Article | April 15, 2020
Soon after, the World Health Organization declared the Novel Coronavirus outbreak an official pandemic, a sudden pandemonium busted across the globe. The COVID-19 crisis carries with it the potential equally disruptive economic fallout. It has brought a dominant shift in reality; in addition to the effects that the virus has had on our private lives, businesses in every industry are being forced to find innovative ways of operating on every level and the world of Fintech is no exception.
Investors began drawing out their money. The stock markets of the world collapsed. Central banks made off-cycle rate cuts and inserted liquidity to keep the economy running. The financial services are currently confronting challenges on multiple fronts: banks have reduced their opening hours serving a few customers at a time due to social distancing rules, putting additional stress on channels like telephone service, online banking, and social media.
Simultaneously, numbers of consumers are desperately trying to contact their bank with questions, concerns, issues, or to request appropriate solutions for their finances impacted by the fallout from the coronavirus. This is not the first or last global crisis. FinTech and banking companies of the 21st century need to be programmed to operate in such circumstances.
Being a fairly new sector, fintech companies are already well-positioned to adapt to a world that suddenly exists primarily online; most fintech platforms now exist in online formats anyhow. Still, the paradigm shift brought to the world by coronavirus is forcing the fintech sector to come up with creative solutions when it comes to supporting customers, building relationships, boosting company morale, and planning for the future in this unprecedented situation.
The behaviors that people can execute from their living room or from their den are going to grow, and behaviors that require face-to-face interaction or getting out into the community are going to diminish. What does that mean? You should have greater mobile apps and digital adoption in general. If I had been holding off on signing up for PayPal, for instance, I might just do that.
Nigel Morris, Managing Partner of QED Investors, Co-Founder of Capital One
“Fintech companies are probably some of the best-equipped organizations to take on this crisis.”
If you’re a Fintech, you’re probably no more than 10 years old and as a result, have built your backend and developmental stacks on cloud environments allowing for operations to continue anywhere. Also, many business-to-business (b2b) communication tools that FinTech companies have naturally adopted and made available to employees such as Slack, Teams, Skype have been more heavily leveraged. Legacy financial brands are more than likely finding this time to be a bit more difficult.
Paul Geiger, President, and Co-founder of Post-Trade Asset Management Firm Theorem Technologies
The coronavirus pandemic could be destructive for multiple companies, but it's also flashing a spotlight on the potential of fintech. It has the potential to revolutionize how consumers and businesses handle financial transactions. There will surely be hits and knocks along the way, but fintech can manage to make this transition a lot easier. Here’s how.
Table of Content:
- Moving Back to the Digital Infrastructure
- Utilizing Robotic Process Automation Software in Banking (Robo-Advisory)
- Acceleration of Cashless and Contactless Payment Methods
- Artificial Intelligence and Block chain Technology
- Fintech Firms Providing Free Technology During the Coronavirus Crisis
Moving Back to the Digital Infrastructure
As the number of cases ticks up in the U.S., many are choosing to go cashless to circumvent potential hygiene concerns around handling banknotes. Almost half of the world’s population is now practicing self-quarantine. Interaction between humans is limited. All the public gathering places are closed down. Businesses that rely on people coming in or the shops that are commonly crowded are now starting to close down.
The prevailing crisis will change our mindset and habits and make us re-evaluate our current way of doing things. All thanks to fintech, giving smaller communities a chance to keep their business open and operating. With digital payment options and online transactions, you can pretty much order any service, any product. You can even access your favorite types of entertainment online and all that without breaking the rules of self-isolation. Social distancing is the only effective method to fight the spread of coronavirus, and fintech has made this practice much more natural. Online services that we can pay for through fintech are now substantially covering every industry.
These digital services have become such an essential part of our lives, and we should be appreciative of how easy it is to quarantine these days. Ordering groceries, favorite food, watching the newest movies, stuffs delivered right to our door, all this is only possible, because of different financial technologies and digital payments that have made money transfer easy and secure.
Learn more: https://www.euronews.com/2020/03/19/next-day-delivery-the-challenges-for-retailers-during-the-coronavirus-pandemic
Utilizing Robotic Process Automation Software in Banking (Robo-Advisory)
Robo advisors, without human interference, provide automated support for all financial advisory services, such as trading, investment, portfolio rebalancing, and tax saving. It works with a pre-defined algorithm and analytics, calculating the best returns and plans for each individual as per his/her requirements and preferences.
The need for no-touch and low touch investment solutions, which can deliver more informed intelligent analytics back to the user, will be more important than ever. Robo advisors are the next level in the evolution of asset management and financial advice. For the banking industry, robotics outlines a unique and underutilized way to increase productivity while minimizing traditional repetitive and manual-labor-intensive processes. The growth of Robo advisory services is attributable to the fact that it enables low-cost services, scalability, cognitive advice, and next-generation user experience.
