In recent years, digital currencies have been all the rave. However, the idea that digital assets are exclusively some form of currency is slowly falling by the wayside as different use cases are emerging and being rapidly adopted. This May, The Fintech Times is looking to showcase some of these new methods and explore how the digital asset ecosystem is evolving.

Kick-starting our focus this May, we first look at some of the latest innovations seen in the digital asset ecosystem during the past year.

Martin Goycoolea Scott, product lead and builder at web3 wallet Zeal, explains: “It’s been an exciting year for digital assets. We’ve seen more and more use cases across many different fields, for example, finance, social media and games. We are also seeing an increase in the tokenisation of real-world assets from fractionalised real estate (Parcl), treasury bonds (Ondo), and even airplane tickets (Flybondi).”

The digital asset space continues to explode into life, but which recent innovations are driving the most growth in the space?

AI, AI, AI

Artificial intelligence (AI) appears to have had a hand in absolutely every aspect of fintech (and beyond) throughout the last year or two. This fact is still true when it comes to digital assets, says Jeff Sekinger, CEO and founder at Nurp LLC, an algorithmic trading company.

“Artificial intelligence and machine learning are increasingly pivotal in asset management, arguably standing as some of the most transformative technologies in the field.

“As these technologies continue to develop, their potential to revolutionise how asset managers operate is immense. There’s a marked trend toward leveraging sophisticated data analytics and AI not only for enhancing risk assessment but also for refining investment strategies.

“This integration of technology boosts operational efficiencies and performance by focusing on predictive analytics and deepening insights into customer behaviours and preferences. Such advancements not only streamline processes but also provide asset managers with a competitive edge in anticipating market movements and tailoring client solutions.”

Blockchain driving growth

The past year has been all about blockchain technology according to Glendy Kam, chief product officer at Tassat Group, a blockchain-based solution provider.

“I don’t know if it would consider to be an ‘innovation’ but since last year, we have been seeing more traditional financial firms embracing the blockchain technology to tokenise traditional assets.

“The launch of many tokenised funds and other traditional investment products on public blockchain by major financial institutions is a very significant step – it paves the way to leverage the technology to optimise future transactions of these assets to improve efficiency, transparency and reduce costs and settlement times.”

DeFi and MPC

For Jacob Plaster, chief technology officer at io.finnet, a fintech focused on blockchain-based solutions for digital asset custody and instant settlement solutions, there have been two key innovations in the digital asset space.

“The biggest digital asset innovations in the past year have been twofold. On one hand, we’ve seen the explosive growth of decentralised finance (DeFi), which has led to the creation of an impressive array of complex financial instruments built on blockchain technology. However, despite their innovative potential, many DeFi platforms still struggle with issues of safety, efficiency, and user-friendliness.

“On the other hand, one of the most exciting and underutilised innovations in the space is the application of multiparty computation (MPC) technology. MPC enables multiple parties to jointly compute complex financial functions over their inputs while keeping the underlying data private. This capability unlocks new possibilities for collaboration, risk sharing, and the creation of innovative financial products and services that were previously impossible or impractical to achieve.

“I am confident that as awareness and understanding of MPC technology grows, we will see increasing interest and adoption across the digital asset landscape. This trend will be driven by the demand for more secure, privacy-preserving solutions that can address the limitations of existing technologies and pave the way for the next generation of blockchain-based financial services.”

A surge in DeFi

Nitin Agarwal, co-founder and chief revenue officer at enterprise banking provider for SMEs FV Bank, also discusses how DeFi has enjoyed growth: “Over the past years, the digital asset landscape has maintained a consistent streak of innovation. Since its inception in 2008, Bitcoin marked a watershed moment by revolutionising global money transfers through decentralisation.

“This trend persisted last year, with several noteworthy advancements. DeFi witnessed a surge, empowering users worldwide to seamlessly exchange tokenised assets. Moreover, there was a notable uptick in the utilisation of stablecoins for payments, leading to a global shift towards their adoption. The market cap of stablecoins reached new levels, underscoring their growing significance.

