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The ever-changing representation of value

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The ever-changing representation of value 1

By Vadim Grigoryan, Partner, Lunu Solutions

Ask a selection of people about cryptocurrencies and you’ll likely receive a wide range of answers. Some will wax lyrical about the huge potential of the underlying infrastructure that supports them, while others will dismiss them as nothing more than a worthless speculative bubble.

Cryptocurrencies have often been described in this way, mainly because – according to their opponents – they aren’t backed by tangible value. This is an argument that could easily be dismissed as very short-sighted, particularly if we remind ourselves that our current currencies all rely on trust – not exactly the most tangible of assets.

As Kabir Sehgal, a bestselling author and former JP Morgan vice-president, said: “In order to deal in money, humans must be able to think symbolically”. Financial history teaches us that money, in its first intent, was almost never meant to have intrinsic value – but to be a representation of it. For example, the porcelain-like shell of the cowry circulated around the globe for 4,000 years – longer than any other currency in the history of money. And its value was perceived not on its intrinsic utility, but on its beauty. Indeed, intrinsic value has long stopped be a measure of the real value of money. Let us not forget that each individual banknote costs a fraction of what it’s worth to produce – a $100 bill costs around 12 cents.

Money first appeared from the original evolutionary need to eat and survive by exchanging energy with another. That is why money has become whatever represents that energy: first food commodities – such as barley, cacao beans or salt – and then the tools to cultivate them. The symbolic distancing of money from its real value has developed over the years into coins, paper currency and mobile payments. Since money is fundamentally a mental abstraction of symbolic representation of value, what money is and what it will be can be is limited only by human imagination. Could something as invisible and intangible as cryptocurrencies be the next step?

Building value through trust

Something that has value should check two boxes: scarcity and utility. Scarcity of cryptocurrencies is often guaranteed by their design, in terms of a finite or limited supply (e.g. Bitocoin has a set cap of 21 million coins). Their utility is already embedded in the divisible nature of cryptos (unlike gold, which is very difficult to use transactionally, you can buy a coffee, a ferrari or a house with bitcoins). As such, the potential of cryptos to be a more efficient currency than what we already have would further increase with the wider adoption of digital currencies in retail.

We know that the representation of value has changed over time and is a fast-moving one in our society. That’s one reason why the concept of ‘money’ is much more abstract and complicated than most people realise.

But one thing that has never changed throughout the long evolution of money is the importance of trust. The reason money works is because people trust in its value; this is a key rationale behind most currencies – including cryptos. In fact, one of the key selling points of cryptocurrency is that it is built specifically on trust.

Although they lack the legal and institutional backing of traditional financial services, cryptocurrencies provide trust through technology. Blockchain technology enables the use of a distributed and immutable ledger of records, providing total transparency and making every transaction tamperproof. Data is decentralised and encrypted so that it can’t be interfered with or changed retrospectively. The crypto sphere is also intrinsically democratic. There is no central authority and no individual entity can change the rules of the game, which protects against government interference and makes it almost impossible to lobby private interests.

So, with this in mind, why are cryptocurrencies still largely used as an asset rather than a means of payment? It’s mainly because the real-life economy is still lagging in terms of providing crypto-based payment solutions. Many stores still fear accepting cryptos as a means of payment – whether due to technical limitations or concerns around fees and exchange rates – creating a vicious circle reinforcing the speculative nature of cryptos as assets that are just bought and sold.

We believe it’s time to break this circle and move towards a new financial model that accepts cryptos as a means of payment. It’s time for cryptocurrencies to be appreciated for the value they provide.

Recognising crypto personas

Our research into the ever-growing crypto community has uncovered an ecosystem of global citizens that share a philosophy; one pegged to a thirst for freedom, equality, inclusion and global interaction. For example, they are actively involved in social causes and place a high value on social responsibility for individuals and companies.

We also identified several different persona groups within that ecosystem, all of which have varying degrees of influence in the community.

  • Hamsters: this group is enthusiastic about cryptos, but lacks either the wealth or knowledge to shape the market or effectively navigate it.
  • Geeks: comprised of tech-savvy specialists who expect others to be up to their level of technical expertise
  • Cool cucumbers: a group of wealthier individuals focused on the investment opportunities and less emotionally involved with cryptos as a way of life

But the most powerful and engaged of the various user groups we identified, is the one containing individuals who have the financial capital and technical knowledge to drive and shape the future of the market – the Apostles. They are the community gurus, the public figures and the influencers who aren’t afraid to voice their opinions. Indeed, their minds have the power to drive widespread adoption of cryptos.

