainty of well-designed architecture to create financial stability and enable growth.

But the legislative paradigm designed in the 1930s was not created with digital assets in mind. The world was all-analog then. The currently disconnected and opaque regulatory environment surrounding digital assets presents a challenge to sustained growth in DeFi markets. Without “crypto legislation,” government agencies have filled the void, making their own determinations, and they are not well suited to do so. Just before Thanksgiving, the federal banking agencies released a report to the effect that they had been “sprinting” to catch up on blockchain developments, that they are concerned by what they see, and that next year they will start writing rules. Plainly, technological development has outpaced Washington again.

Whether crypto assets should be characterized as securities, commodities, money or simply as property is not clear in present day America. Will entrepreneurs continue to create digital assets and will investors buy them if their legal status is in doubt? The SEC mantra is “come talk to us,” but the crypto asset projects actually approved by the SEC are precious few in number, and SEC approvals are not timely. We have clients that have run out of runway while waiting for SEC approvals. In decentralization as in desegregation, justice delayed is justice denied. The recent experience of Coinbase in attempting to clear its “Lend” service through the SEC, only to be threatened with an SEC enforcement action (but no explanation), has caused other industry participants to question the utility of approaching officials whose doors might be open for polite conversation but whose minds seem to be closed.

Similarly, DAOs are a path-breaking form of business “organization” that are not well understood. They are not corporations. Should they nevertheless file and pay taxes, open bank accounts or sign legal agreements? If so, then who would have the power or duty to do that for a decentralized autonomous organization whose very existence decries the need for officers, directors and shareholders? The globally significant Financial Action Task Force, in its recent guidance on “virtual assets and virtual asset service providers,” called on governments to demand accountability from “creators, owners and operators,” as it put it, “who maintain control or sufficient influence” in DeFi arrangements, “even if those arrangements seem decentralized.” Some observers have characterized the FATFs guidance as an attempted “kill shot” targeting the heart of DeFi.

This, too, we know: SEC Chair Gensler has his eye on DeFi. We know that because he has said so, repeatedly. Trading and lending platforms, stablecoins and DeFi are the priorities that he mentions. SEC FinHUB released a “Framework” for crypto analysis that includes more than 30 factors, none of which is controlling. That framework is unworkable because it is too complex and uncertain of application. Chair Gensler, however, apparently applies what he calls the “duck” test: If it looks like a security, it is one. With respect to Mr. Gensler, that simple approach is no more useful than the late Justice Potter Stewart’s definition of obscenity: “I know it when I see it.” Less subjectivity and greater predictability in application are essential so development teams and exchange operators can plan to conduct business within legal boundaries. What we need are a few workable principles or standards (emphasis on “few” and “workable”) that define the decentralization that is at the core of legitimate DeFi and the consumer use of tokens that are not investment contracts. We also need the SEC to adhere to Howey analysis, which it has told us to follow slavishly, and not try to move the goalposts by misapplying the Reves “note” case when it senses that Howey won’t get it the result it craves.

Although futuristic DAOs are a decentralized break from the centralized past and present of business organization, the SEC has seen them before. Indeed it was the “DAO Report” issued in 2017 that began SEC intervention in the crypto asset industry. The DAO criticized in the DAO Report was unlike the DAOs seen today for a variety of reasons, including these: that DAO was a for-profit business that promised a return on investment, similar to a dividend stream, to token holders; and the token holders didn’t control the DAO. “Curators” controlled it, by vetting and whitelisting projects to be developed for profit. DAO participants necessarily relied on the original development team and the “Curators” to build functionality into the network. That sort of reliance on the managerial or entrepreneurial efforts of others is absent in a latter-day DAO whose participants can avail themselves of a fully functional network without reliance on the developers and without delay. It is earnestly to be hoped that the SEC will recognize these critical differences.

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Louis Lehot is an emerging growth company, venture capital, and M&A lawyer at Foley & Lardner in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from the garage to global.

Patrick Daugherty is Louis’ partner in Chicago. A corporate securities lawyer by training, he spent 35 years practicing the law of money (IPOs, ETFs, M&A, SEC reporting and governance). While he still does that, 5 years ago he went down the rabbit hole of crypto assets and he now devotes himself to the law of the future of money.