Though, for the next generation, virtual agents may be an acceptable help for financial matters. It is a fact that client advisors must fit with Robo-Advisors and artificial agents and a human-led technology-enabled model to a technology-led human-enabled business model in financial services.
Acceleration of Cashless and Contactless Payment Methods
The new coronavirus fears could be enough to introduce mobile and cashless payments to those who otherwise didn’t see the appeal.
Learn more: https://capital.report/blogs/how-open-banking-is-catalyzing-payments-change/8262
Before the outbreak, mobile payments in the U.S. had not come close to global adoption rates. In China, by contrast, more than 80% of consumers used mobile payments in 2019, according to management consultancy Bain. In the U.S., major mobile payments apps had adoption rates of less than 10%.
Major payment companies have already warned of the virus hitting U.S. spending. Visa, Mastercard, and PayPal have all cut guidance due to the coronavirus.
I think this is an opportunity for a move to digital. Zelle, PayPal, and online banking could see a boost. I believe this crisis will accelerate and move people to utilize all forms of digital financial services.
Peter Gordon, Executive Vice President and Head of Emerging Payments at U.S. Bank,
The mobile fintech payment service that facilitates easy online and oﬀ-line payments are reaching millions of people and can truly capture the under banked population.
The coronavirus crisis represents a huge opportunity to accelerate cashless and contactless payments. Retail and consumer payments are leading the way in the adoption of innovative payment capabilities aided by the growth in e-commerce and increased penetration of mobile phones. B2B opportunities are also gaining increased traction as a result of being more efficient and cost-effective. Some key trends in digital payments are:
This includes Near Field Communication (NFC) adoption, host card emulation and QR code generation for electronic interactions between consumers and retailers.
Adoption of payment hubs.
Banks are getting interested in looking at investing in harmonizing their payment infrastructure by moving to payment hubs. These hubs can process any form of payments irrespective of the origination channel.
This is transforming the retail funds' transfer process by providing electronic cash to anyone in the span of a few minutes. Peer to peer money transfers has been around for a while and have witnessed high growth.
Built on blockchain infrastructure this offers greater speed and efficiency of the transaction.
Rise of marketplace banks.
Challenger banks are being supported across geographies and given licenses to operate freely. Banks, by adopting open banking, has started exposing their APIs to third parties for large scale payments.
Omni channel offerings.
The framework of digital payments provides a seamless customer experience across channels leading to better transaction experience.
The future of payments was already revolutionizing with new entrants such as contactless payment, NFC enabled smart phones, cloud-based PoS, and digital wallets. The crisis will merely accelerate the desire to tackle the issues with these new banking technologies.
Artificial Intelligence and Block chain Technology
Artificial intelligence and machine learning built upon distributed datasets and shared information are used for dynamic and psychographic client segmentation based on behavior and automated investment services. The adoption of such technology will become pivotal for large financial institutions to manage their client base and investment portfolios efficiently. In fintech, blockchain finds application in areas like digital ID, customer authentication, insurance, to name a few.
Blockchain practitioners are experimenting with this technology to bring out new use cases and applications to solve the complicated issues in the fintech industry.
PWC’s study of financial services and fintech shows that about 77 percent of the financial services industry is planning to adopt blockchain by 2020. The blockchain sector in fintech has been intended to provide banking with a more seamless and efficient experience. We will soon see the process of cash to crypto and vice versa to become ubiquitous.
Blockchain asset management solutions are an alternative to offshore banking because there are substantial efficiency gains for cross-border transactions, for both private clients and businesses. Traditional banking and blockchain solutions will converge over the next decade with blockchain to become a commonly used technology in financial services.
Learn more: https://www.forbes.com/sites/jeffkauflin/2019/12/26/five-fintech-predictions-for-2020-according-to-kleiner-perkins/#40c46b7d3d5a
So, when we look at these phases of development in the fintech sector, we understand that it’s not just about inserting technology into banking, there is a larger shift here. Part of the shift is around trust and the utility of the bank.
Fintech Firms Providing Free Technology during the Coronavirus Crisis
Right now, you will be feeling the need for more reliability in software and information. Luckily, some fintech companies and teams are there to alleviate these issues. To help banks help their customers through these difficult times, many fintech providers are extending free, discounted, or accelerated deployment offers to financial institutions.
