Kiffmeister’s #Fintech Daily Digest (09/30/2020)

US Lawmakers Just Passed a Crypto Bill. Here’s What’s in It

The U.S. House of Representatives approved the the Consumer Safety Technology Act, into which the Digital Taxonomy Act and Blockchain Innovation Act have been rolled rolled. The bill focuses on consumer protection, both in protecting the public against token scams and harnessing blockchain to stop fraud. The Act directs the Federal Trade Commission (FTC) to train up staff and allocate resources to identify and guard against “deceptive acts or practices involving digital tokens.” It further mandates the FTC to produce a report detailing its efforts to fight such deception and outlining actions it has taken. 

Ethereum’s DeFi Evolution: How DeFi Is Fueling Ethereum’s Growth

A majority of decentralized finance (DeFi) apps have been built on Ethereum, and DeFi’s explosion has rippled across the network. DeFi has pushed Ethereum to its limits but is also accelerating the pace of innovation and experimentation. In this piece we look at how four DeFi token launches affected Ethereum and how the network is evolving as a result. We conclude that DeFi will undoubtedly continue to push Ethereum’s limits, as new dapps and tokens launch. But Ethereum is changing as well, and Layer 2 scalability could open up new doors for what is possible in DeFi and beyond. 

South African banks prepare to phase out paper cheques

Paper cheques may be on the verge of extinction in South Africa, as banks begin moves to phase them out in favour of cards and digital payment mechanisms. Major banks Nedbank, FNB and Absa have already announced plans to discontinue the use of cheque payments beginning in January. The Payments Association of South Africa says that it anticipates that even more banks will be issuing similar public announcements in the next few months. The decline in cheque usage is being exacerbated by the coronavirus outbreak. 

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Kiffmeister’s #Fintech Daily Digest (09/29/2020)

Swiss Senate overwhelmingly passed crypto-friendly policies into law

The Swiss Senate passed a wide-ranging set of amendments to the so-called “Blockchain Act” aimed at increasing legal certainty, removing barriers for applications based on distributed ledger technology and reducing the risk of abuse. 

License to Bank: Examining the Legal Framework Governing Who Can Lend and Process Payments in the Fintech Age

The U.S. House of Representatives Committee on Financial Services convened a hearing to examine the legal framework and regulatory scope governing the oversight of traditional banks and other commercial businesses – especially technology companies – engaged in financial activity and the effect on consumer protection, financial stability, and the traditional separation of banking and commerce. 

Ant Group Unveils Blockchain-Enabled Trading Platform for SMEs

Ant Group has unveiled Trusple, a blockchain based-platform powered by AntChain to help Small to Medium Enterprises (SMEs) with cross-border trade. Trusple works by generating a smart contract once a buyer and a seller upload a trading order on the platform. As the order is executed, the smart contract is automatically updated with key information, such as order placements, logistics, and tax refund options. Using AntChain, the buyer’s and seller’s banks will automatically process the payment settlements through the smart contract. 

Kenya’s golf stablecoin highlights need for Africa-wide regulations

YENTS, a stablecoin developed by the Kenya’s Young Entrepreneurs Network (YEN), has entered into testing under the local regulatory sandbox. YEN, which organizes golfing tournaments to facilitate networking opportunities for Kenyan entrepreneurs, plans on initially using the stablecoin as a means of payment for sporting events and training programs. YEN intends to launch the token in November, and hopes to use it to accept investments into a planned golf course. 

The Standard About to Revolutionize Payments

Over the next ten years, the standards for communicating electronic payments instructions between financial institutions, will transition from the various proprietary messaging standards over to ISO 20022. ISO 20022 will become a global lingua franca for transferring value electronically. The U.S. Fedwire will start transitioning to ISO 20022 over a three-year period beginning in 2022. The European Central Bank’s large value system, Target2, will start its transition in November 2022. The UK will switch in April 2022 in conjunction with a new real-time gross settlement system. The SWIFT global messaging network intends to begin the switch to ISO 20022 near the end of 2022.  

Amazon One: Palm scanner launched for ‘secure’ payments

Amazon has announced a new payment system for real-world shops which uses a simple wave of the hand. Its new Amazon One scanner registers an image of the user’s palm, letting them pay by hovering their hand in mid-air “for about a second or so”, it says. The product will be trialled at two of Amazon’s physical stores in Seattle. 

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Kiffmeister’s #Fintech Daily Digest (09/28/2020)

Beyond the COVID-19 Crisis: A Framework for Sustainable G2P Mobile Money Transfers

This IMF working paper presents a comprehensive framework for sustainable money solutions in support of social assistance. The framework consists of eight building blocks that may help policymakers i) take stock and assess emergency fixes taken to scale up mobile money in a crisis context and ii) develop sustainable long-term solutions for mobile government-to-person (G2P) transfers. 

COVID-19 and the Search for Digital Alternatives to Cash

This NY Fed blog post outlines some evidence on the impact of COVID-19 on consumer payment behavior. For example, Google searches during the pandemic demonstrated a shift in public interest from cash-related terms to digital payment options. Given evidence that even transient shocks can have long-term effects on technological adoption, the need to address the issues associated with a reduction in privacy that follow from the shift toward digital payments is even more apparent, a subject of a forthcoming NY Fed blog post. 