Archives, Banking, Global Trade Daily

Check use drops, but still plenty of room for efficiency gains

February 12th, 2022 Corpay, a FLEETCOR company Leave a comment

AFP, the Association for Financial Professionals released the 2022 Payments Cost Benchmarking Survey underwritten by Corpay. The survey looks at external costs such as bank/payment provider fees, reporting, interchange for credit cards, etc., and internal costs such as personnel, technical equipment, IT support.

Treasury and other financial professionals can now compare their costs of making and receiving seven types of payments–check, ACH credits and debits; wires; credit and debit cards; real-time payments, and virtual cards–against benchmarks for similarly sized companies. This is useful information for identifying areas for optimization and in making the business case for further automation.

This time around, the cost of incoming payments has also been segmented by tender type, a recognition of the fact that impact to vendors should be part of the equation when implementing a new payment strategy.

Survey Says…

This survey was completed about 18 months after COVID-19 began and reflects the acceleration of electronic payment adoption driven by work from home policies. The typical organization now reports processing between 500 to 999 checks per month and 1,000-1,999 outgoing payments via ACH Credit. In 2015, the median number of checks processed per month was 1,000-1,999 while the ACH Credit median was 500-999 per month.

Data collected from nearly 350 accounts payable professionals confirms that paper checks are considerably more expensive than all electronic payment methods except for wires. Even though the survey found high awareness of the cost of checks compared to electronic methods, 92% of organizations continue to accept them.

Survey results indicate that despite lower overall check processing median transaction cost for issuing a paper check range between $2.01-$4.00 per check

Increased efficiency was the primary reason cited for transitioning to electronic payments (92% of respondents), compared to 82% of respondents that cited cost reduction. This marks a shift in focus; according to the 2019 AFP Electronic Payments Survey—released well before the pandemic hit—the top three drivers were cost savings, fraud controls and better supplier/customer relations. Efficiency in terms of speed and ease of reconciliation were ranked 4th and 5th respectively in 2019.

Fraud remains a top concern, with 67% citing fraud concerns as a primary driver for electronic payment adoption. Fifty five percent of organizations with revenue greater than $5 billion said the move was part of a larger workflow automation project.

Despite the new focus on efficiency, results from this year’s survey suggest that paper checks are not going away anytime soon. Despite nearly two thirds of organizations saying they would replace paper checks with electronic payments if there was a cost benefit, 37% of all respondents said they would continue to use paper checks regardless of costs.

The report cites the ubiquitous nature of checks, tradition, the challenges of converting vendors to electronic payment methods, and longstanding systems and routines as enduring obstacles to change. This thinking, along with other internal Corpay market research, suggests that many organizations remain unaware of changes in the payments market that could help them achieve greater efficiencies, cut costs and better prevent fraud.

Our take:

-Card payments remain underutilized. Procurement, T&E and virtual card processing can be easier to automate as vendors often have systems in place to capture data from ERP and procurement systems. As treasury and payments professionals continue to focus on tightly managing working capital , credit cards can be a very valuable tool. Organizations should evaluate their average cost of capital, cost of credit, and credit terms, and the opportunity cost of accepting/not accepting cards when evaluating them as part of an overall larger payments strategy.

-The adoption of virtual cards in particular is still relatively low—23% across all respondents. Virtual cards offer all the working capital benefits–including rebates–associated with traditional credit cards. But since these single use cards can only be used by the specified payee in the specified amount, they offer unparalleled protection against fraud. Considering the focus on fraud prevention, virtual cards warrant a more prominent place in organizations’ vendor payment strategy.

-The 2019 AFP Electronic Payments Survey reported that the cost to convert customers from paper checks to electronic payments was the number one drawback to conversion. This cost was not considered in the Benchmark survey, but treasury and finance professionals are well aware of the ongoing manual labor involved in enabling vendors for electronic payment. What they may not be aware of is that Fintechs such as Corpay have large, cloud-based acceptance networks and take on that effort on behalf of their customers.

-The study looked at seven different payment methods. The majority of companies are using at least three but some may be using all seven. That means they are likely running several discrete payment workflows. Where that is the case, they could achieve further efficiencies with a payment automation solution that consolidates all payment methods into a single workflow.

-Companies with annual revenue between $1-$4.9 billion are the heaviest users of wire payments, which can cost up to 12 times as much as a check. This is likely due to an organization with a global footprint that is sending more wires to vendors overseas. Companies this size may not yet have a global operations infrastructure and access to local payment systems and banking partners. These companies could benefit from a payments partner specializing in cross-border payments.

