Paul Schulte, Advisor, Banking and Financial Services
August 22nd, 2019
Paul Schulte is the Founder and Managing Editor of Shulte Research based in Singapore. Paul's roles[...]
Category Archives: Fintech Services
Introducing Plaid Exchange
Plaid blog | Niko Karvounis & Jesse Dhillon | May 20, 2020
Plaid Exchange
The financial ecosystem is undergoing an unprecedented digital transformation due to new realities brought on by COVID-19. Consumers and businesses have turned to fintech to manage their finances in record numbers. Digital transformation that was expected to take years is now predicted to take place over a matter of months. Now, financial institutions everywhere must be prepared to meet their customers’ rising demand for digital connectivity.
See: With Plaid Acquisition, Visa Makes a Big Play for the ‘Plumbing’ That Connects the Fintech World
Today, Plaid is launching Plaid Exchange to accelerate consumer-permissioned data access strategies for financial institutions. As fintech adoption has grown, so have the needs of financial institutions that must now manage unprecedented customer connections across thousands of fintech apps. Plaid Exchange gives financial institutions, from banks to wealth management firms, an open finance platform that includes critical tools required to manage the secure and reliable data connectivity their customers’ financial lives demand, today and for years to come. At the heart of this platform is the ability for consumers to maintain control and transparency into where and how their financial information is permissioned and shared, increasingly important as more people rely on a variety of digital financial tools to manage their financial lives.
Over the past year, we communicated with over a hundred financial institutions to understand their evolving priorities and deliver a solution that fully encompasses what a financial institution needs to implement scalable API-led data access rooted in user transparency and control. With Plaid Exchange, financial institutions can bring an API solution to market in as little as 12 weeks. Implementing Plaid Exchange also means saving on the costs associated with standing up an API, such as building tools and programs to manage developer testing, implementation, and risk management.
Developed with shared security, transparency and reliability needs across the ecosystem in mind, Plaid Exchange is an API platform for financial institutions that provides the connectivity to:
See: Microsoft And Plaid Should Target Small Businesses (Not Consumers) With Money In Excel
- Establish token-based API connectivity. Financial institutions can leverage tokenization to maintain connectivity, and help ensure even more reliable integrations with the 2,600+ apps on the Plaid network today.
- Optimize infrastructure load. With a bi-directional Plaid Exchange integration, financial institutions benefit from smarter scheduling and load management for data updates.
- Build one integration for open finance needs. Plaid Exchange is a solution for the digital financial ecosystem stakeholders; it’s open finance in a box, so financial institutions can integrate with multiple data partners through the Plaid Exchange integration.
- Align with key connectivity standards and principles in the industry. As an active member of FDX and multiple industry standards bodies, we’ve designed Plaid Exchange to reflect key principles around access, consumer control, transparency, and security.
- Enable new control tools for consumers. Plaid Exchange includes the ability for financial institutions to easily build a consumer control center that gives their customers more visibility and enhanced control over how their financial information is shared and where their accounts are connected.
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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, 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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Shopify Balance Brings Banking and Cash Flow to Merchants
Digital | May 20, 2020
The huge e-commerce company also unveiled buy now, pay later and local delivery tools at its annual conference.
Need to Know
- At Shopify’s annual conference, Unite, the e-commerce platform announced a number of new features.
- Shopify Balance Account is a “one-stop-shop” account for small business owners and a feature several employees are referring to as Shopify’s bank.
- The online platform also announced Shop Pay Installments, Fulfillment Network expansion, and Local Delivery products.
- The conference emphasized the importance of strong digital tools and local commerce in COVID-19 retail climate.
See: Shopify displaces RBC to become Canada’s most valuable company
Analysis
E-commerce giant Shopify announced a number of new tools and programs at its online Reunite event on Wednesday, the biggest of which is Balance, a banking account tailored to the particular needs of small business owners and entrepreneurs.
Balance, which will be made available to Shopify merchants in the US later this year, is a one-stop-shop within Shopify’s platform admin allowing sellers to track cash flow, pay bills, and monitor expenses. According to a press release from Shopify, 40% of merchants are currently using personal accounts for some business needs; Balance aims to provide tools that are designed for the needs of small business owners, where personal accounts might fall short.