“Additionally, the introduction of Bitcoin ETFs represented a pivotal development. Bitcoin has progressively emerged as a prominent asset class, often likened to digital gold, offering a reliable avenue for wealth preservation.”

The future of digital assets

Finally, Michael Summer, founder of data authenticity solution ScoreDetect, explains: “Venture capital investment in the digital asset ecosystem has seen a remarkable surge, escalating by an impressive 450 per cent from 2020 to 2021, reaching a significant milestone of $33billion, now constituting five per cent of the total VC investment landscape.

“This substantial influx of capital is driving the rapid advancement of new digital asset infrastructure and cutting-edge applications, fostering innovation and growth within the sector.

“In a pivotal move, the US government has unveiled a groundbreaking comprehensive framework aimed at overseeing the responsible expansion of digital assets. This strategic framework lays out essential steps to promote innovation while proactively addressing risks to consumers, investors, and the environment. By providing clear regulatory guidance and valuable industry insights, this framework serves as a crucial foundation for the digital asset sector’s development. It not only facilitates innovation but also ensures a secure and transparent environment for all stakeholders operating within this dynamic and rapidly evolving landscape.

“This initiative is poised to have a profound impact on the future trajectory of digital assets, promoting responsible growth and safeguarding the interests of individuals and institutions engaged in this burgeoning industry. The framework sets a standard for the industry, offering a structured approach to navigate the complexities of the digital asset market, ultimately enhancing its credibility and sustainability in the global financial ecosystem.”

Sustainable practices and driving climate change are emerging as key trends that businesses want to implement in their infrastructures. Making this process simpler, Fils, the UAE-based enterprise-grade digital infrastructure provider enabling companies to embed sustainability and climate action into their business models, is partnering with Arab Financial Services (AFS), the digital payment solutions provider and fintech enabler.

Leveraging Fils’s fintech technology and AFS’s expertise in digital payments, the partnership will be key to helping integrate sustainability seamlessly into businesses’ operations. It will also improve customer journeys, and financial transactions.

This partnership with AFS is hot on the heels of an impressive roster of collaborations so far this year. e& Enterprise, Mashreq Bank and Flowcarbon have all agreed to work with Fils’ cementing its place as a reputable player in sustainable finance.

AFS, which has offices in Bahrain, Egypt, Oman, and the UAE, serves over 60 clients across more than 20 countries in the Middle East and Africa region. Fils’ partnership with AFS enables a significant proportion of banks, financial institutions, and organisations in the MEA to track and mitigate their emissions. As a result, they will be able to aid the global transition to a low-carbon economy.

Samer Soliman, CEO of AFS commented: “We are proud to join forces with Fils in a strategic partnership to drive sustainable solutions within the digital payments landscape. This collaboration directly supports our ESG strategic goals by accelerating their implementation. As a leading digital payments provider, we embrace the responsibility to drive sustainability not only for ourselves but also empower our partners and clients to achieve their own environmental ambitions.”

Nameer Khan, CEO of Fils, said: “We are thrilled to embark on this strategic partnership with Arab Financial Services. By combining our advanced digital infrastructure with AFS’s leadership in electronic payments outsourcing, we have a unique opportunity to drive positive change across industries in the MENA region. Our shared commitment to sustainability and climate action will not only transform business operations but also redefine the landscape of responsible finance in the region and beyond.”

Setting a new standard going forward

The partnership will enable Fils’ digital infrastructure to empower AFS. Consequently, the digital payments solution provider will seamlessly integrate sustainability and climate action into its payments ecosystem. This includes developing innovative solutions that contribute to reduced carbon footprints and environmental impact.

Additionally, both firms seek to inspire businesses to prioritise sustainability in their business strategies and take measurable action to tackle climate change.

The collaboration will also explore opportunities to introduce sustainable financial products, with a specific focus on Islamic Credit Cards. By incorporating environmental, social, and governance (ESG) principles, both organisations aim to set new industry standards for responsible and ethical financial services.

