Category: Fintech

UK is the winner in European fintech funding

On By mehranmuslimiblogIn Blockchain, Digital Innovation, FintechLeave a comment

Perhaps this news will perk up those England supporters who are living with defeat to Italy at Euro2020, especially if they also happen to be fans of the fintech industry. The UK Fintech State of the Nation report from Innovate Finance shows that London “has cemented its position as the fintech capital of Europe,” despite the double whammy of a global pandemic and Brexit.

According to the data in the first half of 2021, the UK fintech sector raised $5.7bn. This is 34% higher than the $4.3bn raised in 2020 and breaks the 2019 record of $4.6bn.

Who benefited from this rush to invest in UK-based fintechs?

SaltPay and Checkout.com attracted the two largest deals made this year, with $500 million and $450 million respectively. At the moment these are the biggest fintech investments ever in the UK. SaltPay is focused on building a better payments system for merchants, whilst Checkout.com is a global payments platform aimed at offering more payment methods and currencies for online businesses. They’re similar but different, and it is worth noting that both aim to make life easier for merchants.

Indeed, ‘payment’ platforms appear to be dominating the sector here. But challenger bank Starling also got a hefty influx of funds ($376m) and crypto trading platform Blockchain.com received $300m. There has also been significant interest in more niche fintechs, such as Smart Pension, a pension and payroll tech provider, which received $230m, and PayFit, a platform that simplifies and automates payroll and HR processes for small and medium-​sized businesses, raised $107m. Credit-scoring specialist ClearScore raised $200m, another sizeable investment,

In 2021 the number of firms making deals of above $100m also rose from 10 in 2019 to 13 in the first half of 2021, so we can expect that figure to be much higher by the end of this year, and it will be interesting to see by just how much it grows.

Of course the USA is still ahead of the UK, but it is the only country that is. The report shows the levels of support for those other countries that come closest to the two leaders during the same time period: Brazil (40 deals and $3bn), Germany (56 deals and $2.5bn) and India (132 deals and $2.2bn).

Janine Hirt, CEO of Innovate Finance, commented: “Fintech is one of the fastest-growing sectors of our economy and has a vital role to play in the UK’s economic and business recovery. It is hugely encouraging to see evidence of this resilience and growth, particularly in light of the uncertainty and challenges brought on by 2020. Both the flow of capital and a wide talent pool are essential to maintaining the sector’s strength, and we remain committed to supporting efforts in these vital areas.”

You can read the full report here.

Read this before October 2021 if you’re in crypto!

On By mehranmuslimiblogIn Bitcoin, crypto, DeFi, Fintech, Governments, Regulations, Smart Contracts, StablecoinsLeave a comment

For those of us who believe in the concept of decentralization that underpins Bitcoin, I believe we are shortly going to receive a shock in the form of new regulations. The wealthiest countries in the world are snapping at the heels of the crypto universe and are looking at ways they can use financial regulations to bring fintechs, exchanges and crypto owners into line.

What do governments want to restrict?

Here’s a list of ‘things’ they are planning to target:

  • Peer-to-peer transactions
  • Stablecoins
  • Private wallets (phone, desktop, cold storage)
  • Privacy (privacy coins, decentralized exchanges, TOR and I2P)
  • Former ICOs & future projects (NFTs, DeFi, smart contracts, second layer solutions and more)

What is their intention?

At it’s most basic, you could say that they want to know EVERYTHING!

They want to:

  • Businesses active in crypto to be licensed and regulated like banks
  • Ensure full transparency for all transactions
  • Have the ability to freeze crypto assets belonging to persons or countries they believe are a ‘risk’
  • Force the disclosure of user information for all transactions
  • Revoke licenses of any that don’t comply with regulations.

They want control of a space that emerged precisely as a reaction to government and bank controls on money, both of which allowed a global financial crash to happen in 2008.

Why do governments suddenly want more regulations?

The answer is fear. Wesley Thysse in his document “Government Planning Worldwide Regulation of Bitcoin”, he points to one event that suddenly made them sit up and take real notice of cryptocurrencies, and that was Facebook’s 2018 announcement that it intended to create and launch a ‘so-called’ stablecoin. As Thysse says, “Until then they didn’t see cryptos as a risk to the global financial system.”

Why did Facebook’s Libra coin, as it was called at the time, send a ripple of unease through wealthy governments? Because Facebook’s billion users would have access to an instant payment system that was faster and more importantly cheaper than anything offered by the existing financial system.

Governments and the central banks huddled together in talks about what to do, and engaged an organization called Financial Action Task Force (FATF). Its goal is “to protect the integrity of the global financial system.” A real Big Brother!

FATF has already passed similar legislation for global governments, and it is the organization behind the rule insisting that all cryptocurrency exchanges that exchange fiat for crypto have the same KYC and anti-money laundering requirements as banks. What they will do now is turn their attention to all the elements of the industry outside this kind of control and as Thysse says, “declare what is, and isn’t acceptable.”

In 2018 FATF set out to control money laundering and terrorist financing, but now it is going much farther, and they are making swift progress. The document anyone in the crypto space should be looking at right now is FATF’s ‘Guidance for a risk-based approach to virtual assets and VASPS’ (GVA). This is due to be implemented in October 2021. Furthermore, it is impossible to move FATF out of its powerful position, because the organization is protected by the Vienna Conference on Diplomatic Intercourse and Immunities, which means they enjoy immunity with regard to their actions and are unburdened by the rules the rest of us must live by.