Shopify Balance will also provide merchants with a physical or digital banking card, the Shopify Balance Card, which will allow merchants to make purchases or withdraw cash from an ATM, and a Rewards program offering benefits such as cash back and discounts. Shopify Balance will have no monthly fees and no minimum balance.
See: Shopify Launches Rebuilt POS to Offer Flexibility Post-COVID
Also announced at Reunite was Shopify’s buy now, pay later, option, Shop Pay Installments, which exists within the company’s Shop Pay tool and lets merchants offer customers flexible financing options. Shopify joins a number of merchants and businesses offering buy now, pay later financing, including Visa, which announced a partnership with Splitit earlier this year. The tool, which will also be available later this year, will be launched with a partner — though Shopify did not specify whom.
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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, 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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4 Digital Transformation Lessons that Banks Need to Learn from Covid-19
Finextra | Leon Gauhman | May 20, 2020
When COVID-19 is finally brought under control, several key sectors will be remembered for the way they stepped up and took responsibility during the crisis. Healthcare is the most obvious, but supermarkets, corner shops, logistics companies and postal delivery networks have also played a critical role in preventing the country sliding into meltdown.
By contrast, British banks have done little to merit a spontaneous round of rainbows and applause. Branches up and down the country have been closed and banks were slow and seemingly reluctant to process SME loan applications under the government’s Coronavirus Business Interruption Loan scheme (CBILS). It’s a brutal indictment of the sector that the government has had to intervene with its 100% ‘bounce back’ loan guarantees to try and salvage the UK economy.
The key question now is whether traditional banks can learn lessons from Covid-19 that will help them establish any kind of status as a part of the SME life support system. In my opinion, they can – but only if they take their lead from the increasingly influential fintech sector. Here are four areas of digital innovation I believe banks should embrace in the post-pandemic era:
1. Greater openness to digital collaboration
Just as problematic as banks’ resistance to lending to SMEs has been the speed at which legacy lenders are processing applications. Weeks after the government’s Coronavirus Business Interruption Loan scheme (CBILS) opened – only 13% of companies which tried to access a loan had been successful. High volumes of enquiries go some way towards excusing this, but the problem also lies with the shortcomings in banks' internal digital processes.
See: NCFA Open Letter: Government should collaborate with Fintechs
Getting these digital processes right is not the equivalent of investing millions in R&D to find a Covid-19 vaccine. A skilled and well-resourced team could swiftly connect the software, algorithms, data and servers required to build a robust and secure digital platform. Companies like Onfido and Validis, and solutions such as Google Big Table and AWS EC2 are all waiting in the wings to help with various elements of this process.
The reason many banks haven’t done this is because they are not sufficiently agile to innovate at speed. Post Covid-19, a key challenge for banks will be to really collaborate with fintechs and third party vendors and allow their internal capabilities and culture to be challenged and improved so they can respond more quickly to emergencies like Covid-19. The partnership between Starling Bank and Funding Circle to offer an additional £300m of loans to SMEs under the CBILS scheme is a good example of the collaboration established banks need to embrace going forward.
2. Prioritising customer experience
Bank advertising talks a lot about being there ‘for the journey’, or ‘listening’, or ‘making it happen’. But that certainly hasn't been the experience for many SMEs facing collapse because of Covid-19. The reality is that part of the banks’ failure to react to the virus effectively is because they have not attempted to create a customer-centric model. When it comes to SME customer experience, banks fall down in a number of areas – including lack of personalisation, relevance and ongoing dialogue in their products and services.
See: How to create high-value customer interactions and win in the Low Touch Economy
Once again, it has been left to fintechs to fill the gaps. It is the fintechs, for example, that have devised products that most closely match the needs of businesses at specific moments in time. Good examples include invoice financing, provided by the likes of US fintech Bluevine, or loans that link directly to business performance (think PayPal Working Capital). It’s also the fintechs that have led the charge in providing added value to customers beyond lending. New players such as Coconut (which is just for sole traders) and German bank Penta have developed innovative solutions helping SMEs with the day-to-day business activities such as cash flow, tax management and incorporation, based on the nature of the individual business, rather than purely on turnover.