Business downturns are not uncommon. Sometimes there are unexpected circumstances. During these periods of change, the winners and losers will be defined by those firms able to make quick and decisive transformation reflecting the new environment. This is not just true in banking but in every industry. Fintech companies from across the world are all-in when it comes to coping with the current global health crisis.
The progressions in digital technology are making the crisis more bearable and are empowering businesses to keep working with access to key services (communication, payments, credit, collaboration, etc.) while enabling social distancing and helping to fight COVID-19. We expect digital technology to experience another boost during and after the crisis.
Article | April 15, 2020
NFTs are at the moment a real buzz. The word NFT stands for non-fungible token, which means a unique, irreplaceable cryptographic object. It aims to manage ownership of digital content (digital collectible items) by storing the ownership in the form of a digital certificate on a blockchain (usually on the Ethereum blockchain, but other blockchains can also be used). This way the buyer can prove that he is the owner of a certain digital item.
The fact that the NFT token is unique and irreplaceable, generates traceability of the owner, but also ensures authenticity and (digital) scarcity, thus resulting in its value (via its uniqueness it becomes a collectible item).
This makes it an attractive asset for both buyers and sellers. For sellers, creating (= minting) an NFT gives an easy option to monetize (without intermediaries like galleries or auction houses) their digital content (products), like digital pictures, animations, music, videos…. Additionally NFTs have the feature that the author can also get a percentage of future transaction amounts (thus profiting of a future increase in value of the NFT).
The buyer can invest in digital art and can be sure of the uniqueness and his ownership (i.e. the bragging right that you own the art) and the ownership can easily be transferred to any other buyer in the world (becoming the new owner) with the click of a button.
NFTs started in 2017 with CryptoKitties (a game to breed and trade digital kittens) and CryptoPunks and gradually increased over the last years, but it exploded in 2021 (i.e. in 2020 the market was estimated to $250 million over the whole year, while in the month of February 2021 alone already $360 million of NFTs were traded), with some record transactions, like:
The record is held by the digital composite called "EVERYDAYS: The First 5000 Days" of the digital artist "Beeple" (Mike Winklemann), which was sold at Christie’s for $69.3 million. Of the same artist also a video was sold for $6.6 million.
Christie’s auctioned recently also an NFT of 9 virtual rare CryptoPunks for a record amount of $16.9 million
The first tweet on Twitter of the co-founder and CEO of Twitter Jack Dorsey was sold for just under $3 million
The Canadian singer-songwriter Grimes (also known as the partner of Elon Musk) sold for around $6 million of digital artworks, including an NFT of about $400.000 for a 50-second video.
NBA’s Top Shot has generated more than $230 million in selling NFTs of NBA highlight videos, with a top transaction for a movie of Lebron James dunking, which was bought for over $200.000. These NFTs have become the digital equivalent of the paper sports collection cards.
While those transactions get the news headlines for their record amounts, thousands of NFTs are also sold for a few thousand euros. E.g. a selfie of Lindsey Lohan was sold for $59.000, Bad Luck Brian yearbook photo for $36.000 or the "Charlie bit my finger!" YouTube clip was sold for $761.000, not to mention the thousands of transactions that do not get any media attention at all.
These enormous prices definitely attract a lot of media attention and investors, but nonetheless NFTs remain difficult to grasp. While for traditional art, the owner has the physical artwork in his possession, this is not the case at all for NFTs. For example, the NFT for the Beeple picture sold for the record amount can perfectly be downloaded on the internet at no cost. This downloaded file will be identical to the digital file owned by the buyer (i.e. the copy is literally as good as the original).
Obviously, this is a new technology which raises a lot of questions and issues, e.g.
What do you actually own? The NFT is just a digital certificate on a blockchain. The blockchain does not even contain the digital artwork, but just a link to a location where the digital artwork is stored. This raises automatically questions like:
What is the legal ground of an NFT? Can you claim the ownership in court, i.e. will the courts consider the blockchain as sufficient proof of ownership? Will the judge even understand it? Will it have the same legal basis in any country in the world? Can I win at court if someone exploits commercially the digital content owned by me?
What happens if the link to which the NFT refers is no longer available? Does the NFT lose its value? Can the link be adapted?
What is the exact digital asset I am owning? On the blockchain a hash of the digital asset, together with some ownership info, is stored. However if someone changes 1 (invisible) pixel to a digital artwork, the hash will no longer match. Do I also have the ownership of this new (nearly equivalent) digital artwork?
How transparent and well-defined are the properties of ownership? E.g. do you also buy the copyright and reproduction rights? Are you allowed to ask royalties if the digital item is downloaded/published? Are you allowed to ask BigTechs (like Facebook or Google) to remove all copies they store of your digital asset?