Over the coming years, this cohort of individuals will continue to grow and impose its expectations on retailers and stores. They understand the concept of money as a representation of value and recognise the role that secure, decentralised and globally connected cryptocurrencies can play in the existing economy.

If money is a symbol of value, this community appreciates the need for other symbols that represent other values in the world of tomorrow – such as transparency, empowerment and the end of the abuses of power that we have seen in the past.

Ultimately, although cryptocurrencies have been inching their way into the mainstream steadily since their introduction in 2009, the main stumbling block has been how to use them in everyday life. The good news is that we are during a transition. Trust is continuing to build, and the ‘value’ barrier is slowly being overcome. There is light at the end of the tunnel – driving cryptocurrencies and other forms of digital money forwards as the next step in money’s ongoing evolution.

Finance

Employee Ownership Trusts increasing in popularity amid a backdrop of continuing uncertainty

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Employee Ownership Trusts increasing in popularity amid a backdrop of continuing uncertainty 2

With 2020 behind us, the impacts of the COVID-19 Pandemic and Brexit are still being felt throughout the economy, and will no doubt continue to cast a cloud of uncertainty for a good while yet.  Businesses and business owners find themselves in a state of flux, not quite knowing which way to turn as circumstances continue to evolve so rapidly.

A traditional sale to an aligned trade purchaser or private equity investor may still be appropriate to many business owners seeking to exit in uncertain times, the long lasting effects of Covid-19 are likely to give rise to an increase in protracted commercial negotiations over company valuations, particularly if trading performance for 2020/21 have been supressed for a long period of time, and the scarcity of potential purchasers who are fair and commercial, rather than those seeking a potential bargain or reasons to de-risk the deal. However, if the thought of going at it for another three to five years is even lower down the list, there are other alternatives available to an owner looking for a different way to hand over the mantle

The advent of Employee Ownership Trusts (EOTs) in September 2014 has opened the door to many owners searching for alternative succession plans, creating a framework for greater employee engagement, and participation in the upside of future success.

Castle Corporate Finance have helped a number of owners and management teams through the process of a sale of shares to an Employee Ownership Trust, enabling not only succession for founders, but also allowing companies to manage and implement ambitious growth plans. The evidence to date [insert source reference to EOA website] indicates a significant increase in productivity within employee owned businesses – perhaps another factor contributing to their increasing popularity.

“Employment Ownership Trusts are not the answer for everyone but offer a distinct path for many owners or founders who may have explored traditional exit routes without success, and who may not be aware of the existence or the potential benefits of an EOT. The number of employee-owned businesses is rising rapidly, and we expect that trend to continue in the coming year as founders seek to de-risk, and management teams seek ways to involve their workforce in the running of the company.” said Victoria Ansell, director at Castle Corporate Finance.

One of the other substantial benefits for sellers is also the generous tax break on this form of exit which currently exists, in the form of 0% capital gains tax on the proceeds of sale, provided the transaction complies with the legislative framework. Employees could also gain a tax-free cash bonus of up to £3,600 per employee per year.

Knowing who to turn to for advice is the important first step for any business owner looking to explore the options available to them. An EOT could be the right solution but there are important criteria and conditions to be met.

“Castle can initially help to assess the feasibility of an EOT, firstly as an exit strategy for the current owner(s), but secondly as to whether it is a viable framework for the company itself as one looks to the future. We can help to assemble (and project manage) an experienced team of professionals to support sellers and the trustees of the EOT alike, covering valuation, taxation, and legal aspects, and drawing all those strands together. Finally, by supporting shareholders or management when presenting the EOT to employees: helping to ensure that transition to employee ownership gets off on the right foot from the beginning is vital.” Victoria said.

Employee-owned businesses in themselves are not new and business models of shared ownership have been around in one form or another for over a century. However, this model is less than ten years old, and many are still not aware of it. Castle Corporate Finance believe it should form part of any discussion around succession plans, and particularly at this time the EOT framework could be a lifeline to some business owners who want to share the success of their businesses with their employees.

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Is MiFID II still fit for purpose in a post-COVID financial landscape?

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Is MiFID II still fit for purpose in a post-COVID financial landscape? 3

By Martin Taylor, Deputy CEO and co-founder at Content Guru

January 2nd, 2021 was the third anniversary of the implementation of MiFID II, a legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors. This second iteration of the Markets in Financial Instruments Directive includes a range of binding obligations for financial traders, including the need to record and store any/all external communications that could result in a trade, for a minimum of five years.