3. Smarter use of customer data
High street banks no longer resemble Gringotts in JK Rowling’s Harry Potter universe. But their inability to embrace data-powered banking solutions means they seem just as outdated. Fortunately, the introduction of Open Banking legislation changed the rules of the game, making it possible for fintechs to secure access to data and provide SMEs with support.
A key area of innovation has been faster and better credit scoring solutions. By accessing a wider range of data points than traditional banks, fintechs have found ways to lend to viable SMEs that are deemed uncreditworthy by legacy lenders including customer feedback and transaction history from online marketplaces.
See: With $73 million CAD, Symend closes one of the largest Series B rounds in recent Alberta history
While broadening the pool of data used to assess SME creditworthiness is important, the emergence of AI and Open Banking means there is a unique opportunity to build predictive elements into the SMEs customer experience. By taking a holistic view of a company’s business, it becomes possible to alert customers when there is a potential problem on the horizon – perhaps the order book in June is down 20% on the previous year. Take a lender like Kabbage as an example. By working with real-time banking and accounting data, the platform can spot when clients are at risk of default and offer solutions before trouble hits.
Imagine a world where this data is linked to wider developments in the SME sector – so these can also be factored into financial planning (for example, a fall in the price of a commodity, strike action affecting a key supply chain).
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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, 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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XTM Announces More Contracts for Today Card Program Including Topper’s Pizza Franchise Company
XTM Inc. | Release | May 19, 2020
TORONTO, May 19, 2020 /CNW/ - XTM, Inc. ("XTM" or the "Company") (CSE:PAID) (FSE:7XT), a Toronto-based Fintech company in the challenger banking space, providing mobile banking and payment solutions around the world is pleased to report that the company signed an additional 80 food delivery stores including Topper's Pizza Franchise Company.
Further to its release on May 13, 2020, XTM continues to sign up a record number of restaurant delivery locations to its Today™ Card and Mobile Wallet program seeking to pay employees, drivers and contractors same day and eliminate cash. XTM has signed 80 more delivery locations including popular pizza chain Topper's Pizza Franchise Company with more than 36 locations across Ontario.
See: Google and Gates Foundation to help spread digital payments in developing countries
XTM designed its backend to allow for easy point of sale (POS) integration, completely automating the process of delivering same day cashless payouts from syndicated restaurant chains to one-off locations. XTM is onboarding stores for same day cashless payouts in days, not weeks.
Further to the Company's release on May 12, 2020 regarding record store and business on-boardings and Gross Dollar Value (GDV) loaded to cards, another key performance metric for challenger and neobanks like XTM is number of users. The Company now has 85K users and with neobanks garnering valuations in excess of $1,000 per user, XTM believes it has the right recipe for success and shareholder value.
"Our technology roadmap includes further expediting onboarding making it as seamless as possible for all companies of all sizes to launch same day pay," commented Marilyn Schaffer, CEO.
"The increasing demand for our solution along with all the recent data demonstrating a paradigm shift away from cash further emphasizes that businesses and their workers are hungry for a cashless solution."
See: How payments can adjust to the coronavirus pandemic—and help the world adapt
"Our goal is to deliver amazingly delicious pizza with safety in mind for our customers and our drivers," said Andrea Roberts, Senior Director, Operations, Topper's Pizza Franchise Company. "XTM's Today Program made the transition easy, efficient and frictionless for our business."
About XTM – www.xtminc.com
XTM is a Toronto-based fintech innovator in the challenger banking space, helping business and their workers expedite earnings payouts and reduce or eliminate banking fees and cash. With a global card issuing and payment platform XTM is providing free technology to business to automate and expedite worker payouts. XTM integrates businesses to a payment ecosystem that is coupled with a free worker mobile app and a Mastercard debit card with banking features. XTM drives enterprise value and delivers a positive user experience.
