Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: BaaS, Embedded Finance, API, Digital Banking
Implications of the BaaS Synapse Collapse
BaaS | May 29, 2024
Image: Freepik/yanalya
The Synapse Collapse and What It Means for up to 10 Million Consumers and the Fintech Industry
Synapse's shutdown is sending ripples throughout the fintech space
The fintech sector has been rocked in recent weeks by the failure of Synapse Financial Technologies, which has surfaced huge issues within the fintech sector’s Banking-as-a-Service (BaaS) model of doing business. Synapse, a high profile BaaS player backed by Andreessen Horowitz (a16z) filed for Chapter 11 bankruptcy in late-April 2024, potentially affecting up to 10 million consumers per TechCrunch. So lots of customers are unable to access their funds exposing vulnerabilities within the BaaS middleware model providing crucial lessons for the entire fintech ecosystem.
Banking-as-a-service (BaaS)
Banking-as-a-service (BaaS) is the delivery of banking services in partnership between a licensed bank and a fintech or nonbank entity. By and large, the services offered are a range of online banking, payment processing, money transfer, lending, and tools to help budget, save, and invest. BaaS allows fintech firms to innovate at speed and to provide financial services at a lower cost of entry. BaaS does have additional risks in the areas of compliance, security, and operational resilience.
What caused the collapse?
Synapse's failure can be attributed to a number of operational and partnership issues. Among these was a €13 million deficient reconciliation problem with its major banking partner, Evolve Bank & Trust, highlighting inherent risks where middleware can delay real-time financial reconciliation. This was further complicated by Synapse using For Benefit Of Accounts (FBO),a common setup with BaaS firms where FBO accounts hold customer funds under a single account on behalf of multiple end-users, which made reconciliation and tracking of customer funds more difficult.
See: Bank-Fintech Partnerships and Trends 2024
To add fuel to the fire, there was a lack of proper management of such technological and operational bugs which eventually resulted in the freezing of the accounts of Synapse as well as the winding up of its operations. So millions of end customers across a variety of fintech applications like Juno, Yotta, and Copper woke up one day and were denied access to their accounts, with no apparent solution in the near term. For customers, it is a cautionary tale of the risks involved when banking with fintech company relying on a BaaS model.
Industry Implications
The implications for the fintech industry and its investors are significant.
- Greater regulatory scrutiny is also likely to follow, with regulators possibly seeking to impose greater constraints to hold fintech companies to account to high expectations of compliance and risk management.
- Andreessen Horowitz, a leading investor in Synapse, and other investors are now cautious and applying more rigor to the commercial sustainability and risk mitigation systems of BaaS providers. There may be less money on offer for new fintech startups and a more risk-averse strategy towards investment.
See: Bain & Co Embedded Finance Report: What It Takes to Prosper in the New Value Chain
- The failure has also sparked a debate as to whether such failures are the nature of the BaaS model or whether such shortcomings can be averted by more effective governance and operational controls. Experts are of the opinion that while the BaaS model itself is not having any fundamental flaw, management of partnership workings, and particularly with banking institutions, has to be managed closely.
- Fintech companies must work out sound reconciliation process, maintain frank communications with banking partners and ensure fulfillment of regulatory requirement.
- Consolidations and M&A may increase across the market as smaller struggling companies are forced out of the market or into the arms of larger, stronger companies, leaving fewer but more robust providers of BaaS.
Insights for Fintech
To avoid running into the same problem that Synapse Inc. encountered, fintech companies are advised to undertake some proactive measures:
- Provide clear and transparent as well as well-documented agreements with banking partners. Periodically review and update such agreements, so that new risks are addressed. The goal is to foster positive, sustainable relationships.
- Test and verify that middleware systems can effectively process complex financial transactions and reconciliation processes.
See: How GenAI Is Transforming Risk and Compliance in Banking
- Compliance. Compliance. Compliance. Adhere tightly to the specifications of the regulatory bodies to avoid major operational gotchas.
- Establish and follow extensive risks management frameworks with contingency plans for operational breakdowns and partnership failures.