MiFID II is a complex piece of legislation to put it mildly and compliance requires a great deal of time and effort. Despite this, its ‘real-world’ value currently remains subject to debate. While the EU Regulator recently stated that rules around investment research and analysis had been a success, it has previously conceded aspects of MiFID II targeting marketing data costs have been less so. In a wider sense, industry professionals affected by the new legislation have extremely mixed feelings about its benefits and detriments, both to their work as individuals and to the financial sector as a whole.

However, one thing that is clear is the imposition of financial penalties associated with non-compliance to MiFID II is likely to increase significantly in the near future. Under the original MiFID legislation, many high-profile organisations, including Goldman Sachs International, received fines running into tens of millions of pounds for failing to report transactions in an accurate and timely fashion. Conversely, less than €2 million in fines were handed out under MiFID II in the whole of 2019. Many industry commentators attribute this low figure to a grace period for the new legislation, with the Financial Conduct Authority (FCA) giving firms some wiggle room as they acclimatise to it. But as this period ends, fines and penalties are expected to skyrocket.

Applying pre-COVID legislation in a post-COVID landscape

Of course, to say the financial landscape has changed somewhat in the last twelve months is a bit of an understatement, which makes adherence to MiFID II even harder than it was previously. In particular, the massive shift to home working has rapidly accelerated the adoption of new innovations and technologies aimed at making remote collaboration more effective, but not necessarily MiFID II compliant.

Martin Taylor

Martin Taylor

Organisations with well-established processes and methodologies have been forced to rapidly rethink their strategies. In many cases, the speed at which they’ve been able to achieve this has been extremely impressive, but it’s come at the expense of compliance. After all, MiFID II is applicable to any communication that may result in a trade. In a lockdown environment, where finance professionals are collaborating and screen sharing to make decisions, they are still operating under the compliance rules set out and their interactions should be recorded and stored. But how many organisations have actually put processes in place to meet these obligations as part of the ‘new normal’?

As the rollout of multiple COVID vaccines gets underway around the world, there’s growing hope of a return to more traditional working environments in the not-too-distant future. But with the popularity of home working leading to many organisations saying it’ll become a permanent fixture, where does that leave MiFID II compliance?

A complex compliance challenge

For compliance officers looking to shore up their organisation’s post-COVID remote work environment against MiFID II breaches, there are numerous concerns. For example, how can they ensure every pertinent conversation across numerous digital platforms, being used by hundreds of traders, is correctly managed and recorded? The issue can be broken down into two main categories. The first is the management of tools and services in question, and the second is management of the data being shared across them.

Technical complexity requires a proactive, technology-led response. Disjointed, reactive compliance is becoming increasingly unfeasible, given the depth and breadth of tools now being used. For instance, if trading professionals use Microsoft Teams, but their client prefers Skype, how can compliance officers ensure that each and every recording is properly maintained, regardless of which platform is used each time? The answer may lie in unified solutions, which provide a central platform to take advantage of these best-of-breed technologies and provides resources such as search-and-replay, e-discovery and end-to-end trade reconstruction across a diverse technical ecosystem. Unified solutions may allow firms to develop cost effective, enterprise-wide compliance and data management policies that are fit for purpose in the post-COVID landscape.

Effective data management and analytics will play pivotal role

One thing becoming increasingly clear is that the ability to manage and analyse datasets in their entirety, rather than relying on random manual sampling, will play a pivotal role in eliminating dangerous reporting gaps. Today’s analytics solutions and advanced speech-to-text technologies have already proven invaluable over the last ten months of restrictions and will continue to set the benchmark going forward. Tools such as universal search not only give compliance officers the visibility they need to do their jobs properly, they also help maintain effective standards across all relevant stakeholders.

However, such solutions have requirements of their own, particularly when it comes to robust data and storage. Firms must ensure that their systems utilise compliant data storage, that has sufficient capacity to retain all types of electronic communications data, including uncompressed stereo voice recordings, for at least five years after they are recorded, as stipulated by MiFID II.

The ability to comply with legislation such as MiFID II remains a key priority for every business within its scope. However, adhering to pre-COVID legislation in a post-COVID landscape is a lot easier said than done for many. Whether the creation of MiFID III will ultimately be required remains to be seen. Until then, it’s clear that successful compliance will rely on the effective implementation of technology-led solutions capable of overcoming the new barriers created by such a fundamental shift in work practices over the last 12 months.

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FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India

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FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India 4

New Delhi, January 12th,2020: FSS (Financial Software and Systems), a leading global payment processor and provider of integrated payment products, today announced partnering with India Post Payments Bank (IPPB) to promote financial inclusion among underserved and unbanked segments. As part of the collaboration, IPPB will use FSS’ Aadhaar Enabled Payment System (AePS) to deliver interoperable and affordable doorstep banking services to customers across India.

