Trending Now

AI Will Drive the Next Wave of Innovation in Supply Chain…

New Articles

Importance of Digital Accessibility in Banking and Fintech

FinTech global trade
Banking, Global Logistics, Global Trade Daily, Technology

Importance of Digital Accessibility in Banking and Fintech

Leave a comment

Banking and financial services are becoming more digital, making it easier for people to manage money from anywhere. But for this convenience to truly benefit everyone, digital platforms need to be accessible to all, including people with disabilities, elderly users, and those with limited digital skills. When banking and fintech services are designed with accessibility in mind, more people can use them without barriers. This not only improves customer experience but also ensures that financial services are inclusive and available to a wider audience.

Read also: How Fintech Is Disrupting the Future of Retail Banking. 

What is Digital Accessibility?

Digital accessibility means making sure websites and online services can be used by everyone, no matter what device they’re on, where they are, or what their abilities may be. Just like buildings have wheelchair ramps and Braille signs to help people navigate, the digital world needs to be designed so that everyone can access and use it without barriers.

Think about someone who is visually impaired and relies on a screen reader to browse the internet, or a person with limited mobility who uses voice commands instead of a mouse. If a website isn’t designed with accessibility in mind, it can become difficult—or even impossible—for them to use.

Making digital spaces more inclusive means adding features like text descriptions for images, captions for videos, and keyboard-friendly navigation. When websites and digital tools are built this way, they don’t just help people with disabilities—they make things easier for everyone.

Digital Accessibility Challenges in Banking and Fintech

Digital banking and fintech services should be easy for everyone to use, but not all platforms are built that way. People have different needs, and if digital tools aren’t designed with accessibility in mind, they can leave many users struggling.

  1. Visual Impairments

For those with vision impairments, poorly designed apps and websites can be frustrating. Screen readers don’t work properly when buttons aren’t labeled, and low color contrast makes reading difficult. To fix this, digital platforms need better design, like clear labels and high-contrast visuals. If you have documents that need to be more accessible, PDF accessibility companies can help make them compatible with assistive tools.

  1. Cognitive Load

A cluttered layout, complex language, and too many distractions can make it hard for some users to process information. Simplifying content, using clear instructions, and breaking information into small sections can make digital banking easier to navigate.

  1. Motor and Physical Limitations

People with limited mobility may struggle with small buttons or touchscreens that require precise movements. Larger tap areas, voice commands, and keyboard navigation can help users who have difficulty with fine motor control.

  1. Cultural and Linguistic Nuances

Not everyone speaks the same language or understands financial terms the same way. Banking platforms should offer multiple language options and use simple, easy-to-understand wording. This ensures more people can access financial services without confusion.

Advantages of Digital Accessibility in Online Banking and Fintech

  1. Smoother and More Inclusive User Experience

A good banking experience should be easy for everyone, including those with disabilities. Many banks and fintech apps have introduced features that make digital transactions simple and convenient:

  • Voice-enabled banking lets users navigate apps through voice commands. For example, Bank of America’s Erica helps visually impaired users check balances and transfer money.
  • Screen reader compatibility ensures that blind users can access their accounts without difficulties. PayPal has made its platform screen-reader-friendly, allowing users to read statements and complete transactions smoothly.
  • Customizable display settings like high contrast mode and larger text improve readability for users with low vision. Revolut offers these options to make sure its interface works for different needs.

When digital platforms remove obstacles, banking becomes easier, leading to happier and more engaged customers.

  1. Meeting Legal and Compliance Standards

Banks and fintech companies must follow global accessibility laws and guidelines to avoid legal trouble and provide equal access to all users. Some of the important regulations include:

  • Web Content Accessibility Guidelines (WCAG) – A global standard for making websites and apps more accessible.
  • Americans with Disabilities Act (ADA) – U.S. law requiring businesses, including banks, to provide accessible digital services.
  • European Accessibility Act (EAA) – A regulation that ensures financial services in the EU are designed to be inclusive.

Ignoring accessibility can lead to serious consequences. In 2019, Wells Fargo faced lawsuits due to inaccessible online banking services, which damaged its reputation and led to financial penalties. On the other hand, banks like Barclays and HSBC have improved accessibility to stay ahead of legal requirements while building trust with their customers.

By focusing on accessibility from the beginning, fintech companies can avoid legal risks, strengthen customer relationships, and ensure their platforms work for everyone.

  1. Reaching a Wider Audience

An accessible platform doesn’t just benefit people with disabilities—it also makes online banking easier for seniors, people with temporary injuries, and those who prefer simplified navigation.

  • Ally Bank’s mobile app includes voice commands and a clutter-free interface, making it easier for older users.
  • Plaid, which connects different fintech apps to bank accounts, allows users to navigate using only a keyboard, helping those with mobility challenges.

