NetworkNewsWire Editorial Coverage
NetworkNewsWire presents CryptoCurrencyWire commentary: There is a massive, underserved target market out there for cryptocurrency – a market succinctly delineated by World Bank statistics that indicate 2 billion or more people worldwide are unbanked, as well as by FDIC data that shows more than 23 million Americans are either unbanked or underbanked.
Such data illustrates how cryptocurrency is poised to potentially disrupt the digital payments landscape by ensuring an alternative to traditional banking; and, of course, all merchants are eager to avoid transaction fees regardless of where they do business in the world, which is a primary driver of ongoing growth in merchant acceptance. The underlying potential and increasing acceptance of cryptocurrencies has sent many different kinds of demographics racing to find the “Bitcoin 2.0” killer coin. Contenders such as the community-centric SmartCash (Crypto: SMART) (SMART Profile ), with its self-replenishing SmartHive Project Treasury and ongoing innovation, are gaining more attention. Major market players in the crypto-asset movement like payment-focused Square, Inc. (NYSE:SQ), PayPal Holdings, Inc. (NASDAQ:PYPL) and Visa, Inc. (NYSE:V) are becoming increasingly aware of such attractive crypto-assets as SmartCash, and blockchain-focused juggernauts such as International Business Machines Corporation (NYSE:IBM) are lining up as well.
Crypto Can Serve as Superior Substitute for Outdated Payment Systems
Even before scalability issues in the Bitcoin (Crypto: BTC) blockchain are resolved (a situation that would help put BTC more center stage when it comes to consumer choice for buying everyday goods and services), the benefits of crypto for tasks such as value transfer are becoming increasingly apparent. Because crypto-assets leverage the power of blockchain technology to clear and quickly settle transfers without the need for an intermediary, comparatively antiquated banking networks are beginning to look like dinosaurs; particularly when it comes to cross-border payments. IMF Monetary and Capital Markets Department Deputy Director Dong He even recently asserted that the increasing prominence of crypto-assets stands to reduce demand for the fiat currencies issued by central banks themselves (http://www.ccw.fm/VAE1u).
True Innovators are the Long-term Darlings
The ever-growing interest among merchants to adopt immediate settlement-capable cryptocurrency tech that is also universal, decentralized and fraud-resistant is exciting news. It’s notable to mention that the addition of direct buying and selling of bitcoins in Square’s wildly popular Cash App has played a part in doubling the rate of downloads (http://www.ccw.fm/4vWMs). Needless to say, it is easily understandable why retailers across multiple industries would be pushing Square to accept bitcoins for transactions considering the benefits of using crypto instead of payment systems like credit cards.
European cryptocurrency payment gateway Coingate recently partnered with opensource ecommerce developer Prestashop, enabling 80,000 new merchants across Europe to accept crypto payments (http://www.ccw.fm/3Az2V). Merchant services provider BitPay’s CEO Stephen Pair recently touted the $40 million secured in a Series B round to expand services in Asia, where merchant adoption appears to be accelerating handily (http://www.ccw.fm/P8Heo). South Korean internet giant Kakao, which runs major cryptocurrency exchange UpBit, also recently announced crypto integration, opening payment acceptance to 12,000 merchants and 3 million-plus registered KakaoPay users (http://www.ccw.fm/hV75l).
SmartCash is Holding the “SmartCard”
Increasing the merchant adoption rate is one area where SmartCash (Crypto: SMART) really shines with a host of innovative features. A growing network of SmartNode servers, currently totaling more than 12,000, will enable SmartCash’s soon-to-be released feature InstantPay for real-time transactions (Bitcoin often takes 10 minutes or more). Achieving such a large, decentralized network of servers as this is a direct result of a significantly more community-focused approach by the SmartCash project. Notably, 70 percent of mined block rewards are set aside to help fund projects submitted by community members and bolster the SmartHive teams who maintain and promote the network. SmartNodes help to future-proof the SmartCash project as well, due to their inherent ability to add new services and bypass the kinds of performance and scalability issues that have plagued Bitcoin. Just last year there were many troubling reports of transactions that went dormant for days on end as a severe backlog left transactions unconfirmed and users furious.