View release: here
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, 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 Council of Insurance Regulators and Canadian Insurance Services Regulatory Organizations announce Fintech/Insurtech Advisory Hub
McCarthy Tetrault | Ana Badour | May 11, 2020
On May 7, 2020, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) announced the launch of the CCIR-CISRO Fintech/Insurtech Advisory Hub (Advisory Hub).
The purpose of the Advisory Hub is to allow interested entities to seek and obtain clarification on what would be required to operate or provide their innovative insurance products or services in Canadian jurisdictions. This means the Advisory Hub will:
- increase regulatory visibility to Fintechs and other businesses wishing to develop innovative products and services;
- provide a common access point for all jurisdictions, giving ease of access to all regulators for Fintechs and other businesses; and
- allow businesses to get clarification and direction about the insurance sector and regulations, prior to launching their products and services in individual jurisdictions.
The Advisory Hub is intended to address businesses which may be subject to insurance legislation and regulations, including concepts such as digital platforms that connect consumers with firms that insure risks; technology and/or data-driven insurance activities or advice, including online advice that leads to the purchase of an insurance policy; or consumer insurance risk-sharing networks and organizations, and the platforms that support them.
See: Tesla Promises up to 30% Lower Insurance Rates with New Car Insurance Play
Entities can use the Advisory Hub to engage with Canadian regulators and obtain the information they need to get started. To do so the inquiring entity will need to provide:
- List of jurisdiction(s) it would like to conduct business in;
- High-level overview of the proposed innovative insurance product, service or technology; and
- Whether it is registered/licensed to conduct insurance business in any jurisdictions (within or outside of Canada).
The Advisory Hub will connect the entity with the appropriate regulators so it may begin receiving direct guidance on Canadian registration/licensing and regulatory requirements. However, the Advisory Hub will not offer pre-market testing, exemptive relief from regulatory/licensing requirements, financial support, or binding advice. This is an important distinction from the Canadian Securities Administrators regulatory sandbox, which allows innovative Fintech businesses to be granted relief from certain securities law regulatory requirements to permit them to test their products and services throughout the Canadian market. (See our blog post on the regulatory sandbox here) In essence, the Advisory Hub will serve as an information portal and guide directing the entity to the appropriate regulators after which it can chart its own course.
Continue to the full article --> here
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, 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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No going back: New imperatives for European banking
McKinsey & Company | By Matthieu L, Debasish P, Ildiko R, Hiro S, and Marcus S | May 18, 2020
Now is the time for Europe’s banking leaders to reimagine how their institutions operate and their role in society.
COVID-19 remains an unresolved health challenge that has resulted in tragic loss of life. The economic contraction emerging in its wake will likely be the deepest since World War II and the road to recovery will be long and challenging.
Over the past few months, banking leaders have displayed resolve and resilience, moving swiftly to protect the health of employees and customers, ensure the continuity of basic banking services, and build up capital, liquidity, and cost buffers to strengthen their institutions. In the coming months, banks will start to return to something resembling normal service, reopening offices and branches. But so much has changed over the past few weeks: customers’ financial needs, the way they engage, how employees work, and even society’s expectations of banks.
See: Dealing with a crisis: FinTech versus Bank
The industry will likely face a prolonged period of economic pressure and banks’ actions in the coming months will set their performance trajectory for the years ahead. Banks have shown during the lockdown what is possible in terms of speed and innovation. There is no going back. Now is the time for banking executives to reimagine how their institutions operate. Bold vision and disciplined execution on a set of key imperatives will ultimately differentiate the leaders from the laggards as this crisis abates.
The crisis will put banks under prolonged
It is too early to predict the full impact of the pandemic. The outcome will depend on the length of lockdowns, the drop in demand, and the shape of the recovery. The scale of government support will also be critical—in the last month, some European governments have rolled out packages worth up to 30 percent of GDP and this level of intervention might continue.
All companies must think through possible scenarios to plan their next steps. Based on a recent survey of nine scenarios developed by the McKinsey Global Institute, more than a third of European executives expect a muted recovery. This is the basis of the analysis that follows, but we must keep in mind that other scenarios, both more optimistic and pessimistic, are also plausible.