Fils and AFS will work together to enhance customer journeys by providing eco-friendly and sustainable options for electronic payments. This includes the development of user-friendly interfaces that promote responsible consumer choices and a positive environmental impact.

 

On this week’s episode of News & Views, The Fintech Times Podcast team discuss how BNPL has made learning to drive more affordable for people across the UK; Norfolk’s flourishing fintech sector; and China’s efforts to lead the way towards a completely cashless future.

Francis kicked off the conversation by discussing the huge costs associated with learning to drive; and how recent years from Payl8r and PassMeFast caught his eye. The trio delve into their personal experiences when learning to drive and discuss how impactful the BNPL solution could be for others trying to pass their driving test.

Next, Polly, Francis and Tom delve into recent successes enjoyed by the Norfolk fintech sector. The podcast team break down the difficulties experienced by regions in the UK outside of London when trying to bolster their fintech ecosystems, particularly amidst difficult macroeconomic conditions.

Finally, China’s prospects of going cashless takes centre stage, as the trio reflects on the rapidly increasing adoption of digital wallets, as revealed by new Euromonitor research.

Listen to News & Views Podcast on your favourite platform:

    

Read the articles discussed in this episode:

PassMeFast Reflects on 3 Years of Affordable Driving Lessons Following Payl8r BNPL Integration

Norfolk’s ‘Flourishing’ Fintech Sector Set For £100Million Valuation by 2027; Reveals Tech East

China Leads the Way Into a Cashless Future, With 70% of Consumers Using WeChat Pay Daily

A recent report highlights the pivotal role QR codes play in accelerating faster payments adoption, emphasising a unified standard, versatile functionality and stringent security.

The FPC QR Code Interface Work Group, part of the US Faster Payments Council (FPC), authored the ‘How QR Codes Address ‘the Last Mile’ Adoption of Faster Payments at the Point-of-Sale’ report.

The analysis delves into five critical factors such as oversight, supported payment schemes, functionality, usability and security. The report suggests hat a single QR code standard with robust oversight is vital for promoting interoperability and consumer confidence, allowing QR codes to function across different payment networks and devices.

It also stresses the importance of QR codes supporting various payment schemes, including open-loop and closed-loop systems, to offer consumers greater choice and flexibility. Additionally, the report highlights the necessity for QR codes to serve a range of use cases beyond retail purchases, such as bill payments and person-to-person transfers, to enhance their versatility and appeal.

Usability is also identified as a critical factor, with QR codes needing to be easy to use for both consumers and merchants, considering aspects like size, placement, and the scanning process. Finally, the report underscores the need for stringent security measures to protect QR code payments from fraud and other risks, including robust encryption, authentication methods, and oversight.

“What struck me about our work is that while we started with a relatively narrow question, we found that answering it meant we needed to explore several domains,” said Scott Green, manager, product innovation at SHAZAM and FPC QR Code Interface Work Group chair. “During the process, we benefited from the diverse backgrounds of our work group team members, who came from many different perspectives, roles, and regions.

“While we identified challenges for the US to achieve widespread adoption of QR code for payments, we were able to frame questions around them that will influence our continued work.”

Commitment to adoption

“QR codes represent a vital tool in bridging the gap to faster payments adoption at the point-of-sale,” said FPC executive director Reed Luhtanen. “This new report underscores the importance of collaboration and standardisation in advancing payment innovation, and provides essential guidance for all participants in the payments ecosystem.”

The FPC maintains its dedication to advancing QR code adoption, tackling obstacles such as fragmented payment landscapes and the lack of a unified QR code standard. In the future, both the FPC and its members plan to engage industry stakeholders and formulate strategies aimed at expediting QR code-based payment solutions.

 

This April, The Fintech Times is focusing on all things embedded finance, the integration of financial services into non-financial products and services. As the space rapidly develops, we look to highlight the latest developments, initiatives and challenges embedded finance has to offer and overcome across the globe. 

Banking-as-a-Service (BaaS) describes the concept that enables non-bank platforms to access banking capabilities traditionally only offered by licensed banks. As BaaS evolves, it is helping fintech innovation reach new markets and underserved communities; which has the potential to greatly improve financial inclusion across the globe.