A key element for merchant adoption of crypto is consumer confidence and receptivity to usage, because merchants want their customers to feel satisfied. SmartCash offers such user-friendly features as username-based addresses that make it easy to make any sort of transaction, including tipping and donating. Custom username-based addresses also do away with the complex and worrying addresses like those used by BTC, which often leave customers biting their nails at transaction time, wondering if they correctly entered the lengthy alphanumeric code and sent crypto to the correct party.
SmartCash also offers handy features like send-to-email that lets anyone with an email address receive SMART coins, even if they don’t have a wallet, making it very easy for experienced users to send payment to new users who have no experience with cryptocurrencies. SmartCash’s SmartRewards program also grants a reward to holders of 1,000 SMART or more in a wallet at a set time every month – a measure that was implemented to help reduce price volatility by reducing the amount of coins constantly traded, characteristically benefiting the whole community. Additionally, because transaction fees are less than a tenth of a penny ($0.001), SmartCash is very attractive to both merchants and buyers (http://www.ccw.fm/13WmG).
To further facilitate merchant adoption, the SmartCash project will release a physical card-ready platform called the SmartCard within several weeks that will work similarly to the way the company’s already-available SmartBand does today. The card format is familiar to consumers and allows them to skip taking out their phone to load up an app. In fact, no Internet connection is needed at all by the consumer, which means never having to worry about dead batteries or lack of signal in remote areas. SmartCard will also be usable in places where traditional banking services are only partially available, or even absent entirely. With SmartBand already accepted by some 2.5 million merchants in Brazil and an estimated 726 billion digital payments to be facilitated per year by payments processors of all types by 2020 (according to a recent study by Capgemini and BNP Paribas), the SmartCard system stands ready to gobble up significant market share.
SmartCash is a truly unique crypto project because of the heavy emphasis on being community-driven. This is a serious departure from most other cryptos and the individual SMART holders get to have a real voice. Furthermore, the self-funded SmartHive Project Treasury and accessibility of block mining to standard PCs means that anyone can support the network. The SmartHive governance portal approach does away with the traditional hierarchy and inefficiencies of a company structure and represents a management structure as distributed and decentralized as blockchain technology itself.
SmartCash seems to scratch all the right places where the digital payments market is ripest for disruption. And while some players have made noises about moving away from crypto altogether, focusing instead on enterprise-scale blockchain tech and standard fiat currencies to handle things like cross-border payments, the use of innovative crypto like SmartCash or Stellar’s Lumens (Crypto: XLM) could change all that. The payment-focused players could also be swayed by such rich feature sets, moving away from Bitcoin and into next-generation cryptos that threaten to become “Bitcoin killers” by offering a bevy of procedural advantages.
Square, Inc. (NYSE: SQ) has seen its share price soar by some 60 percent since the merchant services aggregator’s announcement about allowing bitcoins to be purchased via the Cash App (http://www.ccw.fm/Vq4Wm). And, notably, a recent Nomura (NYSE: NMR) survey reveals 60 percent of business owners using Square’s technology for rapid payment via smartphone would accept bitcoin as a form of payment (http://www.ccw.fm/3aUAm). Dan Dolev, a top analyst at Nomura’s independent equity trading arm, Instinet, put a $64 price target on Square this March, due in large part to the strength of the company’s crypto adoption. However, many analysts grow increasingly concerned about Bitcoin’s ability to fulfill the vital crypto role in this equation, given outstanding transaction time, price volatility and high transaction fees.
PayPal Holdings, Inc. (NASDAQ: PYPL) was in the news recently due to comments from ousted CEO Bill Harris, who downplayed merchant adoption rates of Bitcoin, citing some of the aforementioned concerns, even going so far as to call Bitcoin a scam. Little wonder he got his walking papers, given the pro-crypto attitude of PayPal co-founder Peter Thiel and more recent developments such as a patent application filing in March by the company for a system to speed up handling those long private keys used to transact BTC. The patent application details a means of creating secondary wallets with their own unique user keys for buyer and seller, practically eliminating the wait time payees currently experience when trying to ensure they will receive a given virtual currency payment.
