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Six reasons why blockchain is here to stay and how it will change the digital world.

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Six reasons why blockchain is here to stay and how it will change the digital world.

Keith Bedell-Pearce, Chairman of 4D Data Centres, makes the case for blockchain as a transformative foundation technology.

In the three years since blockchain technology was the private preserve of fintech geeks, it has grown from being the possible basis of smart contracts for financial services settlements to be the cure-all for the world’s IT woes.

Blockchain has been heralded by its supporters as the transformative technology of the 21st-century, yet so far, practical large-scale implementations of services based on blockchain have been few and far between. In fact, the only large-scale successful implementation to date has been cryptocurrencies in general and bitcoin in particular. Being famous – or perhaps infamous – for enabling the existence of bitcoin may not be the most auspicious start for something that is claimed will change the world, but the reality is that being bitcoin’s underpinning technology has provided a proof of concept that has stood the test of time for the last nine years and still counting.

Wait a minute, though, what about the $473 million Mt Goxbitcoin hack and the $70 million Bitfinex heist and all the other bitcoin thefts? Well, these were not the result of incursions into the bitcoin blockchain but the misappropriation of the keys – effectively, the passwords – to bitcoin blocks. These keys were held on the databases of the cryptocurrency equivalent of bureauxde change.It was rather like a safe-deposit facility leaving a list of numbers for the combination locks of the safes in its unmanned reception area.

It was the weak security around the traditional server and network infrastructure running those exchanges that was the flaw in providing access to the private keys of the exchange wallets which allowed a third party to transfer funds. The integrity of the bitcoin blockchain has remained intact and continues to deliver on the general blockchain promise of being an immutable, unhackable, distributed database of digital assets.

Here are the six reasons why blockchain is here to stay:

  1. Absolute secure and incorruptible data and information storage (think patient records)
  2. Faster, absolutely secure settlements (think buying and selling shares, houses, insurance)
  3. Safe peer-to-peer transactions without costly mediation (think supply chain through to billions of prescription fulfilment transactions in the USA)
  4. Potentially a records system for all transactions (think your bank account, Uber rides, music streaming)
  5. Facilitation of trillions of Internet of Things transactions in real time
  6. Provision of ultra-safe storage of validated data for AI and Big Data technologies.

If this starts to sound like the digital equivalent of the physicists’Theory of Everything, it’s probably because that’s just what the reality may turn out to be.

However, this is not going to happen overnight. Realising the full potential of blockchain will be an evolutionary process and it will take time and a lot of trial and error. Furthermore, while blockchain technology will no doubt continue to be refined and improved, it is the impact of the applications built on the foundation of blockchain technology that will change the digital world.

The case of blockchain being a true foundation technology was first made by Marco Iansiti and Karim R. Lakhani in their paper “The Truth about Blockchain”in the January-February 2017 Harvard Business Review. They liken the evolution of blockchain to that of TCP/IP, the foundation technology of the Internet. They argue that there were four phases in the evolution of TCP/IP:

  • Single use (email on ARPAnet)
  • Localisation (internal corporate email networks)
  • Substitution (Amazon online bookstore)
  • Transformation (VOIP)

This evolution took more than 30 years for TCP/IP’s transformational potential to be realised. The result is that the developed world could not exist as it does today without the foundation technology of TCP/IP.

Iansiti and Lakhani argue that the same30 year timescale will apply to blockchain:

bitcoin-cloud-chart

Before blockchain realises its potential as a true foundation of technology akin to TCP/IP, there are a number of technical challenges to be overcome but none are insurmountable. These are:

  • The novelty and complexity of blockchain is difficult to get to grips with, even for some techies
  • There is a new lexicon of technical terminology to be learned
  • User-friendly interfaces are still under development with no clear view of which of the current main platform contenders (if any) will become the long term platform of choice
  • Large blockchains are inherently inefficient with the blockchain being replicated by every user. For bitcoin, the blockchain at the time of writing occupies 150GB on each full node.

For those businesses picking up the challenge of exploiting the potential of blockchain by building practical applications, the situation is very similar to developing services to run on the internet in the early 90s in the pre-Windows era. For example, although blockchain 2.0 is programmable in itself, for practical use an interface or “platform” of some kind is required. At the moment there are two leading open source platforms available, Ethereum and the HyperledgerFabric. There is a specialist financial services platform called Corda developed by a consortium of banks and needless to say, Microsoft, Amazon and IBM are all developing user-friendly interfaces for deployment on a commercial basis.