As the Benchmark survey notes, the cost to receive a check is typically half of what it is to issue one, and large AR departments have efficient, often touchless processes in place for processing them. Prior to the pandemic, that meant vendors often did not feel the same sense of urgency to digitize payments.

During the pandemic, convincing vendors to accept digital payments became a much easier discussion as both parties were motivated to move to an electronic format while their teams were working remotely. That created a tailwind for the move off paper checks, which has been far slower than anticipated in North America. Streamlining your payment process and migrating to less expensive, more efficient payment methods should be your priority for 2022.

By Corpay, a FLEETCOR company.

Archives, Banking, Global Trade Daily

Central Banks to Adopt Their Own Digital Currencies to Eliminate Potential Risks

November 1st, 2021 Francois Moreau Leave a comment

Digital currencies backed by central banks, or central bank digital currencies (CBDCs), are becoming a reality for residents in a few countries around the world. The evolution from checks, to debit cards, and now to digital payments give cause to wonder if we really need cash anymore. While economists agree that we still need cash for now, some governments are discussing the effects of implementing a CBDC nationally.

However, not everyone is as interested in the prospect of implementing a nationwide digital currency. Commercial lending and banking would be affected, as the widespread use of CBDCs could take a bite out of commercial deposits and put the industry’s funding in jeopardy. But with China currently developing a digital Yuan, that leaves government and supply chain leaders wondering about the potential trade risks of not competing in the global economy with CBDCs.

Luckily, lawmakers have come up with a slew of solutions that include strict regulations and controls, hard limits on transfers and holdings, and a long-term transition period before the new digital assets could be launched in full effect. In the meantime, central bankers in the US are contemplating adopting their own digital tokens for instant, low friction international transactions.

What is Central Bank Digital Currency?

A CBDC is the virtual form of a certain fiat currency. You can think of it as an electronic record or a digital token of how currency is spent, held, and moved. CBDCs are issued and regulated by central banks and backed by the credit of their issuer. They aren’t really a new kind of money, it just changes the way we track transactions.

While seemingly very similar at first glance, CBDCs are not cryptocurrencies. Cryptocurrencies are digital currencies that are secured by cryptography and exist on decentralized blockchain networks. Bitcoin and other cryptocurrencies are not backed by any government or banking entity and are purely digital currencies. CBDCs, in contrast, are backed by legal tender and are only a digital representation of fiat money.

Part of the draw to create CBDCs is inspired by their crypto-cousins’ distributed ledger technology. DLT, or blockchain technology, refers to the digital infrastructure and protocols that allow access, validation, and continuity across a vast network. This means that, in contrast to fiat currency that exists today, digital currencies can be tracked and verified in real-time, limiting the risk of theft and fraud.

Blockchain technology is usually associated with cryptocurrency, but it has the potential for numerous applications that could help governments organizations and banking entities run more smoothly with accountability and transparency. Another reason why countries are drawn to CBDCs is they have the ability to help increase banking access for otherwise underbanked populations.

Currently, there are 81 countries exploring CBDCs. China is racing ahead of the pack with their development of the digital Yuan, putting pressure on countries that will want to remain competitive. It raises the question of whether China will at some point accept only digital currency, meaning other countries would need their own CBDCs to remain competitive on a global scale.

China’s digital Yuan

China has long been known to resist cryptocurrencies and crypto trading, so when the news broke that their central bank has been developing a CBDC there was some confusion. However, it has now become clear that the Chinese government is creating an environment where citizens who want to use digital currencies like crypto will have to use the digital Yuan, removing any competition from DeFi banking initiatives.

Before their crackdown on Bitcoin and crypto, local investors made up 80% of the crypto trading market. This shows promise when it comes to the adoption of the digital Yuan, with so many Chinese citizens open to adopting and spending digital currency.

They have already started real-world trials in a number of cities and are expecting the digital Yuan to increase competition in China’s mobile payments market. It is still not entirely clear how users will hold and spend the new digital Yuan whenever it is available nationwide. Right now the most popular form of mobile payment in the country relies on QR codes scanned by merchants.

Alipay and WeChat Pay could eventually integrate CBDC functionality, and smartphones could also potentially be used as a digital wallet for CBDCs. There is still a lot to be discussed, tested, and fixed before the digital Yuan can be distributed nationwide, but China is currently the country closest to rolling out its own CBDC.