Visa, Inc. (NYSE: V) former CEO of UK and Ireland operations Marc O’Brien recently joined Estonian crypto startup Crypterium, which raised $52 million last year via an initial coin offering. Crypterium is laser-focused on eliminating the difficulties associated with using crypto for everyday transactions and seeks to streamline the entire process, hoping to eventually partner with Visa to roll out crypto and/or virtual cards attached to proprietary wallets. This is an area that Visa already has considerable experience in, with offerings such as Virtual VISA credit cards. O’Brien was keen to highlight the potential here in a recent Business Insider interview, noting how Crypterium and Visa could provide a haven for consumers in high-inflation markets such as Argentina or Turkey.
International Business Machines Corp. (NYSE: IBM), whose new head of blockchain development recently acknowledged cryptocurrency talks with about 20 central banks from various countries (including G20 nations), is predicting that some will dare to toy with crypto, with the most potential shown by Sweden, North America and Asia (http://www.ccw.fm/2Mn0V). IBM’s crypto-friendly policies mark an evolution in the juggernaut’s rhetoric. The company is now doubling-down on its use of Lumens (XLM), and it has significant first-mover advantage in the space with the capacity to be a real king-maker for innovative cryptos.
On the Cusp of a Digital Sea Change
Any way you slice it, cryptocurrency is knocking on the door of the sprawling $3 trillion-plus global digital payments market (http://www.ccw.fm/0yd1W), demanding to be let in (if it doesn’t simply tear the door off). True innovators on the coin and blockchain ends of the market stand to be the biggest winners, with user-friendliness and merchant adoption in the driver’s seat.
For more information on SmartCash, please visit SmartCash (Crypto: SMART).
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TCI: A time of critical importance
By Fabrice Desnos, head of Northern Europe Region, Euler Hermes, the world’s leading trade credit insurer, outlines the importance of less publicised measures for the journey ahead.
After months of lockdown, Europe is shifting towards rebuilding economies and resuming trade. Amongst the multibillion-euro stimulus packages provided by governments to businesses to help them resume their engines of growth, the cooperation between the state and private sector trade credit insurance underwriters has perhaps missed the headlines. However, this cooperation will be vital when navigating the uncertain road ahead.
Covid-19 has created a global economic crisis of unprecedented scale and speed. Consequently, we’re experiencing unprecedented levels of support from national governments. Far-reaching fiscal intervention, job retention and business interruption loan schemes are providing a lifeline for businesses that have suffered reductions in turnovers to support national lockdowns.
However, it’s becoming clear the worst is still to come. The unintended consequence of government support measures is delaying the inevitable fallout in trade and commerce. Euler Hermes is already seeing increase in claims for late payments and expects this trend to accelerate as government support measures are progressively removed.
The Covid-19 crisis will have long lasting and sometimes irreversible effects on a number of sectors. It has accelerated transformations that were already underway and had radically changed the landscape for a number of businesses. This means we are seeing a growing number of “zombie” companies, currently under life support, but whose business models are no longer adapted for the post-crisis world. All factors which add up to what is best described as a corporate insolvency “time bomb”.
The effects of the crisis are already visible. In the second quarter of 2020, 147 large companies (those with a turnover above €50 million) failed; up from 77 in the first quarter, and compared to 163 for the whole of the first half of 2019. Retail, services, energy and automotive were the most impacted sectors this year, with the hotspots in retail and services in Western Europe and North America, energy in North America, and automotive in Western Europe
We expect this trend to accelerate and predict a +35% rise in corporate insolvencies globally by the end of 2021. European economies will be among the hardest hit. For example, Spain (+41%) and Italy (+27%) will see the most significant increases – alongside the UK (+43%), which will also feel the impact of Brexit – compared to France (+25%) or Germany (+12%).
Companies are restarting trade, often providing open credit to their clients. However, there can be no credit if there is no confidence. It is increasingly difficult for companies to identify which of their clients will emerge from the crisis from those that won’t, and whether or when they will be paid. In the immediate post-lockdown period, without visibility and confidence, the risk was that inter-company credit could evaporate, placing an additional liquidity strain on the companies that depend on it. This, in turn, would significantly put at risk the speed and extent of the economic recovery.
In recent months, Euler Hermes has co-operated with government agencies, trade associations and private sector trade credit insurance underwriters to create state support for intercompany trade, notably in France, Germany, Belgium, Denmark, the Netherlands and the UK. All with the same goal: to allow companies to trade with each other in confidence.