Other smaller operations are developing interfaces largely focused on private, or permissioned, blockchains for localised use. 4D Data Centres has already successfully implemented a proof of concept for private blockchains using Hyperledger Fabric which will be offered to potential clients as a Blockchain as a Service (BaaS) platform. However, as with the FANGs, it is possible that one major commercial player will come to dominate the blockchain interface market, as was the case with Windows and the web, with perhaps an open source offering like Linux available alongside.

The major sector opportunities are already being staked out with heavy investment in blockchain-based applications for banking, financial markets, healthcare, insurance and supply chains. But there are a number of interesting developments where the disruptors of the last 20 years now look like being disrupted themselves. For example, Mycelia uses blockchain to link music content with payments, eliminating the need for intermediation through apps like Spotify. Similarly, JavaScript creator, Brendan Ickes’blockchain-based Basic Attention Token cuts out intermediaries and delivers trading of ad space on websites.

The immutability and security of blockchain is such that as a foundation technology it will enable the transformation of all aspects of the global economy that involve the use of digital assets. It will not happen overnight and there will be numerous false starts. But for once, blockchain is likely to be a technological innovation that will not only meet its much-hyped expectations but will also exceed them.

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Former Bank of England Governor Carney joins board of digital payments company Stripe

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Former Bank of England Governor Carney joins board of digital payments company Stripe 1

By Kanishka Singh

(Reuters) – Mark Carney, former head of the UK and Canadian central banks, has joined the board of U.S. digital payments company Stripe Inc, days after the company was reported to be planning a primary funding round valuing it at over $100 billion.

“Regulated in multiple jurisdictions and partnering with several dozen financial institutions around the world, Stripe will benefit from Mark Carney’s extensive experience of global financial systems and governance”, the company said on Sunday, confirming a report by the Sunday Times newspaper.

Forbes magazine had reported on Wednesday that investors were valuing Stripe at a $115 billion valuation in secondary-market transactions.

A senior Stripe executive told Reuters in December that the company plans to expand across Asia, including in Southeast Asia, Japan, China and India.

The company offers products that allow merchants to accept digital payments from customers and a range of business banking services.

Stripe raised $600 million in April in an extension of a Series G round and was valued back then at $36 billion.

Consumer-facing fintechs have seen a boost to their businesses during the COVID-19 pandemic, as people have been staying at home to avoid catching the virus and have increasingly been managing their finances online.

Carney, who headed the Bank of England and the Bank of Canada, had a 13-year career at Wall Street bank Goldman Sachs Group Inc in its London, Tokyo, New York and Toronto offices.

He is the United Nations special envoy on climate action and finance.

(Reporting by Kanishka Singh in Bengaluru; Editing by William Mallard)

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The potential of Open Finance and the digitisation of tax records

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The potential of Open Finance and the digitisation of tax records 2

By Sudesh Sud, Founder of APARI 

The world is undergoing huge changes at the moment. Between coronavirus pushing the economy to the limit and a group of Redditors challenging the financial market hegemony, people are questioning the role of established institutions. If finance doesn’t work to enable the economy, businesses or individuals, then who is it for?

Before the digital revolution, financial experts were seen as a necessity. They knew how things worked, what everything meant, could provide good advice and were employed to sit at the heart of the action. Now, trading can be done by anyone online through established platforms, with a wealth of information available to hand.

Yet, as the 2008 financial crisis proved, established financial institutions have made themselves too big to fail. Simply tearing down the existing financial system would leave many ordinary people, along with businesses and government treasuries, in ruin.

However, as legendary futurologist, Buckminster Fuller, once said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

Traditional banking models are already being upended by technology. Through Open Banking, challenger banks are able to connect services digitally, cutting inefficiencies and costs while speeding up transactions. Now, Open Finance is seeking to build on this model to connect financial services via technology, potentially making the existing financial model obsolete.

Just as Open Banking led to greater democratisation of money, Open Finance has the potential to transfer power back to individuals. Not only would this benefit society as a whole, but it would help minimise the boom-bust cycles that cripple entire economies. No individual would be too big to fail, and bailing people out would cost far less, having minimal impact on the economy overall.