Where does the United States stand?

Crypto thefts, hacks, and frauds amounted to about $1.9 billion in 2020, so many leaders have reservations when it comes to enforcing and regulating CBDCs in the US. But there is evidence that CBDCs would have no issues being adopted by the American people. Crypto aside, the digital payments sector is booming with about 75% of Americans already using digital payments apps and services.

But there is not yet a single widely accepted infrastructure available that could handle CBDCs, and lawmakers are lagging behind when it comes to regulations for fintechs as it is. The US could take a page from China’s book and explore adding CBDC functionality to existing banking fintechs like Chime, Paypal, and ApplePay. According to online trader Gary Stevens from Hosting Canada, it would also be wise to look at banks that offer trading services as well.

“In the US, banks offering online trading services (such as Merrill Edge through Bank of America) tend to provide a seamless client experience,” says Stevens. “They strive to provide a consistent login interface between the bank and its brokerage arm, making switching between these platforms easier. This also makes other tasks like moving money between these accounts more flexible. Therefore, US residents have come to expect a more integrated, holistic experience with similar core functionality.”

The Future of CBDCs

The onset of the pandemic has created the perfect storm for CBDCs to come to fruition. Telework, online education, and streaming services have experienced growth while brick-and-mortar establishments have suffered. The same is true for the financial services industry. Banks have struggled to compete with fintech solutions, and more people are utilizing digital payments than ever before.

Since CBDCs are such a new technology, there is still much to learn when it comes to implementing CBDCs nationwide and around the globe. Offline accessibility and resilience are only a couple of concerns regarding digital currency adoption worldwide. Other issues include user privacy, using private and public blockchain networks, and how digital currencies will be exchanged on a global scale. Only time will tell how central banks choose to seriously pursue this route to make it more mainstream.

Conclusion

There are a lot of details still up in the air regarding CBDCs, as well as a considerable amount of research, testing, and development left to unfold. But one thing is clear: central bank digital currencies are already under development. Whether you are getting into online trading or just like the convenience of e-payments, they might be coming to a digital wallet near you sooner than you think.

Archives, Banking, Global Trade Daily

Why the Players That Focus on Both Sides Will Win the B2B Payments Market

August 24th, 2021 Derek Halpern Leave a comment

Remote work initiatives have created a strong tailwind for digitizing business payments, with companies rushing to move away from checks and onto card and ACH payments. This huge market–roughly 10 times the size of the consumer payment market–is ripe for change. Over the past decade, a decent amount of investment has gone into this area. Everyone is getting into the game: banks, card providers, and fintech providers, for example. It’s very early days, with paper checks still the predominant form of payment in the US. Who will win the market? Ultimately, it will be the players that can best address the needs of both buyers and suppliers.

I’ve spent time on both sides. Before coming to Nvoicepay, which helps automate the payment process on the accounts payable side, I was with Billtrust, which automates accounts receivable. Their founder and CEO, Flint Lane, was a big believer in the need to solve for both sides of the equation. That was my first introduction to the concept. Now, having sold into both accounts receivable and accounts payable, I’m a firm believer as well.

Two Sides of the Coin

There are two sides to every payment—creation and receipt. When it comes to consumer payments, both sides are straightforward, especially with today’s technology. But in the world of business payments, process complexity adds friction between them. Accounts payable’s goal is to manage cash flow by hanging on to money as long as possible. That puts them at odds with accounts receivable, who wants to get paid as quickly as possible. Digitizing transactions doesn’t efficiently address the complexity or friction between the sender’s and receiver’s processes. And the lack of consideration can worsen the issue.

For example, funds sent by accounts payable may hit their vendor’s bank faster with card or ACH payments, but a complicated payment application process can lose the receivable department precious time anyway. Without a way to streamline the process from beginning to end, simply switching to electronic means in a few places may not offer the time savings that businesses hope to achieve.

What’s the Solution?

Portals work well for larger companies that can dictate the terms of doing business to their smaller customers. But their customers may not be happy having their own interests dictated to them. And if you don’t have that kind of authority, chances are your portal will go unused because you’ve created a one-off process for your customers, making life harder for their accounts receivable people.