FSS’ AePS solution combines the low-cost structure of a branchless business model, digital distribution, and micro-targeting that lowers acquisition costs and improves reach. This strategic partnership offers significant opportunities to bring millions of unbanked customers into the  financial mainstream. Currently, there are nearly 410 million Jan Dhan accounts in India.  A primary reason for low usage of banking and payment services is the challenge of accessibility in rural areas and the cost of maintaining active accounts — including transaction and transport— outweigh the benefits. In rural and peri-urban areas, the average time to reach a banking access point potentially ranges between 1.5 and 5 hours, compared with the average of 30 minutes in urban areas.

Leveraging its vast network of over 136,000 post offices, and 300,000 postal workers, IPPB has been setup with the vision to build the most accessible, affordable, and trusted bank for the common man in India to deliver banking at the customer’s doorstep.  With the launch of AePS services, IPPB now has the ability to serve all customer segments, including nearly 410 million Jan Dhan account holders, giving a fresh impetus to the inclusion of customers facing accessibility challenges in the traditional banking ecosystem.

Speaking on the tie-up, Mr.Krishnan Srinivasan, Global Chief Revenue Officer, FSS said, “We are proud to be IPPB’s technology partner in this monumental nation-building exercise. The collaboration is evidence of FSS’ deep payments technology expertise and commitment to bringing viable, market-leading innovations that promote financial deepening. FSS’ AePS solution combined with IPPB’s expansive last mile distribution reach empowers citizens of the country with a range of digital payment products and advance India’s vision towards less-cash economy.”

“Through the vast reach of Department of Posts network along with the advent of the interoperable payment systems to drive adoption, IPPB is uniquely positioned to offer a range of products and services to fulfil the financial needs of the unbanked and the underbanked at the last mile. Having launched AePS services, the Bank has become the single largest platform in the country for providing interoperable banking services to customers of any bank. The strategic partnership with FSS provides us with an opportunity to expand the portfolio of financial services and improve customer experience whilst maintaining operational efficiency, thus building a digitally inclusive society,” said Mr. J. Venkatramu, MD & CEO, India Post Payments Bank.

The infrastructure created by IPPB addresses the accessibility challenges faced by customers in the traditional banking ecosystem. It fulfils the Government’s objective of having an interoperable banking access point within 5 KM of any household and creating alternate accessibility for customers of any bank.

The operation of FSS’ AePS solution is based on agents performing transactions on behalf of customers using a tablet, micro-ATM or a POS device. The system is device agnostic and can accept transactions originating from any terminal. Customers of any bank can access their Aadhaar-linked bank account by simply using their fingerprint for cash withdrawal, balance enquiry and transfer of funds into an operating IPPB account, right at their doorstep. FSS’ AePS exposes APIs to third parties to develop an expansive services ecosystem and extend a broad suite of financial products and tools including micro-insurance, micro-savings, micro-finance, mutual fund investments, enabling the bank to further services adoption among low and moderate-income consumers.

About FSS

FSS (Financial Software and Systems) is a leader in payments technology and transaction processing. FSS offers an integrated portfolio of software products, hosted payment services and software solutions built over 29+ years of experience. FSS, end-to-end payments products suite, powers retail delivery channels including ATM, POS, Internet and Mobile as well as critical back-end functions including cards management, reconciliation, settlement, merchant management and device monitoring. Headquartered in India, FSS services leading global banks, financial institutions, processors, central regulators and governments across North America, UK/Europe, Middle East, Africa and APAC. For more information visit www.fsstech.com.

About India Post Payments Bank

India Post Payments Bank (IPPB) has been established under the Department of Posts, Ministry of Communication with 100% equity owned by Government of India. IPPB was launched by the Hon’ble Prime Minister Shri Narendra Modi on September 1, 2018. The bank has been set up with the vision to build the most accessible, affordable and trusted bank for the common man in India. The fundamental mandate of IPPB is to remove barriers for the unbanked & underbanked and reach the last mile leveraging a network comprising 155,000 post offices (135,000 in rural areas) and 300,000 postal employees.

IPPB’s reach and its operating model is built on the key pillars of India Stack – enabling Paperless, Cashless and Presence-less banking in a simple and secure manner at the customers’ doorstep, through a CBS-integrated smartphone and biometric device. Leveraging frugal innovation and with a high focus on ease of banking for the masses, IPPB delivers simple and affordable banking solutions through intuitive interfaces available in 13 languages.

IPPB is committed to provide a fillip to a less cash economy and contribute to the vision of Digital India. India will prosper when every citizen will have equal opportunity to become financially secure and empowered. Our motto stands true – Every customer is important; every transaction is significant and every deposit is valuable.

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