Private finance is taking crypto mainstream

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 This has been replaced by the enticements of DeFi apps that offer “enhanced liquidity, yield farming and unprecedented economic models.”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.

Is Google Pay a bank-killer app?

Google has relaunched the Google Pay app. The new app, allows consumers and businesses to send and receive money. In the case of individuals, they can send money to anyone on their phone contact list, and businesses can accept payments with just their name or a QR code. Most importantly, the new version of Google Pay allows us to do all this without having to purchase any additional hardware and doesn’t depend on payments being made through via a card terminal. As Daniel Döderlein writes at Forbes: “The difference from the old Google Pay is massive, not only in features and focus, but in the effects it will have on the market.”

He illustrates the difference the new Google Pay will make when compared with, say, a system like Apple Pay. He says, “If Company A serves consumers with a payment tool, such as an app on a device that can hold a card they serve the consumer side.” This is because the merchants need to have hardware to accept a payment. This model limits Company A to using existing networks such as Visa and Mastercard. The old Google Pay used this NFC wallet model, which is called ‘one-sided’.

Google has now shifted its focus away from NFC wallets and made a decision to go ‘two-sided’. This flies in the face of the received wisdom coming from the major card issuers. “The card industry, with Visa and MasterCard at the helm, has spent billions on telling the world that NFC is the best thing since sliced bread and that contactless payments will rule the world,” Döderlein writes, adding that while tapping your card on a card terminal might seem amazing, it’s hardly “mind blowing.” Consumer expectations are rising, and the physical store-bound hardware-based payment scenario is becoming outdated. Döderlein argues, “you can’t ignore the fact that people browse, explore, interact with and shop on their phone, often miles away from the merchant.”

People want payment methods to be even easier and more streamlined. They may want to buy and pay for something on their phone, and then collect it at the store. Removing the card payment hardware from the equation makes that possible.

This is what Google is aware of, although it is by no means the first. “AliPay, Venmo, Zelle, Swish, Mobilepay and a handful of others around the world have already reached more than 1.5 billion users based on this model,” Döderlein reminds us. He added, “The new Google Pay is a bank killer and it also brings a huge stab to the card networks on its path.”

The new Google Pay is a two-sided, proprietary mobile payment network that will address its clients directly, both consumers and merchants, rather than through a partnership with a bank, for example. This could make a big dent in the existing card payment network businesses, because payments will be pulled from a person’s account without the card networks being involved.

It will certainly affect the banks, traditional and challenger. Having a bank account was the main way to obtain a debit or credit card, now Google Pay makes it unnecessary to carry that card around with you.

The model has already been proved to work in China with AliPay and in the Nordic countries it has made payment networks bigger than that of cards.

Google clearly knows it will have a fight on its hands with the card networks, but its willingness to go forward with it, indicates that it is looking to the long term. And as Döderlein says, “it means business.”

There will be a number of losers in the banking world, but the winners are merchants and consumers. Real mobile payments are on their way and that’s a winner for all of us.

The practical uses of AI and 5G

There has been, and continues to be, a lot of talk about the advantages of artificial intelligence (AI) and 5G. Not everyone is convinced, and there is a swathe of people who fear both technologies, although often for different reasons. Perhaps they would be more convinced about their benefits if they grasped the practical uses.

Smart automation is one of them. Automation’s aim is to reduce human error, as well as maximise productivity. In the case of ‘smart automation’, AI provides the ‘smarts’ by analyzing a series of tasks and streamlining them. By combining this with 5G, mobile service providers would be able to “offer simpler activations, higher performance and the rapid deployment of new services, according to Will Townsend and Moor Insights. This would increase revenues and provide an enhanced user experience, thanks to more reliable network connections.

Townsend also believes that AI would “enable network operators to move from reactive to proactive issue resolution.” The technology would allow them to evaluate huge amounts of data when troubleshooting any network anomalies, while “5G should enable networks to better handle these predictive functions’ complexity and support significantly more connected devices.” Townsend also thinks, “one of the most significant impacts of AI in mobile networks will be the reduction of subscriber churn.” That is interesting, as building and retaining a customer base is critical for telecoms companies.

Both AI and 5G will undoubtedly speed up digital transformation in businesses. The need for this has become more apparent in 2020, with legions of employees working from home. As a result, the networks have been under significant pressure “from a scalability, reliability and security perspective.” What has ensued is connectivity infrastructure providers are embracing AIOps for its potential to supercharge DevOps and SecOps.

Lastly, AI and 5G in both the consumer and enterprise markets will vastly transform the user experience. For example, “AI has the potential to reduce the number of subscriber service choices, presenting the most relevant ones based on past behaviour,” Townsend says. This will in turn build greater loyalty among subscribers, as well as more monetization opportunities for the operator.

In conclusion, there is a great deal of synergy between AI and 5G. It will mean mobile networks are not simple the means of access to data. AI promises to also “improve new device provisioning, deliver high application and connectivity performance, accelerate digital transformation and provide exceptional user experiences.” As Townsend says: it’s a win-win for everyone.

Covid has created more fintech billionaires

Fintechs have done extremely well out of the Covid crisis. The lockdowns have forced more people to turn to online for financial products, as well as day trading as a way of creating an income at a time when jobs are disappearing.

Afterpay is one example. It is an online service that allows shoppers from the USA, the UK, Canada, Australia and New Zealand to pay for small items, such as clothing in instalments over a six-week period. It’s an online version of the catalogue shopping that was so popular in the 1970s and 80s that allowed mostly women to clothe their families by paying for the items over a period of time. Now it’s in a digital format and not connected solely to a small selection of businesses.

Afterpay is only five years old, but the pandemic has made its founders billionaires, even though at the start of the crisis its shares tanked. Now its shares have increased in value tenfold thanks to a surge in online retail sales. For example, in the second quarter of 2020 it handled transactions worth $3.8 billion, an increase of 127% over the same quarter in 2019.

Who else has benefited? Chime, a digital bank, Robinhood, the stock trading app and Swedish fintech Klarna. And then there are those platforms such as Zoom and Slack which have enjoyed a boom due to the increase in working from home.

Others have not been so fortunate. The Lending Club, which offers personal loans to high-risk customers has laid off 30% of its staff, and On Deck, a lender specialising in small business loans has been sold off in a fire sale.

Victoria Treyger, a general partner who leads fintech investing at Felicis Ventures, commented to Forbes: “Consumer fintech adoption was already strong pre-pandemic, especially among the 20s to early-40s age group,” adding, “The pandemic has become a growth rocket, fuelling the rapid acceleration of adoption across all age groups, including 40- to 60-year-olds.”

Fintech payment providers are amongst those benefiting most thanks to the rise in online spending and home delivery services. Marqueta is one of those. It is a specialised payments processor providing a service to Instacart and others. It is discussing an IPO valued at $8 billion, which is four times its valuation in March 2019.

Credit card spending is down, as large-ticket items such as holidays were effectively cancelled for 2020. Instead, debit card payments are up. This is good for fintechs, as they primarily offer debit cards. For example, Chime, based in San Francisco, used the US government stimulus package to its advantage. In advance of he $1,200 government-stimulus checks started hitting Americans’ accounts, it loaned customers that money to the tune of $1.5 billion. Its CEO said, “Following the stimulus advance, we had the largest day for new enrolments in the history of the company.” It also has a new valuation of $14.5 billion, and “venture capitalists are valuing the company at 24 times its revenue.”

While this year has proved to be a great one for fintechs and other online platforms, there is one thing to consider: will consumers keep up the habit their online shopping habits in 2021, because a lot is riding on that for the fortunate fintechs.