With more information available to them, Open Finance businesses will be able to use technology to make better decisions instantly. Many people struggle to get onto the housing ladder due to a poor credit score, for example, yet they have been paying rent every month of their adult lives. Why, then, can they not access mortgages? A company called Credit Ladder is addressing this through Open Banking, reporting rent payments via challenger banks like Starling to credit agencies, helping good renters to access mortgages.

While it is still very early days for Open Finance, there seems to be an endless raft of possibilities to benefit individuals, businesses and national economies. Faster, more secure, and less risky access to credit can help grow the economy, transforming finance from something that benefits a few wealthy capitalists to something that enables growth in the real economy.

So how else could Open Finance benefit society?

Using Tax Information

Every working adult pays income tax. Some of us via self-assessment while others are enrolled in PAYE. Regardless, we all have tax records with a wealth of financial information that has been verified, at least in part, by HMRC.

This centralised repository of financial information could be put to better use, such as allowing credit reference agencies to better understand an individual’s risk profile or helping to prove income as part of a mortgage application. Unfortunately, HMRC is a black hole of information ‒ its sheer size and power sucks information in, but nothing comes back out again.

However, by Making Tax Digital (MTD), HMRC are effectively allowing individuals to keep validated tax records on the software of their choice. Software providers may then be able to use this information to enable certain aspects of Open Finance. The information doesn’t need to be protected by HMRC, it is the individual’s choice and responsibility over how to use their own information.

As MTD software develops, we will see it connected to Open Banking, allowing self-assessed taxpayers to connect their business account directly to the software, effectively getting their tax return completed for them by an AI program. They would simply check the details, add any adjustments, and click submit. HMRC would then validate the records, providing assurance for any financial institutions using that financial information.

More Growth, Lower Risk

With access to complete and validated financial information, lenders would be able to more quickly and accurately assess individual risk when considering a loan or mortgage application. This would greatly speed up the process of applying for a loan, whether for a business venture or property purchase, for example.

Take residential landlords, for example. They may own a few properties already, with equity coming out of their ears. If that landlord wants to obtain another property, they would need to get their accountant to assemble their financial information, complete a SA302, and send everything off to their mortgage advisors who would then validate the information before submitting the mortgage application.

The application can then take months to approve, slowing down the process and potentially leading to missed opportunities. Since property sales usually occur in a chain (the owner of the property you are purchasing is usually purchasing another property, and so on), these inefficiencies slow the process down for everyone and can have major impacts.

If, however, mortgage applicants could simply share validated financial/tax records, mortgage providers could use that information to make quick decisions with reduced risk. What’s more, applicants could share only relevant, high-level information, rather than expose their entire financial history.

Individual Risk Management

Currently, individuals can manage their credit score/risk profile via third party providers like Experian, Equifax and TransUnion. These credit reporting agencies use limited information, such as credit cards, store cards and loans to assess risk. Individuals need to understand what factors each agency uses in order to ‘game’ the system.

For example, someone who has always been careful with their money, kept to a strict budget and never taken out a loan or credit card will have a far worse credit rating than someone who regularly uses debt to finance their lifestyle. So, even though they may have amassed a good deal of savings, they cannot get a good deal on a loan or mortgage.

With Open Finance, these individuals would be able to quickly prove their earnings, spending, and savings, decreasing their risk profile in line with reality. Rather than crude measures of creditworthiness, financial institutions would be able to use accurate and validated information to make quick decisions based on realistic risk. This both transfers more power to individuals and contributes to faster growth while reducing overall risk.

As a centralised repository for validated financial information, MTD providers will be in a unique position to develop a two-sided marketplace for finance, allowing credit providers to match products to individuals’ risk profiles. When a customer needs a loan, credit card or mortgage, they can simply browse products for which they have already been approved, applying and receiving finance instantly.

Empowering PAYE Taxpayers

Currently, PAYE taxpayers have little, if any, visibility or control over their tax contributions. They will see the amount paid in tax and national insurance, but to claim any allowances requires them to submit a self-assessment tax return. For most PAYE taxpayers, this simply doesn’t seem worthwhile.

Yet, self-employed taxpayers can claim for things like travel to their place of work, a proportion of living expenses when working from home, even their lunch. These things are necessary for productive work yet, for PAYE taxpayers, come out of their already taxed income. Meanwhile, businesses tend to make use of every tax allowance available to them.

