By John Liu, Chief Product Officer, Fusion Foundation
Facebook and JPM Coin Suggest Mainstream Potential for Stablecoins
Global projects like Facebook Libra and JPM Coin have captivated the world with the potential that stablecoins (cryptocurrencies pegged to assets with perceived relative stability like the USD, the Swiss Franc—even gold or silver) might move to the mainstream sooner than some have envisioned.
Planned for launch as early as 2020, Libra will be backed by a reserve of real-world assets, including bank deposits and short-term government securities, making it more stable than other cryptocurrencies, while giving it an instant platform. Although its fate remains uncertainconsideringFacebook’s regulatory and privacy probes, Libra was positioned from the start asa direct challenge to existing central banking systems: “a more efficient, low-cost and secure alternative payment tool for people who can’t afford to transfer money using traditional methods,” according to the company.
Also this year, J.P. Morgan announced it had become the first U.S. bank to create and successfully test a stablecoin, saying its JPM Coin has the potential to transform global banking payment transfer for its institutional clients, an alternative to less efficient legacy bank payment systems such as SWIFT.
While Libra and JPM Coin have captured the world’s attention for its mass market potential, the real sizzle for stablecoin is a ground game of real-world local use cases that are getting surprisingly little attention. Beyond the news headlines, what lesser known regional challenges are stablecoins uniquely positioned to address?
In partnership with the private sector, a groundswell of regions around the globe are turning to stablecoin to solve a range of problems, including digital payments, financial inclusion and infrastructure development. Whether consuming or providing services, municipalities comprise a vast ecosystem of contractors, consultants and agencies that need to interact and transact in order to maintain a region’s social infrastructure. However, the way these counterparties interact and transact – even in highly developed regions with ample resources like New York City – the provision of local services is often mired in complexity, fraud and inefficiency.
An even stronger case can be made for stablecoins in jurisdictions facing a range of acute challenges, such as access to banking services, transaction pricing opacity, fraud and settlement delays. Sidestepping some of the grand global use cases like Libra that trigger contentious geopolitical issues like monetary policy and national currency sovereignty, some jurisdictions are making early inroads using stablecoins given these factors to leapfrog local legacy infrastructure and exchange value digitally.
Current Use Cases: Targeting Regional Problems in Practical Terms
Blockchain initiatives dedicated to social impact around the world remain earlystage. But according to a recent study by Stanford University, “Blockchain for Social Impact, Moving Beyond the Hype,” more than half of social-good blockchain initiatives are expected to impact beneficiaries by the end of 2018. According to the report, blockchain’s most popular primary benefits are reducing risk and fraud (38%) and increasing efficiency (24%) – twin areas of critical need in fragile developing regions.
Regions have begun experimenting with stablecoins to solve for financial inclusion, access to capital markets, transaction transparency, cost-reduction and process efficiency that have the potential to help fragile developing cities be smarter and small- to mid-sized enterprises in these regions to participate in the digital economy.
In the next 20 to 30 years, stablecoin could be put to the greatest test in developing regions like Lagos, Sub-Sharan Africa, Cairo or Mumbai where populations are surging and yet the ability to provide services – even to participate in Requests for Proposals – is hampered by a lack of automation and access. Crisis conditions loom in such megacities in the absence of sustainable technology-enabled solutions to help cope with the diametrically opposed forces of growth and outdated infrastructure.
Use Case #1: for the Republic of the Marshall Island’s (RMI), current financial systems – everything from fragile paper notes, cumbersome ATMs and centralized banking – were an extremely poor fit due to the nation’s remote location and banking challenges of island life. For instance, many Marshallese transacting with families overseas face exorbitant remittance fees of 10% or more.
Last year, RMI announced it would be issuing the world’s first stablecoin that is legal tender. With the RMI SOV, Marshallese will be able to connect to the global finance network, boosting better business opportunity through vastly improved and more cost-efficient global banking connectivity and local financial service via a highly secure and auditable new national currency.
Use Case #2: the Philippines is already seeing an early push in blockchain and stablecoin innovation. Earlier this year, a leading Philippine bank launched its own fiat-pegged stablecoin dubbed PHX, which is pegged to the Philippine Peso (PHP). vPHX is part of a larger regional blockchain initiative launched last year by five rural banks in the Philippines called Project i2i aimed at improving island-to-island, institution-to-institution, and individual-to-individual banking, especially in rural communities.
Use Case #3: Fusion partner i4SD has managed hundreds of infrastructure projects with partners such as the United Nations Development Programme, the World Bank as well as these and other various national governments. i4SD is working on blockchain initiatives with a sense of urgency in relatively fragile developing countries around the world with local entrepreneurs and public organizations to ease access to electricity, water and connectivity.