NFTs are typically sold via intermediate platform (like OpenSea, Rarible, Superrare, Foundation, AtomicHub, Nifty Gateway, KnownOrigin…), managing the contact with the artist, setting up the NFT, managing the transactions on the Blockchain and also storing the digital artwork in the cloud (i.e. location to which NFT refers). This raises a number of questions about the trustworthiness of those platforms:
Will they ensure the link to the artwork remains available (i.e. not lost or broken)? Even if they go bankrupt? More and more decentral IPFS network or blockchain based storage is used to mitigate this risk.
Does the platform ensure an artist does not create multiple NFTs of the same (or slightly changed) digital asset?
Do they ensure that the NFS is minted by the real artist (creator) of the content and not by an imposter? Which procedures do they have in place for verifying that?
Even though the decentralized nature of the underlying blockchain ensures trust, buyers and sellers still need to trust the platforms facilitating these NFT transactions. This is for me a general issue of blockchain use cases (cfr. my blog on blockchain "ttps://bankloch.blogspot.com/2020/02/blockchain-beyond-hype.html" - Blockchain - Beyond the hype), i.e. although the blockchain entry can be perfectly trusted, the end-to-end user journey is much more extensive, thus requiring still trust in a central party.
How future-proof are the blockchains? With blockchains in full evolution, will the Ethereum blockchain (or other blockchain on which an NFT is held) still be around in 5 years or in 10 years (or not be replaced by a more popular and more modern blockchain)? Will it be possible to keep the decentralized nature of this blockchain while volumes increase enormously? Beginning of June 2021 the Ethereum blocksize (of the full blockchain) was over 800 GB, an increase of more than 100% compared to the year before. This shows that storing the full blockchain (and then we do not even speak about the resources required for mining) has become more and more a specialist job, hence more centralisation and less guarantee that a lot of parties will continue to keep track of the full blockchain. Furthermore it means it becomes less straight forward to prove your NFT ownership, without consulting a specialized party which stores the full blockchain.
Is the energy consumption for an NFT sustainable and will it not negatively impact the future success of NFTs?. For example, the energy consumption to create an NFT of a simple animation is equal to using 1.5 million times a pressure cooker. However with blockchains switching more to Proof of Stake-consensus mechanisms this will likely be resolved in the coming years (although Proof of Stake raises naturally other new concerns about centralization and potential manipulation).
Are the NFTs currently sold for a lot of money sufficiently time-lasting? This question can be raised for both the digital artworks as for the technology underpinning it:
Are the digital artworks not too time-specific, i.e. linked to current, non-lasting hypes? E.g. will YouTube movies which are popular now still be remembered and popular in 5 years? In the traditional art, certain historical artists (like Monet, Van Gogh, Picasso…) have an established reputation/track record, but for this digital art there is of course no historical records to turn to and as a result it is very difficult to predict future trends.
NFTs are also more and more used in games, to describe ownership of virtual plots of land or unique weapons or armors. This makes the NFT practically usable, but what is the value in a few years when the game is no longer popular?
Is the technology sufficiently robust? Not only is there a risk due to the above-mentioned dependency on blockchains and the platforms for storing the digital asset, but besides that you also have to ensure the file format of the digital content can still be read or ensure you can still access your digital wallet.
Due to popularity of the underlying blockchains (like Ethereum), NFTs are confronted with high transaction costs(high gas fees to get your NFT on the blockchain). While this transaction cost is marginal for the above record amount NFTs, it does pose an issue for cheaper NFTs (as transaction cost become too significant compared to the NFT price).
The whole process of minting, buying and transferring NFTs is not so user friendly, i.e. you need to onboard on an NFT platform, you have to acquire the right crypto-currency (e.g. if the NFT is on the Ethereum blockchain, you need Ether coins, i.e. Bitcoins won’t be usable) and you have to pay with crypto-currencies, which is still not so user-friendly (i.e. typically via a browser plugin, which might be easy for a computer specialist, but still difficult to setup for the common layman).
Clearly the concept of NFTs is great, as there is a need for managing ownership of digital content. With more and more digital content being produced and some artists even only exclusively producing digital content, there is a need for them to make money and NFTs are a good way to do this. However the too strong focus on the underlying (blockchain) technology and the bullish prices, make it still too much a playground for the (mega)-rich, than a common investment asset class. However even if it remains such a playground, it is still interesting to follow. As there are as many as 100,000 people who have $1 million or more stashed in crypto-currencies, there is an enormous audience with the means, interest and risk appetite to try out NFTs. For them, there is the cool factor of trying out something new, the potential of making same profits as with crypto-currencies, the emotional and bragging aspect of owning digital arts (compared with owning parts of the moon or owning a star. This has no legal ground, but is still very romantic and fun) and the Robinhood aspect of pushing governments to change and fighting the traditional art system (cfr. the actions on Robinhood to stop the short-sellers on the share of GameStop).