Electronic means can help accounts payable make payments at the last minute, and they’d prefer paying by card over ACH because they can make money on card rebates. But convincing suppliers to accept card is often a challenge because the accompanying fees can get expensive very quickly. Meanwhile, enabling suppliers for ACH translates to AP managing large amounts of sensitive bank account data.

Many organizations end up “dabbling” in electronic payments because of these enablement challenges. That leaves them managing four different payment workflows–card, ACH, wire, and a whole lot of checks. This is the problem that payment automation providers solve by taking on the supplier enablement process, maximizing card rebates, and simplifying AP workflows.

As much as both sides might agree that digital payments are the future, they’re stuck between a rock and a hard place without automation.

Paving the Way

Fintech businesses like Nvoicepay and Billtrust are bringing automation to payables and receivables separately, and that’s a big step forward. I believe the next generation of solutions will bring both worlds together on a flexible, dynamic platform where both parties to a transaction can choose from a range of options that best meet their needs at any given time.

From an accounts receivable perspective, funds need to be accompanied by enhanced digital remittance information. They could offer buyers incentives in dynamic discounts in exchange for speedy payment and a streamlined cash application process through the platform.

On the buying side, easy access to supply chain financing could allow them to take advantage of such discounts while at the same time extending payment terms. The buying organization takes its two percent discount and gives half a percent to the financing organization, paying the invoice within the discount window. Then the buying organization pays the financing organization in 30 days. Payables manages cash, gets part of the discount and a rebate if they pay by card.

Bringing it All Together

The key to creating these win-win outcomes is including the presence of a technology platform that uses data to offer convenience and choice, allowing organizations to meet whatever their needs happen to be at any given time. For example, if your cash position is good, you may not offer discounts or offer them more selectively. If you work with many small suppliers with tight margins, consider taking the card option off the table.

These are not new ideas, but they haven’t yet been addressed effectively with technology. Historically we’ve tried to do this through EDI (Electronic Data Interchange), a computer-to-computer communication standard developed in the 1960s. It’s always been very clunky, and it is unwieldy for the volume and velocity of data in the supply chain today. However, a majority of organizations still use it for lack of anything better.

Nacha and the Real-Time Payments Network add remittance data to ACH payments, but that’s not a complete answer. There still needs to be some technology put in place to incorporate the data into payment workflows.

Suppose you look at fintech innovation in the consumer payments market as a leading indicator. In that case, it’s been less about new payment products and more about using technology to send and receive money seamlessly, regardless of which electronic network is used.

In B2B payments, fintechs changed the game by thinking about payments as a business process rather than a collection of products, and built software solutions to automate those workflows. With remote work providing an additional incentive, many more organizations are adoping electronic forms of payment. That, in turn, makes data more available to continue developing digital platforms. Whoever gets there first has a good chance of becoming the leading player, but you won’t get there at all if you don’t build for both sides of the equation.

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Derek Halpern is Senior Vice President of Sales for Nvoicepay, a FLEETCOR Company. He has over 20 years of technology sales and leadership experience, including 16 years in the fintech and payments space.

Archives, Banking, Global Trade Daily, International Trade

Is Saudi Arabia Leading the Race for FinTech Financial Inclusion?

July 8th, 2021 Francois Moreau Leave a comment

It can be hard to keep up with Fintech. Just as the sector appears to be settling into some form of pattern in the UK and USA, where the next notable round of innovation is widely expected to be the automation that is changing the industry, new markets and new centers are emerging.

One of these – and one that was thought to be rather unlikely until fairly recently – is Saudi Arabia. Though the Middle East has long had a promising fintech sector, this has largely been confined to Saudi’s smaller neighbor, UAE.

Now, a range of Saudi startups have raised large sums in seed capital, and seem poised to make a major impact on the industry. In this article, we’ll look at these recent success stories, and explore when they mean for Saudi’s nascent fintech sector.

Saudi Arabia: A New Frontier?

First, let’s take a look at those recent headlines. Back in April, a promising but relatively small Saudi fintech startup, Tamara, announced that it had raised $110 million for its Series A funding. This came as a real shock to industry, and with good reasons – not only was this the largest level of Series A funding ever raised by a Saudi startup, but it was the largest Series A ever raised by a middle eastern startup.

Perhaps the news shouldn’t have come as much of a surprise, though. Observant investors noted that the Saudi fintech sector has been growing steadily over the past few years – from just 10 startups registered under the Fintech Saudi initiative in 2018, to a total of 155 in 2020. And with extra companies comes extra funding – from January to May this year, fintech startups based in Saudi Arabia raised almost $130 million, a whopping jump compared to the $23 million raised by the sector from 2015-2020.