Use Case #4: Even regions of the world that have ample financial resources and much older infrastructures than the US, such as the United Arab Emirates are going all in to build blockchain-based smart-cities that rely on stablecoins to leapfrog traditional centralized banking systems.
Tech Transformation on the Horizon
These use cases are harbingers of how stablecoins can be used to support an even broader range of financial functions, including cross-border lending and hedging FX exposures. But for stablecoins to realize their full potential, innovative blockchain technology needs to solve interoperability challenges that beset both local initiatives as well as well-funded global projects.
Today, Bitcoin, Ethereum and other crypto networksoperate independently, so transactions cannotbe conducted seamlessly and digitized assets cannot be exchanged easily between them. Instead, doing so requires two or more transactions in separate wallets on separate networks.
To obviate this cumbersome status quo, one of the most enticing areas of innovation is a new technology called Distributed Control Rights Management (DCRM). Blockchains and other distributed ledgers built with DCRM make it possible to transact across assets, cryptocurrencies and chains seamlessly, cheaply and securely. Such technological advances will help stablecoin as it matures by removing barriers of adoption and adding a more fluid and efficient layer for business transactions and value exchange.
Conclusion: Technology as the Great Equalizer
As local as well as large global stablecoin initiatives continue to innovate, regions around the world that will no longer be bound by the limitations of legacy infrastructure. Indeed, the digital technology will be a game-changing equalizer for smaller innovative countries like the UAE. Given guidance and support, such regions can take a fair share of the digital economy unconstrained by physical limitations.
Local pilots are attractingincreased involvement of global authorities, as highlighted in the World Economic Forum’s white paper, “Central Banks and Distributed Ledger Technology: How are Central Banks Exploring Blockchain Today?” Pilots backed by such agencies are particularly promising because, as gatekeepers of traditional finance, these agencies can serve as agents of change by encouragingthe innovation and regulatory safeguards that are needed for stablecoin’s large-scale adoption.
As they continue to evolve, stablecoins can provide myriad benefits for regions around the world, particularly where traditional banking systems have fallen short. Expect to see continued stablecoin innovation that supports faster, more transparent and cost-efficient cross-border value exchange, especially in areas that have higher rates of fraud and difficulty accessing the digital economy.
Unlocking the potential of APIs
Corporate expectations for fast, efficient and convenient payment services are now the norm. BNY Mellon Treasury Services’s Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management, explores how banks are leveraging APIs to keep pace with these demands and maintain a competitive edge.
The expectation for a quick, seamless and user-friendly banking experience has long been the norm in the consumer space. Today, treasurers expect no less from their corporate banking applications. The gap between this desire for new and improved offerings and delivering greater levels of client service is being bridged by APIs (Application Programming Interface) – a key innovation that banks are harnessing.
APIs are a type of computing interface that enable streamlined, efficient communication and integration between software components. Benefits include operational speed and efficiency and, where process automation is also deployed, rapid – or even real-time – data flows, superior analytics, and real-time visibility over balances and payments statuses.
APIs have become a familiar term in the finance space. In the past few years, regulators and industry bodies have helped drive adoption – with uptake currently varying from market segment to market segment and region to region. Traction has been highest in the US, with momentum building in APAC, EMEA and LatAm.
While many banks have already incorporated APIs into their strategies, the overall progress has been somewhat limited by a lack of standardized, interoperable systems and processes across the financial services industry. But, with upcoming industry initiatives, such as the global migration to the ISO 20022 messaging standard, pushing the industry further towards greater harmonization, the full potential of APIs can be unlocked. Now, therefore, is the opportune time for banks and their clients to invest in their API capabilities.
In today’s fast-paced world, an effective and successful bank needs to deliver optimized payment capabilities, with accurate and efficient processes. This is being achieved through API solutions targeted at specific use cases.
For example, while making a payment may appear straightforward at the point of execution, the underlying processes are complex. Ensuring the streamlined and successful completion of these processes – which include payment initiation, reporting and sanctions screening – is critical for businesses, with any lapses potentially causing financial and reputational damage. As a result, banks are increasingly looking to APIs to provide real-time visibility for the entire payment process – meaning that any potential issue can be spotted and resolved in a timely manner.
APIs can also be used to integrate real-time account balances and transactional data across multiple channels, including Treasury Management Systems (TMS) and Enterprise Resource Planning (ERP). For example, BNY Mellon’s Treasury APIs enables the bank to integrate its solutions with its clients’ internal systems. This allows clients to streamline efficiencies by automating payment processes – with necessary tasks, such as reconciliation, able to be performed seamlessly. Automating previously manual functions via APIs saves time and frees up resources previously spent on repetitive tasks, thereby enabling this capacity to be redirected to value-added processes, such as forecasting analysis, customised reporting and transaction capabilities. Through this solution, clients can also securely access global payment capabilities through a single endpoint to initiate payments and track the status of transactions, from initiation to completion.