Continuing our BaaS focus at the beginning of April, we asked industry leaders about how they’re seeing BaaS driving financial inclusion worldwide.

Honing in on the user experience

Nike Shoge, head of growth at Starling Banking Services, explains the impact that BaaS solutions can have: “The BaaS model enables fintech innovation to grow in markets that are yet to benefit from the rise of digital banking.

“Under this model, digital players can focus on disrupting the traditional banking sector in their market by honing in on the user experience of their financial products and ‘the big idea’.

“Meanwhile, BaaS providers streamline time-to-market with their regulatory approval and expertise. It’s about giving fintechs a more accessible, customer-centric approach to scaling up, which they can do at greater speed.

“As a result, BaaS can improve access to digital banking in new markets, and communities that have historically been underserved by the traditional sector can gain access to more sophisticated financial services.”

BaaS is serving ‘all kinds of underserved niches’

Paul Staples, group head of embedded banking at Clearbank, also explains how BaaS solutions are helping firms support underserved communities: “The path to becoming a bank is not straightforward.

“If a business or charity wants to offer banking or bank-like services to people who are unbanked, or underbanked, the challenges to do so can seem insurmountable.

“BaaS and embedded banking services help to serve all kinds of niches that are underserved by larger entities, whether that’s specific industries, demographics, or simply groups that are left behind by big banks trying to be everything to everyone.

“One of our embedded banking clients, Wealthify, does this by focusing on financial literacy for young people, working with TikTok stars and giving teachers material on ‘essential money skills’. We also work with incuto, a platform for credit unions and community banks who often work with underserved communities. BaaS means these businesses can focus on what makes them unique and inclusive.”

‘A very symbiotic partnership’

Alana Levine, chief revenue officer at Fintel Connect, the partner marketing platform, network & agency built for the financial industry, explains that BaaS can drive financial inclusion in ways traditional banking techniques cannot.

“Financial inclusion starts with access – and that doesn’t always come easily through traditional banks. BaaS enables the opportunity for faster, more nimble innovation, experimentation and launch of financial products and services that create more accessibility for those underserved audiences.

“Banks cannot move at the same speed that fintechs can, so BaaS creates a very symbiotic partnership by combining the infrastructure and regulatory rigour of banks with the ability to execute on product development and efficient go-to-market of fintechs. The combination of fintech’s innovative approach and the traditional banking capabilities through BaaS is a winning formula for promoting financial inclusion.”

Driving financial inclusion

Mark Vermeersch, chief platform officer at Treasury Prime, a BaaS company connecting banks and fintechs through an API, adds: “Fintechs are pushing the envelope in banking product manufacturing, creating new financial products like BNPL and new distribution channels for banking products like embedded banking that drive broader financial inclusion.

“Increased reach is possible due to the operating leverage created by software, turning variable costs (employing more people to launch a new embedded banking business line) into fixed costs (launching a new embedded banking business line powered by software).

“BaaS both accelerates the time it takes for regulated financial institutions to build a new business line around bank-fintech partnerships and makes the ongoing maintenance and oversight of that business line more cost-effective. This enables smaller banks to partner with sophisticated fintech and embedded banking clients to distribute their banking products and services on a national, or, in some cases, global, scale.

“This scale is possible due to the specialisation of different players in the embedded banking tech stack:

• Banks: Manufacture and produce financial products
• Fintechs: Market and resell financial products (in partnership with banks)
• Banking service partners: Build software and/or services products to improve efficiencies of bank-fintech partnerships
• BaaS platforms: Technology platform orchestrating interactions between banks, fintechs, and service Partners.”

BaaS’ global impact

Milan Khrapchenko, co-founder and co-CEO of Ameetee, a B2B fintech platform, said: “BaaS facilitates more convenient and tailored financial experiences, enhancing customer engagement and satisfaction. Thanks to BaaS, it is now easier to create user-friendly mobile apps and provide convenient access to banking services or customised banking solutions for underserved groups.