See: Visa’s digital dollar concept opens a door to central bank currencies
The muted-recovery scenario translates into a drop in GDP of 11 percent across the Eurozone in 2020, and recovery in late 2023. 1 For banks, this would lead to sharp drops in revenue, a squeeze on capital and a hit on return on equity.
No going back - 6 imperatives to win
The crisis has upended the world in which banks operate in terms of customer behavior, ways of working, and government actions.
McKinsey’s European customer survey shows how customer behavior and needs have changed over the past month: digital engagement levels have climbed up to 20 percent, the use of cash has halved, 30 to 40 percent of customers have expressed a greater need for advice, while 20 to 40 percent want products to help them through the crisis. 4 Pension shortfalls are a particular challenge with those close to retirement facing a very immediate problem. Banks will need to reflect on the propositions and channels through which they can best meet these evolving needs.
See: Open banking review faces ‘worrying’ delay as pandemic drives Canadians to fintech
- Innovate new products and propositions. COVID-19 has triggered a range of new financial needs that are waiting to be addressed.
- Lock in the shift to digital sales and service, and reshape physical distribution. In just a couple of months, customers’ adoption of digital banking has leapt forward by a couple of years.
- Create a structurally leaner and scalable cost base. To offset the effect of spiking risk costs and sluggish income, and to free up resources for building digital capabilities, banks need to aim for a cost improvement of 25 to 35 percent (or 20 to 30 percent net increase after reinvestments) over the next two to three years.
- Reset the organization and technology for speed. During the lockdown, many bank teams turned agile overnight and delivered the impossible—such as enabling thousands of employees to work from home, or deploying new digital journeys in record time.
- Double down on risk and capital management. Credit losses will be the defining differentiator of performance over the next year. Early detection and proactive intervention are critical to manage non-performing loans.
- Rebalance the business mix and seek targeted M&A deals. Industry landscapes are often redrawn after crises.
See: COVID-19: A Test Of The Stakeholder Approach
The role of banks in society: A time for purpose-driven choices
Crises often prompt self-reflection and change and this may be a perfect time to reset what has been, at times, a challenging relationship with society. Banks have already been involved in economic support measures, but some may want to be even more proactive, as in Switzerland for example, where banks supported the government-initiated COVID-19 small-business loan program. This could also be a time for banks to rethink their culture. Moving from a control-based culture to one based on strong values supported by smart controls might prove far more effective in steering European banks towards recovery in the volatile future.
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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, 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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Visa’s digital dollar concept opens a door to central bank currencies
American Banker | John Adams | May 18, 2020
The coronavirus recovery is accelerating government involvement in payments, providing Visa a chance to turn a developing currency concept into a route for federal transactions.
The U.S. Patent office on Friday published a Visa patent application to create a technology gateway that could allow central bank currencies for any nation to be digitized. Visa filed the application in November, predating the coronavirus crisis that has generated more interest in digital money.
The application details a centralized computing system that receives information and denomination of a traditional currency, which is then converted to a digital form and recorded on a distributed ledger. This could work with any traditional currency, placing Visa in the middle of the process.
See: Visa’s Fast Track Program Propels Growth of the Fintech Industry Worldwide
The coronavirus recovery is accelerating government involvement in payments, providing Visa a chance to turn a developing currency concept into a route for federal transactions.
The U.S. Patent office on Friday published a Visa patent application to create a technology gateway that could allow central bank currencies for any nation to be digitized. Visa filed the application in November, predating the coronavirus crisis that has generated more interest in digital money.
The application details a centralized computing system that receives information and denomination of a traditional currency, which is then converted to a digital form and recorded on a distributed ledger. This could work with any traditional currency, placing Visa in the middle of the process.
It’s also a way for Visa to respond to changes in money movement that could potentially compete with the card network. Visa was initially part of Facebook’s Libra project, but left the initiative along with several other high-profile payment companies when regulators and politicians pressured Libra — mostly over Facebook’s role and the potential to circumvent government monetary policy.