The Road Ahead
As the sector looks on amid the ruins of Synapse’s collapse, it is obvious that fintech firms and their financiers will need to re-establish trust and a high degree of operating resilience. The appointment of an unaffiliated Chapter 11 trustee will serve to manage the immediate crisis, but the fallout will be felt among BaaS participants for some time.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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API Magic: Empowering Payment Services Providers and Fintech Innovators to Scale
DC Bank | Jeffrey J. Smith | April 24, 2024
Jeffrey J. Smith, Co-Founder, CEO & Director, DC Bank
In today's fast-paced digital world, scaling efficiently is a must-have for your business. As technology continues to reshape the financial industry, Application Programming Interfaces (APIs) are revolutionizing the game. APIs make it easy to connect systems, ensuring secure and smooth data exchange. When it comes to payment solutions, APIs are the secret sauce for businesses to scale effortlessly. At Digital Commerce Group of Companies (DC Group), we're trailblazers in digital payment solutions for financial innovators. Our API developer tools are top-notch, giving you extended functionality and full control over the services you provide. As experts in the field, we’re sharing some thoughts on how to leverage API payment technology to grow your business.
Embracing the Power of an API
API-driven solutions offer a wide range of opportunities for financial services providers and fintech entrepreneurs alike. They bring flexibility, speed, and open exciting avenues for boosting revenue. With APIs, you can easily integrate with your existing systems, allowing you to enhance your technology stack while reducing development time. This lets you focus on delivering value back to your customers, while reducing your time-to-market.
Finding a Trusted Technology Partner
When it comes to integrating payment solutions, choosing a trusted partner is key. First, look for a solid reputation, top-notch security measures, a range of cutting-edge products, and easy integration. At DC Group, our dynamic platform offers state-of-the-art APIs with advanced features that let you take control of your technology to customize the payment experience. We build adaptive programs that give fintech innovators the means to scale and pivot with ever-changing business demands.
See: Embedded Finance: Banking Meets the Customer
Second, when scouting a potential partner, be sure to ask questions — can they handle increased transaction volumes and adapt to evolving industry standards? (Hint: we can!) You’ll also need responsive customer support to address any concerns. By choosing a reliable API partner, you can rest easy knowing your transactions are in good hands, allowing you to grow your business, and stay ahead in a competitive market. Our tech-obsessed team at DC Group works with you to uncover challenges that are holding your technology back or slowing your business down. We help dream up a solution that ensures you succeed in today's fast-paced digital landscape.
Enhancing Your Customer Experience
Whether you're a payment services provider or a fintech entrepreneur, API-driven payment solutions offer exciting possibilities to level up your customer experience and streamline operations. With APIs, you can incorporate third-party applications, giving your customers access to a diverse range of financial products all in one place. This seamless integration not only simplifies the customer experience but can also expand your product offering with a trusted interface that's sure to attract new customers.
Offering More Services
API-driven payment solutions have revolutionized the financial industry, empowering businesses to scale effortlessly. Through our best-in-class API developer tools, we work with businesses to integrate a wide range of services — from payment and E-transfer capabilities, to card services and digital wallets.
See: FinTech’s Role in Modern Treasury Management: Streamlining Operations and Capital Optimization
We’re passionate about helping businesses build faster and level-up the services they provide. Embrace the power of APIs and propel your business into the future of finance with DC Group's comprehensive API-driven payment solutions.
About the Author
By Jeffrey J. Smith, Co-Founder, CEO & Director
Mr. Smith, the co-founder and CEO of DCBank, is a seasoned entrepreneur with over 30 years of experience in international financial services. He has an impressive track record of operating, financing, and expanding large-scale businesses. Mr. Smith has successfully sourced, negotiated, and integrated numerous acquisitions in Canada and abroad. He was recognized as the Industry Person of the Year for Prepaid & Payments by Payments eXchange in 2013 and received the Ernst & Young Entrepreneur of the Year award for the Prairies Region in 2005. Additionally, he served as a Board Member of the Interac Association from 2012 to 2017.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Canadian Fintech VoPay and Mastercard Partner to Move Money
Release | April 15, 2024
Image: Freepik
VoPay's Partnership with Mastercard Will Offer Near Real-Time Money Movement in Canada and Globally for Consumers and Businesses
Mastercard and VoPay have announced a strategic partnership leveraging Mastercard's comprehensive money transfer solutions, known as Mastercard Move, to facilitate rapid, secure, and efficient monetary transactions both domestically and internationally. This partnership aims to redefine the landscape of financial exchanges, improving accessibility and convenience for both businesses and consumers.
See: VoPay Launches VoPay360 – Embedded Financial Technology
Hamed Arbabi, CEO and Founder of VoPay:
"This partnership delivers on both companies’ commitment to provide more choice and greater transparency for people who need to send money. The platform will also transform the way businesses and consumers transfer money internationally. Be it personal remittances, small business payments or commercial disbursements, with Mastercard Move, VoPay will enable businesses, financial institutions and consumers to send money to bank accounts, mobile wallets, cards and cash-payout locations in over 100 countries. The joint solution between Mastercard and VoPay will transform the user experiences for both the sender and the recipients."
