Category: Fintech

Private finance is taking crypto mainstream

On By mehranmuslimiblogIn Bitcoin, Blockchain, DeFi, Fintech, UncategorizedLeave a comment

Last year was a turning point for cryptocurrencies. It turned blockchain from being a space for geeks into one where governments, institutions and retail traders now had a seat at the table. The 2021 GameStop story also played a major role in a change of perception.

Most interestingly, as Alex Shipp explains in an article for Cointelegraph, “cryptography and its primary feature, privacy, have been relegated from the front-and-center role they once played as cryptocurrency’s main attractions.” This has been replaced by the enticements of DeFi apps that offer “enhanced liquidity, yield farming and unprecedented economic models.”

Will 2021 be DeFi’s big year?

DeFI has become the Shangri-La of cryptocurrency it seems. Its allure is pervasive across the cryptocurrency landscape, with investors enchanted by its “double-digit APRs and seamless user experience,” which holds better long-term prospects for them than the “subtle, systemic benefits conferred by a privacy-centric exchange.”

Privacy is no longer the primary reason for entering the crypto space. Moreover, as the perceived benefits of DeFi grow, consumers are more than happy to make trade-offs to keep it growing. They really don’t want to forfeit these for the sake of privacy.

DeFi is the current Disruptor-in-chief within an already disruptive community. Now we can expect another to emerge – PriFi, or Private Finance. This, says Shipp, “brings privacy back on-stage by bringing it back on-chain — that is, into the Ethereum and Polkadot ecosystems — to integrate privacy into a robust network of rapidly evolving applications of decentralized finance.”

It’s significant because until now, “privacy solutions have remained siloed on standalone, privacy-oriented blockchains, isolated from the ever-expanding features of the DeFi landscape.” This ‘movement’ wants users to be able to have access to privacy without any trade-offs. Shipp says it could not have come at a more critical moment. Why?

The answer is GameStop. I won’t reprise the story, because I’m sure you know it. However, one critical factor is that after the hedge funds got caught over-leveraged in short positions, centralized companies, such as Robinhood, Charles Schwab, TD Ameritrade and others, restricted trading “thereby protecting the remaining capital of the exposed funds.”

This caused outrage amongst the retail investors, because these companies had essential hung them out to dry. What they learnt was, as Shipp says, “For retailers in 2021, that has meant awakening to a pair of sobering realizations: that centralized markets only remain free as long as they serve centralized powers and that surveillance is a primary supporting feature employed by such power structures.”

The trading restrictions placed on the retail traders highlighted the need for “a new line of emergent derivatives: fully private, on-chain synthetic assets whose values are securely pegged to traditional financial instruments — stocks, commodities, bonds, insurance products and more.”

The crypto space is opening up in ways the first enthusiasts probably never dreamt of, and while it may not suit purists, it is driven by the demands of the market. You could say everything has changed, and nothing has changed – depending on your perception.

Affirm finds favour with Millennials and e-commerce

On By mehranmuslimiblogIn FintechLeave a comment

Serial entrepreneur, Max Levchin, has made a cool $2.5 billion stake in Affirm, his latest brainwave in the fintech sector, and he drew on his personal experience as a Ukrainian immigrant to come up with the idea.

As he Jeff Kauflin at Forbes, when he arrived in the USA with his family in 1991, he wasn’t prepared for some of the trappings of a capitalist society after living in a socialist country: “I got my first credit card a couple years after coming to America and promptly destroyed my credit, because I had no idea how to use this power tool.”

Now he is CEO of Affirm Holdings, a buy now, pay later fintech that aims to end millennials’ aversion to the credit card system as it currently operates, and consumer debt. This is not Levchin’s first foray into finance: he co-founded PayPal, and his other ventures include Yelp, Slide and Glow, the latter a fertility-tracking app.

He identified that what millennials disliked most about credit cards were the late fees and the fact that it was all too easy to run up large debts, “particularly for those who didn’t understand the way interest charges on revolving credit cards compound,” as Kauflin explains.

Affirm doesn’t offer particularly low interest rates – they run from 0% to 30% a year, depending on a customer’s creditworthiness and if a merchant subsidises interest-free payments. What it does not do is charge late fees. Furthermore, the consumer is shown from the start the total amount of interest they will have to pay on any purchase, and these are fixed payments lasting from three to 12 months. With very large purchases this period can be extended to up to four years. What is more, Kauflin says, “Consumers can instantly finance an expensive item through Affirm while paying off routine credit card charges in full each month.” This is dramatically different to the current conditions for cardholders, who end up paying interest on every item bought, no matter the size, if their account carries a balance.

Affirm has also taken advantage of the millennial enthusiasm for point-of-sale finance, and upmarket brands, such as Peloton, Mittor and West Elm are now using Affirm to subsidise interest-free instalment loans. Indeed, retailer payments make up around 50% of Affirm’s $596 million revenue in the year to 30th September 2020. It is worth noting that it has booked a profit yet and lost $97 million in the same period of time.

That will probably change, as “buy now, pay later will become the fastest-growing e-commerce payment method on the planet by 2025, predicts Worldpay,” boding well for Affirm and its main competitors Klarna and Afterpay.

In a recent letter to investors about Affirm’s pre-IPO filing, Levchin said he was determined to accelerate the demise of companies that “peddle toxic financial products and derive profit from their consumers’ missteps.”