“BaaS enables non-banking entities to provide financial solutions, such as payments and loans, seamlessly embedding them into their ecosystems. This approach not only expands financial services but also promotes innovation in product offerings, making financial services more accessible and relevant.”

Finally, Lisa Arthur, US director and global chief marketing officer for API management platform Sensedia, explains how BaaS is making an impact across the globe: “BaaS democratises technology and lowers the barriers for non-banking companies to enter into this space. BaaS provides innovative platforms that enable non-financial institutions to drive new opportunities to underserved small businesses and expand their reach to underserved populations.

“For instance, in Brazil, Banco Rendimento offers Rendimento Pay, a cross-border payment solution that expands reach securely for emerging technologies to new geographies.”

Previous research has suggested that a variety of payment options at checkout provides greater flexibility for customers, resulting in more completed purchases. Access PaySuite, the payroll software company, has found that a similar trend emerging in the insurance sector, especially when it comes to attracting Gen Z customers.

The Access PaySuite study found that 80 per cent of Generation Z individuals agreed that diverse payment options would significantly influence their choice of insurance provider. Following closely behind, 77 per cent of Millennials also expressed a similar sentiment. In turn, these results show a greater desire for flexibility in the sector.

Sixty-two per cent of consumers report that being offered a wider choice of payment methods would positively impact their insurance provider choice with a further 69 per cent saying this also impacted which insurance premium they chose.

Commenting on the survey’s findings, Andrea Dunlop, managing director at Access PaySuite said: “As individuals who have grown up in the digital age, it comes as no surprise that Gen Z and Millennials have developed high expectations for the websites, apps, and software they engage with on a daily basis, particularly in terms of their interactions with them.

“In the ever-evolving landscape of consumer trends, the heightened expectations of younger generations serve as a guiding light for the future of commerce. Businesses and industries that can adapt and innovate accordingly will undoubtedly experience the greatest success in the years to come.”

Costs outweigh value

As the cost of living crisis continues, many consumers are finding that the costs of their insurance premiums no longer merit the coverage. Access PaySuite revealed that travel insurance (35 per cent), pet insurance (30 per cent) and health insurance (28 per cent) were the most likely to be cut due to affordability concerns.

These concerns could stem from the fact that many users have come across hurdles during their payments process. Thirty-nine per cent said that payments continued to be made without the user’s awareness, while 35 per cent said they had trouble cancelling payments. Furthermore, 33 per cent said they were overcharged and the same number of respondents reported that their payments failed to go through.

Due to these problems, factors influencing user’s insurance premium and provider choices are primarily secure data handling (42 per cent) and the ability to spread payments (35 per cent).

Safe and secure data

This is paramount not only for the end user but for the insurer too. The report also highlighted that rising inflation has caused many users to turn to fraud as a way of making ends meet. Data from the Financial Ombudsman Service reported that across all financial products, fraud and scam complaints have increased by 39 per cent in Q2 2023 compared to Q1.

Access PaySuite’s report proceeds to analyse insurance work environments and the importance of building a trustworthy company culture which is reflected in its payment process.

In the current economic climate, the report identifies ways in which insurers can make payments more user-friendly. It found that 18 per cent of consumers still prefer to pay over the phone and 28 per cent still like the human interaction that stems from talking to an agent.

Dunlop concludes: “Our research clearly demonstrates the increasing demand for diverse payment options within the insurance sector, with today’s consumers seeking convenience and flexibility in managing all their payments, and paying for insurance policies is no exception.

“Insurers must adapt offerings to capture new markets, including younger generations. Flexible payments provide convenience for all, allowing seamless transactions for digital payment users and personalised support for those who prefer human interaction. Meeting these demands gives insurance providers a competitive edge in attracting and retaining loyal customers.”

The potential approval of Bitcoin exchange-traded funds (ETFs), the looming BTC mining reward halving and major regulatory and enforcement actions are having a profound psychological effect on market prices. 

This is a major takeaway from the Next Block Expo conference in Berlin in early December, just as Bitcoin tipped past $42,000 for the first time in over a year.