This growth is also likely to continue in the medium term. This level of investment is proving to be an incentive for Western fintech startups, as well, who are now looking to the Middle East as a potential new market for their services. Whether they will be able to take advantage of the size of the market in the region will, however, depend on a number of factors.

As we will see, the biggest problem standing in the way of creating a dynamic Fintech sector in Saudi is not the demand for innovative banking services – that is certainly strong enough. Rather, it is a somewhat traditional banking sector that may be reluctant to open up to technology companies.

Growth Across the Region

Saudi certainly has some well-established models to follow when it comes to catalyzing fintech growth. Bahrain, for instance, is widely regarded as having some of the most fintech-friendly banking regulations in the world, and the sector in that company is growing rapidly. Similarly, Egypt is seen as a real growth market for the sector, given the country’s huge population and a government that seems to be supportive of novel approaches to small business finance.

In both of these countries, government support has been key to encouraging the fintech sector, and Saudi Arabia appears to have recognized this. The Fintech Saudi initiative is the flag bearer for this support, and was launched back in 2018 by the Saudi Central Bank. The bank partnered with the Capital Markets Authority (CMA) in the kingdom, which has played a pivotal role in providing investment funding for fintech startups.

The goals of these investments are certainly ambitious. The mission statement of the CMA states that it is tasked with “transforming Saudi Arabia into an innovative fintech hub with a thriving and responsible fintech ecosystem”. As part of this wide mandate, Fintech Saudi facilitates the licensing process for startups, connects entrepreneurs with investors, service providers, and banks, and has an accelerator program run by Flat6Labs.

This government support is, in turn, part of a broader change across the region, in which governments who were previously averse to change are embracing new ways of doing business. Just as the oil industry is changing, and becoming more transparent, so is the financial sector. And that will have impacts far beyond investors and bank staff because fintech might just be able to make banking truly inclusive.

Open Banking and Inclusion

If, as seems likely, Saudi Arabia becomes a leader in the fintech space, it will act not just as a catalyst for the development of fintech solutions across the region. It will also be the biggest test run yet of one of the central promises of fintech – that this technology can open up banking in a way never seen before.

On the one hand, Saudi Arabia seems like an unlikely place to be at the forefront of inclusive banking. The country is still very conservative and has some of the most secretive banking practices in the world. However, there are signs that the kingdom is open to change – both socially and in regard to the way it does business.

This has been overtly stated by Fintech Saudi, which is developing an open baking framework for the kingdom. Their aim, they say, is to force Saudi banks to be more open, and to share data about their activities more widely. This, in turn, will likely make it easier for under-represented groups in the country – women, most of all – to access banking services.

At the moment, many guest workers and women in the country are under-served by financial institutions, and by allowing them to open accounts it is hoped that the country can become more open generally. In addition, fintech can help these workers to make international payments more easily, sending money back home and sharing the benefits of the strident Saudi economy.

The Challenges

Of course, changing the way in which a conservative country runs its banking system is not going to be easy. The Fintech sector in the country, while attracting a lot of funding, will have to overcome some real challenges if it is going to succeed.

One of these is a skills gap. A recent report from Fintech Saudi, for instance, shows that hiring qualified talent was the primary challenge for 40% of startups in the fintech space. Without qualified workers to power the work of startups, it’s likely that these will either stall or be forced to move their activities (and their profits) elsewhere.

Secondly, there is the issue of cybersecurity. Saudi has been a major target of cyberattacks in recent years, many of which appear to have originated in Iran. While the average fintech startup might not be a target of global cyber-weapons, the sheer number of common cybersecurity risks that the average Saudi company experiences every year could be enough to deter some startups and investors from working in the country.

The Bottom Line

That’s not to say that these challenges don’t have solutions, of course. Open banking has progressed in two ways around the globe in recent years, either via regulators forcing traditional banks to embrace it and work with fintech startups (as is the case in the European Union) or (as we see in the US) incumbent banks opting to partner with open banking providers to keep pace with innovation.

If Saudi Arabia can do the same, while also recognizing that both talent acquisition and customer service are key to success in Fintech, there is no reason why it cannot emulate the success of its neighbors, and become the next global fintech hub.

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