Affirm may have some way to go before it generates profit, but it looks like momentum is on Levchin’s side. In July 2020 he concluded a deal for Affirm to become the exclusive instalment-financing service for Shopify’s US-based merchants, and with $1.2 billion of IPO cash to spend, it could be something very interesting for the millennial consumer.

Neobanks grow in 2020

On By mehranmuslimiblogIn Banks, Digital Innovation, FintechLeave a comment

Some good news to come out of 2020 is the growth in neobanks. According to Finextra, Exton Consulting has produced data showing that there are currently 256 neobanks globally, and several more waiting to launch.

The data indicates that a new banking business opened every five days over the last three years, and that Europe is still the main location of innovation, with three of the five most advanced markets being in the region. They are the UK, which is recognised as a neobanking powerhouse, followed by France and Sweden. It also reports that 50 million people in Europe have opened a neobanking account.

Europe leads in neobank innovation

Other markets are catching up with Europe, most notably South Korea and Brazil, but there is also substantial movement in the USA. China is somewhat unique in its challenger bank development, but it is unrivalled in terms of its numbers of clients using the “financial super apps” available there.

On the downside, not all challenger banks have been able to stay the course. A significant number of players relied on payment interchange fees as a revenue stream, and there has also been vulnerability due to rising number of defaults on loans. As a result, more than 30 neobanks have been wound down since 2015, with Australia’s Xinja being and an example.

New routes to profitability

Exton says: “On their quest for monetizing customer relationships neobanks have learned a first lesson: payment transaction fees, premium account subscription fees, or open banking commissions from brokering 3rd party services will in most cases not be sufficient to generate profits or breach beyond operational break-even.” It added, “Our expectation much rather is that Neobanks will need to offer additional products to jump the gap to sizable profitability.”

Digital lending may be one opportunity where the neobanks can thrive. Another option is, “the morphing of the product outside of financial services via the development of a super app, ” and a third possible route to profitability “lies in providing investment services to the mass affluent market.”

Exton concludes, “Irrespective of which path neobanks will take, we remain convinced that they will need to shift into profitability mode quickly as investor patience will not be unlimited. But for those that select the paths right for them, stay focused on it and grow up as an organization, the future remains bright and full of opportunities.”

Visa goes for USDC with Circle

On By mehranmuslimiblogIn Bitcoin, Blockchain, Ethereum, FintechLeave a comment

Visa, the credit card giant, has joined with Circle to connect 60 million merchants to the US Dollar Coin (USDC), a coin on the Ethereum blockchain. This is yet another sign that cryptocurrencies are integrating even further with mainstream payment currencies.

Although Visa won’t have custody itself of the USDC, it is going to work with Circle to select Visa credit card issuers and integrate the USDC software with their platforms, so that it can be used for payments. What this means is that businesses will soon enough be able to make international payments in USDC to other businesses supported by Visa. The funds will then be converted into national currencies when they are spent anywhere that accepts Visa.

Circle is a part of Visa’s Fast Track program, and when it completes the course next year, that is when this new USDC program will begin, with the issuance of a new credit card that allows users to spend USDC. Visa’s head of crypto, Cuy Sheffield, said, “This will be the first corporate card that will allow businesses to be able to spend a balance of USDC. And so we think that this will significantly increase the utility that USDC can have for Circle’s business clients.” 

The partnership between Visa and Circle, helped by the $40 million investment Visa made in another firm developing a platform for holding similar assets issued on a blockchain, “is the latest evidence that the credit card giant sees the technology first popularized by bitcoin as a crucial part of the future of money,” Michael de Castillo writes at Forbes.

Sheffield said, “Blockchain networks and stablecoins, like USDC, are just additional networks. So we think that there’s a significant value that Visa can provide to our clients, enabling them to access them and enabling them to spend at our merchants.”

Currently, according to Visa’s data, “$120 trillion in payments annually are made using checks and instant wire transfers, costing as much as $50 each.” By contrast, since USDC settles on the ethereum blockchain, transactions can close in a little a[s] 20 seconds and, importantly, can be done for nearly free.

Visa has been making strong moves in the cryptocurrency sphere this year. In February 2020. Coinbase became the first company granted principal membership status by Visa. This means that Coinbase, one of the biggest crypto exchanges globally, can in turn issue cards to others.

Circle has done some rethinks of its own in regard to cryptocurrency. In 2019 it had a fire sale of its assets including Poloniex, Circle Invest and Circle Pay. It also rebranded its home page with a focus exclusively on stablecoins and central bank digital currencies. The attraction of the USDC is that it is built on the Ethereum block chain and only tiny amounts of the cryptocurrency ETH are used as “gas” to pay for the transactions.

Jeremy Allaire, the CEO of Circle Internet Finance, says of the new partnership and its probable outcome: “Imagine a capital marketplace that is for anyone who needs capital, or anyone who needs to offer capital that has the same efficiency that Amazon has for e-commerce, the same efficiency that YouTube has for content, effectively, capital markets with the efficiency of the internet, which is essentially zero.” He added, “And that will ultimately return trillions of dollars in value back to the economy, it will reduce costs for every business in the world, it will accelerate the way in which individuals can participate in commercial activity and commerce activity, in conducting their labor and interacting with businesses around the world.”