Animoca Brands CEO Robby Yung, gumi Cryptos Capital managing partner Miko Matsumura, Binance regional manager Jonas Jünger and Polkastarter business development lead João Leite weighed in on whether the current cryptocurrency bear market was coming to an end in a conversation with Cointelegraph.

Bitcoin halving is a psychological phenomenon

Considering the influence of the four-year cycle between Bitcoin mining reward halvings, Matsumura likens the rhythm to that of a medieval battering ram.

“Every four years, we swing the ram, and we smash. Four years is long enough that the people inside the castle think we’ve gone away,” the VC investor explains.

Related: Animoca’s Yat Siu bullish on TON partnership as Bitcoin sets strong foundation for 2024

Matsumura says that the halving cycle involves an inherent Schelling focal point mechanism, a game theory concept and a social phenomenon where people or organizations are able to coordinate without communication.

“It’s important to think about it as a psychological training phenomenon, because each time it works, it inclines people to go with it the next time it happens.”

He also suggests that Bitcoin’s stock-to-flow model clearly shows that the actual cut in BTC supply is getting smaller with each halving, which means “the actual mathematical economic effect is smaller”. 

Jünger echoes these sentiments by highlighting the deflationary mechanism of Bitcoin’s protocol and the fact that society never hears talk of halving fiat money supply.

“It’s just such a foreign concept to everything with fiat money that every time it occurs, it’s just such a celebration of we’re doing something completely different here.”

Yung provides another interesting perspective, noting that while Animoca Brands has just two projects that directly work in the Bitcoin ecosystem out of some 500 investments, the preeminent blockchain remains “very impactful” in what it does.

The Animoca CEO says the effect is similar to any business where interest rates, employment figures and other big macroeconomic signals have an impact even if they’re not directly impacting you.

“So for us I think Bitcoin is our central bank. With that in mind I think of Ethereum as our investment bank.”

After all these years, I finally met @mikojava IRL when we got a chance to do a panel today at @nextblockexpo in Berlin. TL;DR? We’re emerging from the bear market, and the honey badger is getting fat (ask Miko). pic.twitter.com/h0PslG3DK9

— Robby Yung ⦿⦿⦿ (@viewfromhk) December 5, 2023

Bitcoin ETFs and consumer protection

The pending approval of a number of spot Bitcoin ETFs in the U.S. is being widely cited as a major driver of BTC’s recent appreciation in value into the mid $40,000s range. Yung offers a very short takeaway as to why this is the case:

“The potential income from bitcoin ETFs is estimated to be $10 to $12 billion.”

For an exchange like Binance, the potential for an immediate price spike is another important consideration which could test the systems of a number of global exchange operators.

“These kinds of events are critical in running the exchange. It’s a matter of succeed or fail in terms of providing the underlying infrastructure when the news goes out and you see that green wick,” Jünger explains.

Related: Binance is now ‘totally different’: Interview with CEO Richard Teng

Binance’s regional director adds that consumer protection is set to fundamentally change with the provision of a spot Bitcoin ETF, which provides a compelling proposition that will drive investment into the asset class:

“All of a sudden with this ETF vehicle you will no longer have synthetic financial instruments that reflect the price of Bitcoin. You have an actual spot, it’s all secured. it’s all in custody.”

A cautious approach

While there is a sense of euphoria and talk of crypto winter beginning to “thaw”, Leite offers a sobering perspective given Polkastarter’s role in incubating and guiding cryptocurrency start-ups through a tough two years.

“During the bull market euphoria, a lot of companies overspent, they didn’t build a treasury, which is super important,” Leite explains. While those that have survived are looking ahead to better times, a cautious approach is still advocated for.

“We still advise them to not mind that everyone is excited. You must have a long term intelligence, make sure that you have a runway for a few years.”

The recent enforcement action against Binance and its subsequent $4.3 billion settlement with the U.S. justice department was also described as a positive development for the wider industry that assuages any fears of the future operations of the world’s largest exchange by transaction volume.

Magazine: The truth behind Cuba’s Bitcoin revolution: An on-the-ground report