With around 15% of the global population living with a disability, improving accessibility opens the door to millions of potential users who might otherwise struggle with online banking. A more inclusive approach helps fintech companies grow their user base while ensuring that no one is left behind.

  1. Standing Out in a Competitive Market

Customers appreciate businesses that prioritize inclusivity. Making digital banking more accessible doesn’t just improve user experience—it also strengthens a company’s reputation.

  • Higher customer loyalty – Research shows that people are more likely to stick with brands that care about inclusivity.
  • Stronger brand image – Companies like Monzo openly discuss their efforts to make their services more accessible, earning respect from advocacy groups.
  • More investor interest – Many investors focus on businesses that follow ethical and inclusive practices. A commitment to accessibility aligns with Environmental, Social, and Governance (ESG) standards, making fintech firms more attractive for funding.
  1. Driving Innovation

Making financial services more accessible often leads to new and smarter solutions that benefit everyone. Some of the best banking innovations started with accessibility in mind:

  • Biometric authentication – Face ID and fingerprint scanning (used in Apple Pay) were originally designed to help users with mobility challenges but have become popular with all customers.
  • AI-powered financial assistants – Chatbots like Cleo and KAI by Kasisto provide voice and text-based support, helping users manage their money hands-free.These solutions are a prime example of how artificial intelligence services and solutions can transform personal finance management, making it more accessible and efficient.
  • Voice-to-text transactions – Services like Venmo and Zelle now offer voice command payments, making transactions easier for those with hearing impairments.

By focusing on accessibility, fintech companies often create solutions that make banking faster, safer, and more convenient for all users.

  1. Making a Social Impact

Beyond business benefits, improving digital accessibility aligns with corporate social responsibility (CSR). Financial services should be available to everyone, regardless of ability. Some companies are leading the way in making banking more inclusive:

  • Mastercard’s Touch Card helps visually impaired users distinguish between debit, credit, and prepaid cards using unique touch patterns.
  • PayPal’s accessibility updates ensure that users with disabilities can send and receive payments without barriers.

Building digital banking and fintech services with accessibility in mind benefits everyone. It removes barriers, improves user experience, and ensures that no one is excluded. When companies prioritize inclusivity, they create stronger customer relationships and open doors to new opportunities. A more accessible digital world is better for businesses and the people they serve.

From Execution to Insight: How Fintech is Shaping the Future of Accounts Payable churn global trade market
Banking, Global Trade Daily, News, Technology

How Fintech Is Disrupting the Future of Retail Banking. 

Leave a comment

A report by the Daily Mail on October 13, citing data from the Office of the Comptroller of the Currency, revealed that 754 bank branches closed during the first nine months of 2024.

Read also: Revolutionizing Fintech: The Integration of AI in ERP Systems

This shift reflects changing consumer preferences, as more people opt for technology-driven solutions to manage their financial needs rather than visiting physical branches. Banks, aiming to cut costs and adapt to reduced demand for in-person interactions, are increasingly closing branches to enhance profitability.

This trend underscores how fintech is reshaping the retail banking landscape by prioritizing convenience, efficiency, and digital innovation..

But the growing use of financial technology isn’t the only reason for these closures. The low interest rates from 2020 through the first half of 2024 pressured banks’ profit margins, and labor shortages and increasing wages forced banks to review costs.

After transforming accounting by automating tasks like reconciliation management or assisting in the creation of a chart of accounts, fintech is now disrupting retail banking. We’ll look at three ways fintech is changing the face of retail banking.

Fintech is lowering the cost of banking

While legacy banks close physical branches at record levels to boost profits, fintech companies are now starting to operate virtual banks. With reduced initial expenses, these online-based banks provide traditional banking services at a reduced cost to the consumer.

Whether exchanging foreign currency or sending money via ACH or wire transfers, fintech means there’s no need to visit a bank branch to move money.

Wise, formerly Transferwise, allows customers to move money abroad cheaply and quickly. It has no physical branches, a robust technology platform, and a comparative skeleton team of just over 3,000 employees (for comparison, Wells Fargo has nearly a quarter of a million on payroll). 

With low operating costs, Wise can move money cheaper than Wells Fargo. If you wanted to send a wire transfer of $1,000 from a U.S. Dollar account to a EURO account, you’d pay just under $9 with Wise but $30 with Wells Fargo.

Source: Wise

Also, Wise lets you hold money in 53 different currencies with no monthly service fees. You only pay fees when you use your funds. 

Fintech is making information easily accessible with apps

We expect information to be delivered instantaneously. If a website takes more than a few seconds to load, we grumble. If our favorite streaming service is buffering, we roll our eyes and switch to the next one.