- Mastercard Move integrates domestic and international money transfer capabilities, offering various payment methods including direct bank transfers and payments to debit or prepaid cards. This diversity supports a wide range of transaction needs across different sectors.
- Through the partnership, VoPay will utilize Mastercard Move to facilitate all domestic payments within Canada. This includes direct payouts to bank accounts, debit cards, and reloadable prepaid cards, catering to needs ranging from gig-economy compensations to healthcare payments, thereby enhancing the efficiency of domestic economic activities.
See: NCFA Congratulates Canadian Fintechs Selected for the UK’s Fintech CTA Program
- The partnership significantly improves cross-border payments by providing secure, fast, and transparent money transfer options. These improvements are crucial for Canada, given its substantial engagement in international trade and its growing immigrant population relying on remittance services.
- The collaboration ensures high security for transactions, featuring trackable payments, transparent fee structures, and real-time updates on transaction statuses. Such features are critical in building trust and facilitating smoother financial interactions globally.
Ramesh Jayakrishnan, Vice President, New Payment Platforms, Mastercard Canada:
“There is a growing demand for interoperable technology that allows consumers and businesses to move money seamlessly across networks domestically and internationally. By leveraging Mastercard Move, including Mastercard’s technology and connectivity to global and domestic networks, VoPay, with its focus on providing a globally interoperable platform with embedded finance capabilities, will deliver significant value to Canadian consumers, businesses and government entities.”
See: Feds Promise Open Banking Laws in 2024 and to Broaden Access to Payments Canada
Why This Matters
By improving the speed, security, and transparency of payments, VoPay's collaboration with Mastercard supports Canada's economic growth and global financial innovation.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Canadian Loyalty to Financial Institution Reveal ‘Soft Satisfaction’ 62% Open to Change
Survey Insights | April 9, 2024
Image: Freepik/gpointstudio
How digital transformation is influencing Canadian loyalty to financial institutions
The digital age is transforming the landscape of financial services, compelling Canadian financial institutions to reassess their strategies for maintaining customer loyalty. A recent survey by Abacus Data, conducted with 3,550 Canadians, shows the evolving relationship between Canadians and their financial service providers. With the imminent implementation of open banking legislation, this article looks at the current state of financial institution loyalty in Canada, offering insights into consumer behavior, preferences, and potential industry shifts.
How Consumers Look at Loyalty to a Financial Institution
According to the survey results, most Canadians—about 7 out of 10—say they're happy with their main bank. Also, 77% are happy with how easily they can access their accounts and do banking online, and 69% like the products and services their bank offers. However digging into the details shows that people aren't exactly satisfied with their full experience:
- Only about half or 52% of the people feel like their bank really values them as a customer
- Only half or 51% think their bank is looking out for their best interests when it suggests products or advice
- People also have mixed feelings about whether the fees they pay are fair for what they get
See: CBDCs in Canada and Impact Drivers on Banking Choices
This points out a problem: It shows there's a big difference between what customers hope for and what they actually get from their banks, especially when it comes to personal attention. Banks need to focus more on making their customers happy, building trust, and making them feel valued. If they don't, they might lose these customers to competitors, especially as more choices become available in the banking world.
How about their willingness to switch?
The hassle associated with switching providers is a significant barrier, cited by 35% of Canadians. This includes the inconvenience of transferring direct deposits and updating account information, indicating a need for streamlined processes to facilitate customer mobility.
One of the survey's critical insights is the identification of the hassle associated with switching providers is a significant barrier, cited by 35% of Canadians. This includes the inconvenience of transferring direct deposits and updating account information, indicating a need for streamlined processes to facilitate customer mobility. Some of the other top barriers to switching that were cited include:
- 35% too much of a hassle / time consuming
- 21% difficulty in transferring payments/deposits
- 21% loyalty with current institution
- 20% concerns about penalties or fees/fines for switching
As a follow-up question, consumers were asked about their willingness to switch if the process were more streamlined (aka Open Banking) and a total of 62% said that they would be open to switching.