This being said, NFTs are clearly an excellent real-live experiment, where fundamental questions around ownership, value, digitalization and authenticity are being addresses.
The question remains however if ownership can be managed outside governments, i.e. as ownership requires laws to protect the owner, it is very difficult to manage this outside a government.
Clearly governments should sponsor some kind of register of such digital ownership. This will ensure that there is legal ground and also long-term continuity, as unlikely governments will disappear/go bankrupt. However if done by a government, there is no real need for a blockchain, as you have a central, credible authority, which could perfectly store the ownership (personal details of the owner) and the full digital content (so not just a hash) in a traditional database.
While governments are starting now to explore an alternative for crypto-currencies in the form of CBDCs (cfr. my blog "https://bankloch.blogspot.com/2021/05/cbdc-new-kid-on-block.html" - CBDC - The new kid on the block), this will likely happen as well for NFTs.
In the meantime, it is good the conservative art world is shaken up by these kinds of innovations.
Article | April 15, 2020
There is a huge transformation underway in the financial services industry. Over the past year – as a result of the COVID-19 pandemic – clients have been forced to take on more of an active role in monitoring and planning for financial uncertainty. But the big change is that these clients have become much more emotionally invested in their organisations’ financial wellbeing. In a time where everything is digital first, it’s no surprise that many clients want to be able to search for answers themselves, escalate issues quickly and receive the support they need to better navigate the uncertain economic landscape, at speed.
Of course, as clients demand a smoother and more fulfilling experience, we’re seeing a shift in how financial services companies manage their business model for success in the long term. Whilst, stereotypically, the financial services industry has been considered ‘old school’, and in many cases still lags behind other industries in the digital transformation race, the pandemic is proof in point that relying on legacy systems is just not an option for the sector anymore.
Thriving during turbulent times
The good news is that many organisations in the sector are already rising to the challenge, adjusting their products and services to meet the needs of customers who might have been struggling through the pandemic themselves.
Siemens Financial, a division of Europe’s largest manufacturing company, for example, moved quickly to scale their service to meet surges in customer needs. The financial arm provides B2B financing solutions to a large client base covering both small businesses and large corporations. When the pandemic struck, while the company was quickly inundated with requests for support, they had the right mindset and tools already in place to keep things running smoothly.
At the onset of the pandemic, the organisation witnessed a 30 percent increase in customer support ticket volumes. Like with all other businesses operating in the service industry, the team were challenged with managing a huge influx in client requests, whilst maintaining their core offering of delivering a personal service to every client. Based on a data-driven decision, the team moved its entire operation online, within 48 hours. In doing so, they were able to respond to new tickets during the peak of the pandemic within just six to seven hours, plus decrease resolution time from 24 hours to little more than eight. What’s more, they quickly moved the entire team to a remote working set up.
Frictionless digital services are paramount to remaining resilient in the face of COVID-19. Of course, for all organisations, this means saying goodbye to those spreadsheets used to track customer data and instead, embracing custom built support solutions providing real-time insights to support businesses in making decisions, at speed.
Investing now, for a successful future
However, for organisations who have more traditionally operated off of old or outdated legacy systems, it can be hard for them to visualise what a more digital way of operating could look like in practice. As you think about the road to recovery, it might therefore be worth considering where to invest first for the best return. For example, according to the Zendesk Customer Experience Trends Report 2021, 67 per cent of customers are willing to spend more at a company providing them with a good experience. Whilst it may feel like the thriving organisations are the ones investing lots of money into CX technology, it’s clear that investment - or lack thereof - is being felt by customers too.
We’ve reached the digital tipping point - where holding at the status quo will actually put companies further and further behind. It’s about equipping your employees with the right technology, at the right time. We saw that Siemens Financial could keep track of customer conversations remotely, with minimal disruption. This is because the flexible platform they used to keep track of the customer experience provided their service agents with a 360 view of all clients’ prior interactions with the team. For example, whether they’ve used WhatsApp, the phone, or email to communicate with the brand, for customer experience agents using an omnichannel platform, the conversation looks the same.
Article | April 15, 2020
As the pandemic known as Covid-19 is changing the way we live our lives, there are a couple of innovative technologies that have made this transition period much easier. We don’t know much about this virus but so far it has completely turned the world upside down. Not only are we running a risk of overwhelming our healthcare systems and possibly losing thousands of lives to this virus, the effect that COVID-19 has had on the economy could easily be compared to the 2008 crisis.