By providing additional reinsurance capacity to the trade credit insurers, governments help them continue to provide cover to their clients at pre-crisis levels.
The beneficiaries are the thousands of businesses – clients of credit insurers and their buyers – that depend upon intercompany trade as a source of financing. Over 70% of Euler Hermes policyholders are SMEs, which are the lifeblood of our economies and major providers of jobs. These agreements are not without costs or constraints for the insurers, but the industry has chosen to place the interests of its clients and of the economy ahead of other considerations, mindful of the important role credit insurance and inter-company trade will play in the recovery.
Taking the UK as an example, trade credit insurers provide cover for more than £171billion of intercompany transactions, covering 13,000 suppliers and 650,000 buyers. The government has put in place a temporary scheme of £10billion to enable trade credit insurers, including Euler Hermes, to continue supporting businesses at risk due to the impact of coronavirus. This landmark agreement represents an important alliance between the public and private sectors to support trade and prevent the domino effect that payment defaults can create within critical supply chains.
But, as with all of the other government support measures, these schemes will not exist in the long term. It is already time for credit insurers and their clients to plan ahead, and prepare for a new normal in which the level and cost of credit risk will be heightened and where identifying the right counterparts, diversifying and insuring credit risk will be of paramount importance for businesses.
Trade credit insurance plays an understated role in the economy but is critical to its health. In normal circumstances, it tends to go unnoticed because it is doing its job. Government support schemes helped maintain confidence between companies and their customers in the immediate aftermath of the crisis.
However, as government support measures are progressively removed, this crisis will have a lasting impact. Accelerating transformations, leading to an increasing number of company restructurings and, in all likelihood, increasing the level of credit risk. To succeed in the post-crisis environment, bbusinesses have to move fast from resilience to adaptation. They have to adopt bold measures to protect their businesses against future crises (or another wave of this pandemic), minimize risk, and drive future growth. By maintaining trust to trade, with or without government support, credit insurance will have an increasing role to play in this.
What Does the FinCEN File Leak Tell Us?
By Ted Sausen, Subject Matter Expert, NICE Actimize
On September 20, 2020, just four days after the Financial Crimes Enforcement Network (FinCEN) issued a much-anticipated Advance Notice of Proposed Rulemaking, the financial industry was shaken and their stock prices saw significant declines when the markets opened on Monday. So what caused this? Buzzfeed News in cooperation with the International Consortium of Investigative Journalists (ICIJ) released what is now being tagged the FinCEN files. These files and summarized reports describe over 200,000 transactions with a total over $2 trillion USD that has been reported to FinCEN as being suspicious in nature from the time periods 1999 to 2017. Buzzfeed obtained over 2,100 Suspicious Activity Reports (SARs) and over 2,600 confidential documents financial institutions had filed with FinCEN over that span of time.
Similar such leaks have occurred previously, such as the Panama Papers in 2016 where over 11 million documents containing personal financial information on over 200,000 entities that belonged to a Panamanian law firm. This was followed up a year and a half later by the Paradise Papers in 2017. This leak contained even more documents and contained the names of more than 120,000 persons and entities. There are three factors that make the FinCEN Files leak significantly different than those mentioned. First, they are highly confidential documents leaked from a government agency. Secondly, they weren’t leaked from a single source. The leaked documents came from nearly 90 financial institutions facilitating financial transactions in more than 150 countries. Lastly, some high-profile names were released in this leak; however, the focus of this leak centered more around the transactions themselves and the financial institutions involved, not necessarily the names of individuals involved.
FinCEN Files and the Impact
What does this mean for the financial institutions? As mentioned above, many experienced a negative impact to their stocks. The next biggest impact is their reputation. Leaders of the highlighted institutions do not enjoy having potential shortcomings in their operations be exposed, nor do customers of those institutions appreciate seeing the institution managing their funds being published adversely in the media.
Where did the financial institutions go wrong? Based on the information, it is actually hard to say where they went wrong, or even ‘if’ they went wrong. Financial institutions are obligated to monitor transactional activity, both inbound and outbound, for suspicious or unusual behavior, especially those that could appear to be illicit activities related to money laundering. If such behavior is identified, the financial institution is required to complete a Suspicious Activity Report, or a SAR, and file it with FinCEN. The SAR contains all relevant information such as the parties involved, transaction(s), account(s), and details describing why the activity is deemed to be suspicious. In some cases, financial institutions will file a SAR if there is no direct suspicion; however, there also was not a logical explanation found either.