Image: Abacus Data survey
Keeping Customers Happy in the Digital Era
Key findings reveal a marked readiness among younger demographics to consider alternative financial services, hindered primarily by the perceived hassle and administrative burdens associated with switching providers. Notably, many Canadians base their choice of financial institution on convenience and reputation rather than the financial benefits or service quality offered. This decision-making pattern suggests a market ripe for disruption, where open banking could catalyze a shift towards more informed and value-driven consumer choices.
See: BoE Report: Open Banking Boosts Productivity, Competition
Key stakeholders can immediately focus on improving their offerings such as:
- FinTechs and banks should streamline online onboarding, making it easier for consumers to switch or open new accounts, possibly through a unified digital ID system. This could significantly reduce the administrative hassle associated with switching providers.
- Leveraging data analytics and the power of artificial intelligence, institutions can offer personalized financial products and services. Tailored solutions could attract those who may not have considered switching due to a lack of compelling alternatives.
- Educational initiatives to improve financial literacy can help consumers make informed decisions based on more than just convenience or familial ties. This is particularly relevant for younger demographics who show openness to change.
- Focus on improving the overall customer experience, from digital interfaces to customer service responsiveness. Satisfied customers are more likely to remain loyal despite the allure of alternatives.
How Canada's Open Banking Regulations Complement Current Consumer Trends
Open banking regulations are expected to streamline the process of sharing financial information between institutions with consumer consent, thus minimizing barriers. This facilitation could encourage more Canadians to consider alternative providers if the process is perceived as less cumbersome and time-consuming.
See: Can Canada Harvest the Next Wave of Productivity Growth?
By allowing third-party developers to access financial data through APIs—with consumer consent—it promises a new era of financial services characterized by increased competition, productivity, consumer choice and personalized offerings.
1. Enhance Competition and Consumer Choice
The survey's revelation of a significant openness among Canadians to switch financial institutions aligns perfectly with open banking's ethos. By facilitating easier data sharing and simplifying the transition between providers, open banking is poised to lower the barriers highlighted in the survey, potentially ushering in a wave of consumers ready to explore alternative financial services.
2. Drive Financial Innovation
Open banking's emphasis on data sharing and consumer empowerment could directly address the survey findings that highlight a preference for convenience over financial benefits. It offers Fintechs and traditional banks an unparalleled opportunity to innovate, providing consumers with solutions that offer real value, from personalized financial products to comprehensive management tools that enhance financial literacy and decision-making.
3. Address Barriers to Switching
The administrative hassle associated with switching financial providers—a significant barrier identified in the survey—could be mitigated through open banking regulations.
See: Feds Promise Open Banking Laws in 2024 and to Broaden Access to Payments Canada
Streamlined processes for sharing financial information between institutions could encourage more Canadians to consider their options, making the financial landscape more dynamic and competitive.
4. Impact on Banks, Fintechs, and the Economy
For traditional banks, the survey and open banking present both a challenge to retain customers and an opportunity to innovate. Fintechs, on the other hand, stand to benefit significantly, as open banking levels the playing field, allowing them to offer new services that directly address consumer needs and preferences. The broader implications for productivity and the economy are equally promising. Enhanced competition and innovation in the financial sector can lead to more efficient services, potentially lowering costs for consumers and businesses alike. This efficiency can contribute to economic growth by freeing up resources for investment in other sectors.
Conclusion
The findings from Abacus Data illustrate a 'turning point' for the Canadian financial services sector. As consumer expectations evolve, so too must the strategies of financial institutions. The emerging trend of openness to alternative providers, particularly among younger demographics, signals a shift towards a more dynamic and competitive banking landscape.
See: Open Banking Regulation in the U.S. Strikes a Chord
Traditional banks and emerging Fintech firms must navigate these changes by fostering strong customer relationships, enhancing digital offerings, and simplifying the switching process. Doing so not only secures customer loyalty but also positions these institutions to thrive in the era of open banking.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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PayPal Invests $5M of PYUSD Stablecoin into Startup ‘Mesh’
Innovation | Release | Jan 30, 2024
Image: PayPal/PYUSD Website
PayPal Ventures invests $5 Million of it's own stablecoin PYUSD into a Plaid-like startup for crypto called Mesh
PayPal used its Ethereum-based stablecoin, PYUSD, for the majority of the investment, totaling $5 million of the $6.5 million investment. This strategic move marks the first time PayPal has used its stablecoin as a funding instrument for an investment since its launch in August 2023. The use of PYUSD, which is backed by U.S. dollars, short-term U.S. Treasuries, and similar cash equivalents, demonstrates PayPal's confidence in the potential and stability of its digital currency.