This same principle of speed applies to banking. Consumers are looking for access to their money at their fingertips. That means using online banking or accessing a mobile app.  

Services like Plaid allow people to connect financial data to apps like Venmo, Acorns, and Chime. Whether you’re building a budget, saving for retirement, or sending money to a friend, Plaid allows customers to connect their bank accounts to other financial apps. 

Fintech is offering services to fill gaps of traditional banks

Sole proprietors and workers in the gig economy find conventional retail banking is inflexible to meet their needs.

These customers aren’t large enough to need the complexity or expenses of business bank accounts. 

Chase Bank charges a minimum $15 monthly service fee for its Complete Checking account unless you can maintain a minimum $2,000 daily balance or make purchases with a Chase credit card. 

Instead, services like Lili offer sole proprietors accounts with no monthly fee, regardless of your balance or spending habits. 

Source: Lili

Also, Lili provides tax optimization tools with its app. It lets the customer easily classify expenses as business or personal with a swipe of the finger. Users can attach images of receipts to support business expenses. And at the end of the year, the app will automatically calculate your Schedule C showing your business income and expenses for your tax return.

And let’s revisit Wise. It provides practical banking solutions for world travelers or independent contractors working with clients in different countries. 

Wise lets customers receive money in 53 different currencies and convert it to one of the other 52 currencies. 

A freelance graphic designer based in the U.S. could invoice a Swiss-based client in Swiss Francs and get paid in Francs and immediately and cheaply convert it to U.S. Dollars without needing multiple accounts or multiple banks.

And Wise offers a Mastercard debit card that allows customers to access their account anywhere Mastercard is accepted.  

Traditional retail bank Bank of America doesn’t offer accounts denominated in non-U.S. Dollars.

While fintech platforms like Lili and Wise excel in providing streamlined services, they must also implement robust SOX compliance controls to ensure financial accuracy and transparency. These controls, such as rigorous data integrity checks, periodic audits, and internal reporting standards, help maintain trust and demonstrate accountability, especially as fintech companies handle sensitive customer transactions and data. 

The speed of adoption of new fintech and the acquisition of users has accelerated markedly. In 2022, it’s estimated that 80% of U.S. consumers used fintech to manage their finances.

A major change is now coming from digital disruption. This is leaving traditional retail banks with obsolete legacy technologies (e.g., mainframes) to serve the standards of service that new fintech companies can provide. Customers have new service expectations regarding user-friendliness of the interface, ease of use, and transparency.

Retail banking needs to adapt and implement financial technology to remain relevant.

Author Bio

Mike Whitmire, CPA*, is CEO and Co-founder of FloQast, a provider of accounting workflow automation software created by accountants for accountants to help them work smarter, not harder. Before founding FloQast, Mike began his career in audit at Ernst & Young, focusing on media and entertainment, before joining the accounting and finance team at Cornerstone OnDemand as the company prepared for its IPO. During his time at Cornerstone OnDemand, Mike first developed the idea for what would be FloQast.

A proud Angeleno, Mike is a big Los Angeles Dodgers fan and an avid baseball card collector. He resides in LA with his wife and daughter.

3pls, Banking, Global Logistics, Global Trade Daily, Technology

FinTech Blockchain Market Booms: US$ 325.6 Billion Revenue

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​

Read More – Blockchain AI Market Size, Share, Trends | CAGR of 23.1%

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​.

Suggested Reading:  AI In Fintech Market to hit USD 76.2 Billion Valuation by 2033

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/

Explore More Reports

1. The Digital Marketing Software Market size is expected to be worth around USD 310.9 Billion by 2033, growing at a CAGR of 16.5%.

2. The Online Dating Market is projected to nearly double by 2033, reaching an estimated USD 18.1 Billion, a steady CAGR of 6.8%.

3. The AI in Insurance Market size is expected to be worth around USD 91 Billion by 2033, from USD 5 Billion in 2023, growing at a CAGR of 32.7% .

 

global trade generative
Global Trade Daily

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

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.

Read also: How Generative AI Can Be a Game Changer in Online Trading?

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.

Read also : Global Generative AI Market size is expected to be worth around USD 255.8 Billion by 2033

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.

 

fintech
Archives, Global Trade Daily, Technology

Could Salt Lake City Become a Future Fintech Hub? 

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. 

retail banking frontline
Archives, Banking, Global Trade Daily

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

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.

From Execution to Insight: How Fintech is Shaping the Future of Accounts Payable churn global trade market
Archives, Education, Global Trade Daily

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

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.

 

DeFI
Archives, Banking, Global Trade Daily

DeFi World has a new star called DAO

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.

* * *

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.

checks
Archives, Banking, Global Trade Daily

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

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.

digital currencies
Archives, Banking, Global Trade Daily

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

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.