So what deems certain activities to be suspicious and how do financial institutions detect them? Most financial institutions have sophisticated solutions in place that monitor transactions over a period of time, and determine typical behavioral patterns for that client, and that client compared to their peers. If any activity falls disproportionately beyond those norms, the financial institution is notified, and an investigation is conducted. Because of the nature of this detection, incorporating multiple transactions, and comparing it to historical “norms”, it is very difficult to stop a transaction related to money laundering real-time. It is not uncommon for a transaction or series of transactions to occur and later be identified as suspicious, and a SAR is filed after the transaction has been completed.
FinCEN Files: Who’s at Fault?
Going back to my original question, was there any wrong doing? In this case, they were doing exactly what they were required to do. When suspicion was identified, SARs were filed. There are two things that are important to note. Suspicion does not equate to guilt, and individual financial institutions have a very limited view as to the overall flow of funds. They have visibility of where funds are coming from, or where they are going to; however, they don’t have an overall picture of the original source, or the final destination. The area where financial institutions may have fault is if multiple suspicions or probable guilt is found, but they fail to take appropriate action. According to Buzzfeed News, instances of transactions to or from sanctioned parties occurred, and known suspicious activity was allowed to continue after it was discovered.
How do we do better? First and foremost, FinCEN needs to identify the source of the leak and fix it immediately. This is very sensitive data. Even within a financial institution, this information is only exposed to individuals with a high-level clearance on a need-to-know basis. This leak may result in relationship strains with some of the banks’ customers. Some people already have a fear of being watched or tracked, and releasing publicly that all these reports are being filed from financial institutions to the federal government won’t make that any better – especially if their financial institution was highlighted as one of those filing the most reports. Next, there has been more discussion around real-time AML. Many experts are still working on defining what that truly means, especially when some activities deal with multiple transactions over a period of time; however, there is definitely a place for certain money laundering transactions to be held in real time.
Lastly, the ability to share information between financial institutions more easily will go a long way in fighting financial crime overall. For those of you who are AML professionals, you may be thinking we already have such a mechanism in place with 314b. However, the feedback I have received is that it does not do an adequate job. It’s voluntary and getting responses to requests can be a challenge. Financial institutions need a consortium to effectively communicate with each other, while being able to exchange critical data needed for financial institutions to see the complete picture of financial transactions and all associated activities. That, combined with some type of feedback loop from law enforcement indicating which SARs are “useful” versus which are either “inadequate” or “unnecessary” will allow institutions to focus on those where criminal activity is really occurring.
We will continue to post updates as we learn more.
How can financial services firms keep pace with escalating requirements?
By Tim FitzGerald, UK Banking & Financial Services Sales Manager, InterSystems
Financial services firms are currently coming up against a number of critical challenges, ranging from market volatility, most recently influenced by COVID-19, to the introduction of regulations, such as the Payment Services Directive (PSD2) and Fundamental Review of the Trading Book (FRTB). However, these issues are being compounded as many financial institutions find it increasingly difficult to get a handle on the vast volumes of data that they have at their disposal. This is no surprise given that IDC has projected that by 2025, the global “datasphere” will have grown to a staggering 175 zettabytes of data – more than five times the amount of data generated in 2018. As an industry that has typically only invested in new technology when regulations deem it necessary, many traditional banks are now operating using legacy systems and applications that haven’t been designed or built to interoperate. Consequently, banks are struggling to leverage data to achieve business goals and to gain a clear picture of their organisation and processes in order to comply with regulatory requirements. These challenges have been more prevalent during the pandemic as financial services firms were forced to adapt their operations to radical changes in customer behaviour and increased demand for digital services – all while working largely remotely themselves.
As more stringent regulations come in to play and financial services firms look to keep pace with escalating requirements from regulators, consumer demand for more online services, and the ever-evolving nature of the industry and world at large, it’s vital they do two things. Firstly, they must begin to invest in the technology and processes that will allow them to more easily manage the data that traditional banks have been collecting and storing for upwards of 50 years. Secondly, they must innovate. For many, the COVID-19 pandemic will have been a catalyst for both actions. However, the hard work has only just begun.