- Mesh's platform offers a solution akin to Plaid but for the cryptocurrency space, providing an embedded finance solution that simplifies digital asset transfers and account aggregation.
- The investment came shortly after Mesh's $22 million Series A funding round, which saw participation from several new investors, including Money Forward, Inc., Galaxy, and Samsung Next.
- Mesh's technology allows businesses to seamlessly integrate crypto transfers and payments into their platforms, eliminating the need for users to switch between different platforms improving usability and the practical application of cryptocurrencies in everyday financial transactions.
See: PayPal’s Blockchain Vision As New Financial Rail
Implications
PayPal's investment in Mesh, particularly with the use of its stablecoin, PYUSD, signals a strong belief in the growth potential of Mesh and the broader field of embedded finance and native stablecoins. PayPal Ventures sees Mesh's technology and approach as integral to the future of financial services, where user ownership and portability of assets are key to product innovation.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Synctera Officially Launches in Canada With Live Platform
Embedded Finance | Dec 18, 2023
Image by pch.vector on Freepik
Synctera's Canadian Platform is Now Officially Live
Last week on Synctera's blog, they announced that its Canadian platform was officially live. Back in March 2023, Synctera announced its expansion into Canada to help build and launch fintech apps and embedded banking products, along with a $15 million investment round led by NAventures, the corporate venture arm of the National Bank of Canada. This investment also saw participation from The Banc Funds, a noted private equity investor, along with sponsor bank partners Veritex Community Bank, Midland States Bank, and Emigrant Bank. This diverse group of investors represents a strong vote of confidence in Synctera's business model and its applicability to the Canadian market.
Synctera's journey began in the United States, a market known for its vast size and dynamic economic environment. The U.S. served as an ideal launchpad for Synctera, providing a robust ecosystem for financial innovation, access to capital, and a mature Fintech infrastructure. This initial phase in the U.S. allowed Synctera to refine its offerings, align with regulatory standards, and establish a strong foothold in the Fintech domain.
See: Embedded Finance: Banking Meets the Customer
The expansion into Canada represents a calculated move into a market that, while smaller than the U.S., is rapidly gaining recognition for its commitment to technological innovation and a progressive regulatory environment. Canada's unique financial landscape, characterized by a growing appetite for digital banking solutions and a supportive environment for startups, presents an ideal setting for Synctera's next growth phase.
What Synctera Brings to the Canadian Market
Synctera's end-to-end platform is set to revolutionize how Canadian Fintechs, banks, and developers approach financial innovation. Offering services such as bank accounts, card issuance, money movement, and lending solutions, Synctera aims to simplify the complexities of financial services, enabling businesses to focus on innovation and growth. Their compliance with FINTRAC regulations as a registered Money Service Business in Canada highlights its commitment to operating within the country's regulatory framework, ensuring trust and security for its partners and customers.
FFCON23 Panel: Beyond Digital Banking and Embedded Finance
Synctera's entry into Canada confirms a growing interest from global players in the Canadian market and is likely to spur further innovation, competition, and collaboration within the sector.
Comparing the US vs. Canadian Fintech Markets in 2023
| Factor | United States | Canada |
|---|---|---|
| Market Size | Larger market with a diverse and extensive customer base. | Smaller market size compared to the U.S., but still significant with a focus on innovation. |
| Financial Ecosystem | Mature financial infrastructure with a well-established FinTech ecosystem. | Growing FinTech ecosystem, with increasing opportunities for innovation. |
| Innovation Hub | Known globally as a center for technological and financial innovation. | Increasingly recognized for innovation, particularly in technology sectors. |
| Regulatory Environment | Complex but familiar regulatory landscape for U.S.-based companies. | Different regulatory environment, with unique challenges and opportunities. FINTRAC registration is a key aspect for financial services. |
| Access to Capital | Robust venture capital and investment scene, providing ample funding opportunities for startups. | Growing investment scene, though smaller in scale compared to the U.S., with increasing interest in tech and FinTech sectors. |
Outlook
This expansion, coupled with the substantial financial backing, positions Synctera to play a pivotal role in shaping the future of financial technology in Canada, signaling a new era of innovation and collaboration in the Canadian financial sector.
For Canadian startups and entrepreneurs, Synctera's platform offers a new avenue to bring their financial products to market faster and more efficiently.
See: VoPay Launches VoPay360 – Embedded Financial Technology
For banks, the partnership opportunities with Synctera could lead to enhanced digital offerings and improved customer experiences.