The so-called public consultation on the GVA was a farce, as they only chose the feedback that suited their agenda. They have delayed the implementation of the GVA until October, but after that expect to see their recommendations being implemented at national level, and in our legal systems. You should also note that the GVA will not apply to central bank-issued digital currencies. So, the agenda is very clear!

It may not be all bad news

As much as those dedicated to crypto may be horrified by all this, let’s take a moment to look at a possible upside: regulations may just pave the way for mass adoption, something the crypto community has long been waiting for. But at what cost? However, I urge you all to read the FATF GVA, because in just a few months it is going to start affecting your life, and most likely it won’t be in the way you would like.

Fintech will win the battle for the future of financial services

On By mehranmuslimiblogIn Banks, Fintech1 Comment

The world has experienced a seismic shift over the last year and a bit, and the effects are about to become evident as we start to move into a post-pandemic future. Financial services are one sector where we are seeing major changes, especially in the role that fintechs play in the world of money.

In the Deloitte study ‘Fintech 2021’ a ‘second wave’ of fintech activity is predicted and the authors write: “Despite the Covid-19 pandemic we appear to have entered a new phase in the evolution of the financial technology sector.”

To start with the traditional financial institutions are pursuing partnerships with fintechs, or those identifying as technology companies, so that they can access new markets. The fact that more of these institutions are now engaging with digital assets is a clear sign of this. Visa’s CEO Al Kelly recently stated why his company is moving in this direction: “We’re trying to do two things. One is to enable the purchase of bitcoin on Visa credentials. And secondly, working with bitcoin wallets to allow the bitcoin to be translated into a fiat currency and therefore immediately be able to be used at any of the 70 million places around the world where Visa is accepted.”

Morgan Stanley is another giant that is moving in a crypto direction. It is  “eyeing up a $441m play for a stake in South Korea’s largest digital asset exchange, Bithumb,” writes Maxim Bederov, who then points out that Bithumb’s exchange volume “recently exceeded mainstream equity stock market volume.”

Morgan Stanley’s move came only days after its analysts published a report: “The Case for Cryptocurrency as an Investable Asset Class in a Diversified Portfolio” arguing for a 2.5% allocation for sophisticated investors. It also noted that cryptocurrencies as an asset class, “has crossed the critical thresholds of market liquidity, regulatory scrutiny and institutional acceptance.”

Who else is buying? Paypal has confirmed it is buying crypto-security firm, Curv, on top of providing a crypto buying service to its users. And we are likely to see many more mergers and acquisitions in this space “as power consolidates upwards from crypto-asset startups to institutional giants.” Bederov says.

And, after the Covid crisis we are also seeing a major shift to cashless societies: an outcome of the fear surrounding touching coins and bank notes which were seen as a source of spreading the virus. As a result, there was massive growth in the use of contactless payments. In the UK, the limit for contactless payments was elevated twice in the past year. The limit increased from £30 to £45 in March 2020 (a modest 50% hike) then by over 120% in March 2021 to £100.

Consumers are moving away from cash at record speed, according to a major new report by FIS Worldpay. The annual 2021 Global Payment Survey found that e-commerce exploded in 2020. The use of cash has declined by 42% since 2019, and the report says cash will be the least-used traditional payment method within four years. It also states, “by 2024, digital wallets, credit and debit cards will account for 84.5% of e-commerce spend.”

Bederov concludes by saying, “Whatever results in the near term, this powerbase tussle between cryptocurrency, cash and central banks will be the defining fintech battle of 2021 and beyond.” The signs are good for a fintech victory.

Total anonymity or enhanced privacy for payments?

On By mehranmuslimiblogIn Digital Innovation, Fintech2 Comments

Anonymity in payments is a complicated topic with no easy answers. There are those who favour complete anonymity, and then there are those who see that position as dangerous. Even the regulators aren’t too sure about which way to turn, as evidenced in the US Government Accountability report on “Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges” (May 2014). It concluded, “that virtual currency systems “may” provide greater anonymity than traditional payment systems.”

Fintech expert David G.W. Birch, who has been pondering the issue for some time, and who has a ‘pseudonymity’ solution, examines it by looking at lottery winnings. He cites the case of a US lottery winner who took a case to court (as Jane Doe) because she wanted to retain privacy about her winnings. Why was she so desperate to do that? Perhaps another case Birch tells about explains it: “In November 2015, Craigory Burch Jr. matched all five numbers in the Georgia Fantasy 5 drawing and won a $434,272 jackpot only to be murdered in his home by seven masked men who kicked in his front door.”

However, in the case of Jane Doe it is clear that even if she managed to keep her winnings private, some people would know about it, namely the lottery people and her bank. As Birch says, “Being anonymous is really difficult in an infrastructure that has no anonymity.” On the other hand, if you have an anonymous system it is relatively easy to add non-anonymity to it if desired.

So, if we are designing future infrastructures, should they allow for the kind of anonymity the lottery winner wanted? Birch gives the example of New Hampshire, which allows people to form anonymous trusts and these trusts can buy lottery tickets. However, the money still has to go to a bank account.

Cryptographics could be the answer. For example, if you win the lottery, your money can be sent to your cryptocurrency address (which is in the ticket) without the lottery owner or anyone else having the slightest idea to whom it belongs.

However, there is resistance to the idea of electronic money, and central bank digital currencies in particular, to be anonymous. But there is a case for “a privacy-enhancing digital Dollar. This would be very appealing on a global scale in contrast to digital currencies subject to continual state surveillance.”

If that can be achieved, it will be to the advantage of digital currencies.