Elsewhere, as the Covid-19 pandemic has proved, it is important to have a robust business continuity plan (BCP) in place to offset against the impact of any unexpected events. APIs can be used in BCPs to help create an effective, resilient active-active alternate channel solution for contingency scenarios. For example, if a bank suffers a disruption or outage to their network provider, they will have to ensure they are able to seamlessly switch to an alternate digital channel to process their payments in a timely manner with no financial implications. Traditionally, banks relied on the provider’s online bank portal to instruct payment orders – a process that, to execute accurately and within the cut-off time, uses a significant amount of resources. Depending on the timing and intensity of the disruption, these resource are sometimes challenging to mobilize and activate within a short interval and could lead to serious financial and reputational implications. APIs offer a good alternative to these traditional contingency plan solutions. By enabling a fully functional integration with their network bank providers, banks can process a certain share of daily volumes via an API in addition to their usual channels – allowing for a smooth transition during a contingency scenario.
The next steps for APIs
Though enthusiasm for API adoption is relatively strong, we have only just started to scratch the surface in the B2B space. So far, the biggest strides have been made by Big Techs, which have been particularly adept at delivering API solutions thanks to their nimble business models. While the financial industry is making efforts to evolve – embracing the start-up work culture, breaking silos and developing an open and collaborative work environment – the success and speed of delivery is often hindered by the size and complexity of the solution required. For instance, an API might need to work for multiple parties across various jurisdictions that are each bound by unique regulations in their domestic markets. As a result, consortiums formed by fintech and financial firms, various market network providers and regulators are each working on ways to simplify these processes.
One path forward is increased industry standardization. For example, the lack of cross-border interoperability between market infrastructures and networks currently makes the exchange of data and APIs much less effective. The upcoming migration to ISO 20022 – the new global payments messaging standard – looks set reduce these frictions. With major market infrastructures and network providers each migrating to the new standard, banks looking to leverage APIs and other messaging channels may no longer be required to maintain multiple variations of the message specifications by channels, currency and markets – something that today represents one of the biggest barriers for adoption. Elsewhere, plans are also underway to connect the various domestic real-time payment infrastructures to create an interoperable system for digital payments – one that could eventually support API adoption for cross-border real-time payments.
As the industry standardizes and simplifies its processes, and banks begin to integrate APIs into their own and their clients’ infrastructures, a host of new opportunities, including real-time data feed of balances to drive more proactive functions for treasuries, is set to be unlocked. Importantly, the onus is now on banks to invest in APIs and advocate their adoption to clients.
Sindhu, who is based in the BNY Mellon Singapore Branch, recently took part in the “Executing business strategies with the power of APIs” Sibos webinar. To sign up to Sibos to view the webinar, please click here.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
Tapping into the right minds
By David Holden-White, co-founder and managing director, techspert.io
The world is awash with information. Analyst house IDC estimated that more than 59 zettabytes of data would be created, captured, copied and consumed in 2020, and that the amount of data created over the next three years will be more than what was created in the past 30. The boom in consumer technology and the rapid improvement in mobile connectivity has meant that the 48% of the globe that owns a smartphone has near instant access to all the digitised, publicly available information in the world in their pocket.
A world overloaded by information
It’s no surprise that people talk of information overload, or how much it impacts productivity. It’s not new either. A 2012 study from McKinsey & Co highlighted that nearly a fifth of professionals’ time was spent searching for and gathering information, half of the time they spent undertaking role-specific tasks. This is only likely to have increased as we’ve become more dependent on digital tools and services.
On top of that is the realisation that, thanks to social media, we’re living in a time when anyone can be an influencer or thought leader if they shout loud enough. It doesn’t matter whether you’re pushing trainers or cloud computing, whether your audience is a broad spectrum of consumers or a niche group of B2B buyers; the tools and resources are pretty much freely available to build a profile and push your message out there.
The result is that it’s becoming increasingly hard to find the value amongst vast and accelerating volumes of online data and noise, and to use that data to make accurate, effective decisions.
This is something we need to be able to do. We’re all expected to work faster, to make better decisions more quickly. The pandemic showed that certain changes don’t need five committees, two working groups and a proof of concept to take place before decisions can be rubber stamped. At the same time, no matter what industry you work in, there will be competitors who are more agile, more flexible, and seem to be much better at making decisions and capitalising on opportunities.