The National Crowdfunding & Fintech Association of Canada (NCFA Canada) welcomes Synctera's expansion as a positive development for the Canadian Fintech community. As we continue to monitor and support the growth of financial technology in Canada, Synctera's journey will undoubtedly be one to watch.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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How Permissioned DeFi Will Transform Global Payments
DeFi Payments | Nov 27, 2023
Image from Fireblocks and BCG Analytics
How Permissioned DeFi is revolutionizing cross-border payments with efficient, cost effective, secure and regulatory compliant transactions
The challenges of both traditional and permissionless DeFi for payments: Traditional cross-border payment systems are often slow, expensive, and lack transparency. Permissionless DeFi, while offering advantages such as near-instant transfers and better traceability, falls short in terms of anti-money laundering (AML) and Know Your Customer (KYC) functions, making it vulnerable to fraud and erroneous payments. These shortcomings have hindered its widespread adoption by financial institutions.
See: JPMorgan’s New Programmable Payments in Blockchain
Best of Both Worlds with Permissioned DeFi
Permissioned DeFi solves these concerns by integrating the best of both worlds: the efficiency of DeFi and the necessary compliance controls. This model involves several key steps and 8 key participants, ensuring a secure, compliant, and efficient process for cross-border transactions. Here's the step-by-step process below:
Step 1. KYC Process and Whitelisting: Institutions undergo a platform-level KYC process conducted by whitelisters, who approve users and add their digital wallets to the allowed list. Institutions can act as whitelisters or appoint third parties for this role.
Step 2. Initiating the Transaction: Once KYC-approved, a sender (individual, business, or institution) can initiate a cross-border fiat money transfer.
Step 3. On-Ramp Instruction to OOSP: The sender’s fiat balance is debited by an On- and Off-Ramp Service Provider (OOSP), and the sender’s digital wallet is credited with a token of equivalent value.
Step 4. Token Types: The model can use various tokens, like bank-issued stablecoins or central bank digital currencies (CBDCs), representing the transaction’s main payment format.
See: Insights Into Canada’s Evolving Payments Landscape
Step 5. Wrapping the Token: The token received in the digital wallet is wrapped by a service provider for interoperability across blockchains. The wrapping process involves locking the initial token in a smart contract and minting an equivalent amount of the wrapped token.
Step 6. Smart Contract and AMM: A smart contract deployed on the permissioned DeFi protocol handles the transfer of the wrapped token. An Automated Market Maker (AMM) provides a liquidity pool to facilitate trades and ensure near-instant settlement.
Step 7. Unwrapping and Off-Ramping: Receivers can unwrap the received token on another blockchain network.If fiat currency is preferred, an off-ramp step converts the token back to fiat, crediting it to the receiver’s bank account.
Cost Advantage
The use of permissioned decentralized finance (DeFi) with cross-border payments is estimated to be 80% cheaper than a traditional global payment transaction.
Let's compare the two payment methods by cost category in the table below which clearly illustrates the cost-effectiveness of permissioned DeFi in cross-border payments, highlighting the potential for significant savings for both payment service providers and end customers.
| Cost Category | Traditional Payments | Permissioned DeFi-Based Payments |
|---|---|---|
| Operational & IT Costs | $6.40 (80% of total) | $0.05 to $0.09 |
| Compliance Costs | $1.20 to $1.60 (15%-20% of total) | Assumed same as traditional: $1.20 to $1.60 |
| Total Cost per Transaction | $8.00 | $1.25 to $1.69 |
- There's a significant reduction in operational and IT costs in the permissioned DeFi model, dropping from $6.40 to a mere $0.05 to $0.09 per transaction.
- These costs are assumed to remain the same in both models, ranging from $1.20 to $1.60 per transaction. This assumption is based on the premise that the regulatory and compliance requirements are similar across both platforms.
- The overall cost per transaction in traditional payments is $8.00, whereas in the permissioned DeFi-based model, it ranges from $1.25 to $1.69. This represents a substantial cost reduction of approximately 80% in the permissioned DeFi model compared to traditional payment methods.
See: Bank-Issued Deposit Tokens Emerge and JP Morgan Sees Them Going DeFi
Conclusion
Permissioned DeFi is poised to redefine the landscape of cross-border payments with an efficient, cost-effective and secure solution that is compliant with regulatory standards. By addressing the limitations of both traditional payment systems and permissionless DeFi, this innovative model opens up new possibilities for global financial transactions, making them more accessible, transparent, and efficient.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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