“Widespread adoption of digital currencies would be bad for Visa’s traditional retail payments franchise,” said Eric Grover, a principal at Intrepid Ventures, adding this may be a case of Visa hedging against central bank or Libra-style digital currencies. “A digital currency supported by Visa and issued by banks could fit nicely with Visa’s business model of delivering payment products through license banks, albeit with thinner transaction economics.”
The European Union has considered a “digital euro” to spur coronavirus recovery, and dozens of other countries are working on similar projects, giving Visa plenty of opportunities to partner with governments.
See: Cryptocurrency Payments Processor CoinPayments Appoints Jason Butcher as New CEO
In this way Visa’s patent, which does not propose a cryptocurrency, is also a nod toward working with governments that may be anxious about how blockchain and cryptocurrency could impact traditional monetary policy, particularly in a time of quantitative easing and potential effects on currency values.
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Blockonomi | | May 18 ,2020
Exploring Visa’s Digital Currency Patent Application: Toward a New Era of Finance?
The U.S. Patent and Trademark Office (USPTO) published the patent application in question, which is simply titled "DIGITAL FIAT CURRENCY."
Visa is one of the most successful and consequential payments companies in the world. Where the powerhouse enterprise places its efforts is thus no small matter.
That’s why a newly published patent application for a blockchain-powered “digital fiat currency” system by the payments giant is not only legitimizing for blockchain tech in general but also indicates what may be coming to the mainstream payments arena amid increasing hyperdigitalization.
See:
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Central Bank Digital Currency and Fintech in Asia
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Bank of Canada Speech: Money and Payments in the Digital Age
Indeed, Visa’s patent mentioned the reigning smart contract platform Ethereum and the Hyperledger Fabric blockchain nearly a dozen times each. Will the future of finance be built on top public blockchains, then?
That’s the grand question for now, and Visa’s new patent application is an interesting new wrinkle accordingly. To be sure, Visa may have simply kept its options open with a defensive application. Yet if the firm ever does proceed with a system like the one planned in the filing, the implications will be manifold and major. Let’s dive deeper to better understand the stakes.
How the Digital Currency Would Work
Per the application, Visa’s envisioned digital currency entails a central operator, i.e. Visa or beyond, facilitating token issuances atop a blockchain. To this end, the document repeatedly identifies Ethereum as potential infrastructure of choice.
On the Decentralization Spectrum
Public blockchains like Ethereum can be used in many ways. They can give rise to totally decentralized projects like Augur and Uniswap, or they can help power centralized third-party enterprises like the Tether (USDT) stablecoin operation.
See: Could Bitcoin on DeFi displace banks? Yes
Obviously then, Visa’s digital currency system — at least as initially outlined — would be near the “completely centralized” end of the decentralization spectrum. With that said, though, what would be interesting to see is if and how Visa’s digital currency would permeate into more decentralized areas of the cryptoeconomy, e.g. like USDT trading on Uniswap.
Visa could employ a smart contract whitelisting system to mitigate its tokens running amok in DeFi, though the company wouldn’t necessarily have to.
News Comes as Stablecoins Are Booming
There’s no indication just yet that Visa’s digital currency will actually come to fruition. But the mere prospect of its arrival comes at a time when both centralized and decentralized fiat-pegged stablecoins have been becoming increasingly popular.
For instance, this month the combined market capitalization of all active stablecoins reached $10 billion USD for the first time ever. The new milestone shows that demand for fiat-pegged or value-stable tokens is already strong and on the rise.
If a major firm like Visa jumped into the rising sector in a big way, then stablecoins in general will have officially hit the prime time. The possibility is closer than ever.
The CBDC Specter
As outlined, Visa’s envisioned digital currency system leaves the door open for central banking institutions to work with the payments company on actualizing central bank digital currency (CBDC) issuances.
See: China’s digital currency app looks like Alipay and WeChat Pay
What’s interesting here is that in Visa central banks would certainly find a reliable and promising partner. In many cases, these banks would naturally be more comfortable using an Ethereum-powered Visa system rather than building their own Ethereum solutions themselves.
As such, Visa would be ideal for central banks wanting to issue CBDCs for retail rather than wholesale use, as the company’s consumer base is vast.
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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, 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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