Yet those decisions still need to be backed by evidence, by irrefutable knowledge. What’s more, there’s only so much data can give us. We need the insights stored in the minds of true experts, with lived experiences of the particular problems, markets and technologies in question. In accessing this, we can develop a decision-making edge in businesses that competitors don’t have, that can be used to drive entrance into new markets, or for winning investment decisions.
Limiting risk in investment decisions
As we all know, investments are inherently risk-related, so, anyone making such a decision will do all they can to minimise their risk exposure, especially in volatile post-covid markets.
To do that requires being able to identify, consume and process information quickly. Investment opportunities, particularly in industries with significant growth capacity, come around quickly and get snapped up fast.
Those decisions will incorporate analysing and drawing insights from raw data, using publicly available and analyst-produced information. But there is also an opportunity to draw on human insights, from leading experts in relevant fields, to get a sense of the story that 0s and 1s can’t properly tell yet. Tapping into the right minds is essential to informing investment decision-making in 2021.
In an ever-growing haystack of information, the challenge is finding them quickly. Plus, once they are found, there’s a tendency to keep using them, or to use them as a gateway to others in their network. While there’s nothing inherently wrong with this approach, it leaves investors exposed to a lack of diversity in thought that makes getting to an unbiased view of the world impossible. At the same time, casting their net wide and finding lots of experts is resource and time-intensive, at a point when time is one commodity in short supply.
So, what’s the solution? Ironically, given that the challenge is bringing the right human insight into the process, the answer could lie in technology, specifically artificial intelligence (AI). AI-powered platforms can take a request for expertise and run searches through all available published and credible material to recommend the most appropriate experts for the project in question.
It’s true that there are already services that recommend experts, but they are heavily manual and therefore slow and imprecise. It’s also true, there are also both negative and positive connotations being attached to AI. No technology is without its flaws, and if investors were relying on the AI platform itself to provide expertise then there would be cause for concern. Services that provide access to the experts themselves, however, are providing a fast way through the noise and data – it’s a car to the destination, not the destination itself. Once investors and experts are connected, the former has access to the relevant insight the latter holds in their heads. What AI has done is rapidly scan through millions of people of talent to highlight the relevant knowledge holders with pin-point accuracy.
Using technology to highlight the best human knowledge
Using an AI technology platform to find the most relevant human is a way of taking a resource-consuming process and finding what’s needed in a thousandth of the time. In that way, investors can get fast access to the human insight they need to make the best decisions, allowing them to capitalise on opportunities and not miss the next big growth opportunity.
Australia says no further Facebook, Google amendments as final vote nears
By Colin Packham
CANBERRA (Reuters) – Australia will not alter legislation that would make Facebook and Alphabet Inc’s Google pay news outlets for content, a senior lawmaker said on Monday, as Canberra neared a final vote on whether to pass the bill into law.
Australia and the tech giants have been in a stand-off over the legislation widely seen as setting a global precedent.
Other countries including Canada and Britain have already expressed interest in taking some sort of similar action.
Facebook has protested the laws. Last week it blocked all news content and several state government and emergency department accounts, in a jolt to the global news industry, which has already seen its business model upended by the titans of the technological revolution.
Talks between Australia and Facebook over the weekend yielded no breakthrough.
As Australia’s senate began debating the legislation, the country’s most senior lawmaker in the upper house said there would be no further amendments.
“The bill as it stands … meets the right balance,” Simon Birmingham, Australia’s Minister for Finance, told Australian Broadcasting Corp Radio.
The bill in its present form ensures “Australian-generated news content by Australian-generated news organisations can and should be paid for and done so in a fair and legitimate way”.
The laws would give the government the right to appoint an arbitrator to set content licencing fees if private negotiations fail.
While both Google and Facebook have campaigned against the laws, Google last week inked deals with top Australian outlets, including a global deal with Rupert Murdoch’s News Corp.
“There’s no reason Facebook can’t do and achieve what Google already has,” Birmingham added.
A Facebook representative declined to comment on Monday on the legislation, which passed the lower house last week and has majority support in the Senate.
A final vote after the so-called third reading of the bill is expected on Tuesday.
Lobby group DIGI, which represents Facebook, Google and other online platforms like Twitter Inc, meanwhile said on Monday that its members had agreed to adopt an industry-wide code of practice to reduce the spread of misinformation online.
Under the voluntary code, they commit to identifying and stopping unidentified accounts, or “bots”, disseminating content; informing users of the origins of content; and publishing an annual transparency report, among other measures.
(Reporting by Byron Kaye and Colin Packham; Editing by Sam Holmes and Hugh Lawson)
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