Traditionally, due to tight budgets and no overarching regulatory imperative to change, financial institutions haven’t done enough to address their overreliance on disconnected legacy systems. Even when faced with the new wave of regulation that was implemented in the wake of the 2008 banking crash, financial services organisations generally only had to invest in different applications on an ad hoc basis to meet each individual regulation. However, as new regulations require the analysis of larger data sets within smaller processing windows, breaking down any and all data siloes is essential and this will require financial institutions that are still reliant on legacy systems to implement new technologies to meet the regulatory stipulations.
With this in mind, solutions which offer high-quality data analytics and enhanced integration will be key to the success of financial institutions and crucial to eliminate data silos. This will enable organisations to achieve a faster and more accurate analysis of real-time and historical data no matter where they are accessing the data from within smaller processing windows to keep pace with regulatory requirements, while also benefiting from low infrastructure costs.
This technology will also play a huge part in helping financial institutions scale their online operations to meet demand from customers for digital services. According to PNC Bank, during the pandemic, it saw online sales jump from 25% to 75%. Therefore, having data platforms that are able to handle surges in online activity is becoming increasingly important.
Real-time analysis of data
While the precise solution financial services institutions need will differ based on the organisation, broadly speaking, the more data they are storing on legacy solutions, the more they are going to require an updated data platform that can handle real-time analytics. Even organisations that have fewer legacy systems are still likely to require solutions that deliver enhanced interoperability to help provide a real-time view across the business and enable them to meet the pressing regulatory requirements they face. Let’s also not lose sight of the fact that moving transactional data to a data warehouse, data lake, or any other silo will never deliver real-time analytics, therefore, businesses making risk decisions based on this and thinking it is real-time is completely inappropriate.
As such, financial services firms require a data platform that can ingest real-time transactional data, as well as from a variety of other sources of historical and reference data, normalise it, and make sense of it. The ability to process transactions at scale in real-time and simultaneously run analytics using transactional real-time data and large sets of non-real-time data, such as reference data, is a crucial capability for various business requirements. For example, powering mission-critical trading platforms that cannot slow down or drop trades, even as volumes spike.
Not only will having access to real-time data enable financial institutions to meet evolving regulatory requirements, but it will also allow them to make faster and more accurate decisions for their organisation andcustomers. With many financial services firms operating on a global basis, this is vital to help them keep up not only with evolving regulations but also changing circumstances in different markets in light of the pandemic. This data can also help them understand how to become more agile, help their employees become productive while working remotely, and how to build up operational resilience. These insights will also be vital as financial institutions need to consider the likelihood of subsequent waves of the virus, allowing them to gain a better understanding of what has and hasn’t worked for their business so far.
The financial services sector is fast-paced and ever-changing. With the launch of more digital-only banks, traditional institutions need to innovate to avoid being left behind, with COVID-19 only highlighting this further. With more than a third (35%) of customers increasing their use of online banking during this period, it is those banks and financial services firms with a solid online offering that have been best placed to answer this demand. As financial institutions cater to changing customer requirements, both now and in the future, implementing new technology that provides access to data in real-time will help them to uncover the fresh insights needed to develop new and transformative products and services for their customers. In turn, this will enable them to realise new revenue streams and potentially capture a bigger slice of the market. For instance, access to data will help banks better understand the needs of their customers during periods of upheaval, as well as under normal circumstance, which will allow them to target them with the specific services they may need during each of these periods to not only help their customers through difficult times but also to ensure the growth of their business. As financial institutions not only look to keep pace with but also gain an advantage over their competitors, using data to fuel excellent customer experiences will be essential to success.
With the current economic uncertainty and market volatility, it’s critical that financial services are able to meet the changing requirements coming from all angles. With COVID-19 likely to be the biggest catalyst for financial institutions to digitally transform, they will be better able to cater to rapidly evolving landscapes and prepare for continued periods of remote working. As they look to achieve this, replacing legacy systems with innovative and agile technology solutions will be crucial to ensure they can gain the accurate and complete view of their enterprise data they need to comply with new and changing regulations, and better meet the needs of consumers in an increasingly digital landscape, whether they are located in an office or working remotely.
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