This imbalance could be rectified with Open Finance connected to tax software. As MTD becomes a validated system for self-assessed taxpayers, a new version could be developed for PAYE taxpayers, putting them in control of their tax and finances. Not only would they be able to benefit from Open Finance in the same way as self-assessed taxpayers, but they will also be able to claim for reasonable allowances. What’s more, HMRC/the Treasury/the government would be able to hold employers accountable for pay disparities and unreasonable tax avoidance.

Open Finance, then, has the power to speed up and reduce the cost of obtaining and providing finance. It would make the finance system fairer and most transparent while distributing financial power, and help to avoid the creation of too big to fail financial institutions and the boom-bust cycle that has become unfortunate features of modern capitalism.

Ultimately, Open Finance has the potential to help the UK and other nations recover from the seemingly unending series of crises that have plagued the early 21st century by allowing people to access finance quicker in order to grow their business and personal finances while reducing risk, inefficiencies, and costs.

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Three ways payment orchestration improves financial reconciliation

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Knowing the best alternative payment methods

By Brian Coburn, CEO or Bridge,

When Luca Pacioli, the 15th century Venetian monk, invented double-entry account keeping, managing financial reconciliations had its own unique challenges. The father of modern accounting didn’t have to deal with glitches in his book-keeping app but he did have to write with feather-based quills by candlelight. Five hundred years later the challenges are different but no less onerous.

As in the 15th century, solid financial reporting is at the heart of every successful high-transaction business. As Pacioli no doubt knew, up-to-date, well-documented accounting ensures good operational health and makes it easier to grow. And that’s never been more important.

While it might not be feather quills by moonlight, today’s environment of multiple customer channels can be time-consuming and labour intensive, with various payment methods and financial reconciliations from multiple data sources.

Understanding cash inflow through online transactions is a critical element of financial reporting. However, when these involve multiple payment processors and payment methods and a complex system of disjointed silos of payment data, this can become a cumbersome and arduous manual task.

Common issues in this fragmented payments landscape include working across different formats, managing different data owners and access as well as inconsistent process timings. The result is often increased inaccuracy and inefficiency. Procuring multiple tools and software can end up being uncost-effective and unwieldy. Though the current digital transformation is an exciting time for retailers, staying on top of the ever-changing payment options can be an overwhelming burden for many business owners.

Introducing payment orchestration presents a single, accessible, creative and accurate source of transactional data, crucial for today’s complex challenges around financial reconciliations.

Simplicity

Today, commerce is 24/7, so being able to access and analyse real-time information is vital to managing business controls. Many organisations have looked to automate these processes with account reconciliation software.

However, one key challenge is the sheer volume of transactions and the need to capture data from a variety of different sources. Payment orchestration enables transactions to be carried out by multiple payment processors and payment methods with simple and flexible plugins, centrally monitored and routed in the most optimum way.

It allows users to add or remove providers easily, knowing the complexity (detecting outages and automatically rerouting payments) is being handled by a trusted specialist partner via an intelligent platform.

Bringing disparate sources of online transaction data into one place simplifies how enterprises access and operate with multiple payment processors and payment methods. This makes it easier for businesses to remain agile.

Speed

For organisations that still depend on manual, spreadsheet driven processes, the mechanics of reconciliation can be extremely time consuming.

A payment orchestration layer creates the opportunity to automate processes and reduce manual intervention. By bringing multiple payment processors and payment methods into an integrated service layer with intelligent routing capabilities, the impact of individual outages or failed payments can be mitigated to ensure optimum payment success rates, saving crucial revenue.

Accuracy

Naturally, significant manual work brings with it the added risk of human error. The speed with which business moves today demands accurate accounting processes. Checking for error takes up valuable time that could be spent focusing on business growth.

Payment orchestration can improve accuracy and reduce the opportunity for error. Providing a holistic and central source of real-time transactional data, payment orchestration can offer improved transparency and greater visibility of financial data.

With all transactional data captured in one source, payment orchestration can present a data source to feed other applications – such as automated reconciliation tools and fraud management – automating business processes in a seamless way across the enterprise. Good practice like this will, of course, enable a consistent approach to fraud management across all channels and payment services.

Multiple payment choices can be onerous but, today, not adopting them at all is unwise. The key to success, and good financial reconciliation, is being able to streamline and manage them.

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