Open Banking doubles its user-base to 2 million Brits in just six months

Just six months after reaching a one million user milestone, the U.K. Open Banking Implementation Entity (OBIE) has reported a further doubling of that U.K. user-base to 2 million. Despite the huge disruption caused by Covid-19, open banking and the fintech ecosystem have been significantly boosted by the period of lockdown. According to an OBIE survey of 2,000 UK adults, one-in-five started using online banking apps during lockdown to the first time with over half (54 per cent) now using them regularly. 

Bitfinex Launches Tether-Settled Perpetual Contracts Based on European Equities

Crypto-asset exchange Bitfinex has launched tether (USDT)-settled perpetual contracts that track two European equity market indices (STOXX Europe 50 and Germany 30). Each contract offers up to 100x leverage and will be settled in stablecoin tether (USDT). A perpetual contract is similar to a traditional futures contract, but has no expiry and mimics a margin-based spot market. The perpetual contracts will be open for trading 24/7, unlike equity exchanges which are open for business for a limited number of hours, five days a week. 

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Kiffmeister’s #Fintech Daily Digest (09/27/2020)

Cryptocurrency Exchange KuCoin Hacked, $203 Million Moved

The Singapore-headquartered digital asset exchange KuCoin detected large withdrawals of crypto-asset tokens to an unknown wallet on September 25. One or more hackers obtained the private keys to the exchange’s hot wallets. About $203 million worth of tokens were been moved to a different address. KuCoin transferred what was left in them to new hot wallets, abandoned the old ones and froze customer deposits and withdrawals. Also cryptocurrency exchanges and blockchain projects froze about $130 million of the stolen assets to minimize the damage. 

Fintech Credit Risk Assessment for SMEs: Evidence from China

An IMF working paper suggested that the fintech approach to assessing credit risk yields better predictions of loan defaults. The fintech approach uses big data and machine learning models, versus traditional approaches that use financial data and scorecard models. 1.8 million loans to Chinese small and medium-size enterprises (SMEs) by online lender MyBank, a subsidiary of Ant Group, were analyzed. The results showed that BigTech’s proprietary information can complement or, where necessary, substitute credit history in risk assessment, allowing unbanked firms to borrow. 

US SEC issues no-action letter on compressed digital asset settlement process

The U.S. Securities and Exchange Commission (SEC) took a major step toward streamlining digital asset securities settlement by compressing the previous four-step process into three in a bid to reduce operational risk for broker-dealers. The SEC issued a no-action letter on September 25, stating it will not penalize any broker-dealer operating an alternative trading system (ATS) that trades digital asset securities — if they adhere to the new guidelines. 

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Kiffmeister’s #Fintech Daily Digest (09/26/2020)

The Bahamas Reveal Details, October Date of Landmark Central Bank Digital Currency Debut

The “gradual” national release of Central Bank of the Bahamas (CBOB) Sand Dollar central bank digital currency (CBDC) will begin on October 20, 2020. In the first phase, authorised financial institutions (AFIs) will ready their systems with know-your-customer (KYC) and other compliance checks across low-value, personal and enterprise wallets. The CBOB said it has subjected the Sand Dollar to a “rigorous cybersecurity assessment” to overcome public fears of paying with a digital currency. Regulations surrounding the Sand Dollar will be “crystalized” in the public space over the month of October. Sand Dollar’s second phase, slated for early- through mid-2021, will focus on preparing essential infrastructure services in the government and private sectors, such as utility companies, for the CBDC.  

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Kiffmeister’s #Fintech Daily Digest (09/25/2020)

European Commission adopts digital finance package for crypto and blockchain

The European Commission (EC) is moving to provide more legal clarity and certainty for the crypto-asset industry in its member states. The EC officially adopted a new digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The package supports the EU’s ambition for a recovery that embraces the digital transition. Digital financial services can help modernise the European economy across sectors and turn Europe into a global digital player.

OCC’s First Issued Guidance for Stablecoins Brings Questions

In its recent guidance the U.S. Office of the Comptroller of the Currency (OCC) is allowing banks to manage stablecoin issuer reserves kept in a “hosted” wallet. The OCC adds, “We are not presently addressing the authority to support stablecoin transactions involving un-hosted wallets.” “Un-hosted wallets” seem to refer to addresses individuals or businesses would control. This distinction has caused some confusion, with Coin Center’s Jerry Brito raising the question whether this points to a possible prohibition on banking firms that support un-hosted wallets. 

ConsenSys Selected by Hong Kong Monetary Authority to Lead Phase Two of Project Inthanon-LionRock

ConsenSys has been awarded a cross-border payment network study project by the Hong Kong Monetary Authority (HKMA). The HKMA and the Bank of Thailand (BOT) signed a Memorandum of Understanding in May 2019, initiating Project Inthanon-LionRock to study the application of a wholesale central bank digital currency (CBDC) for cross-border payments. ConsenSys will work on the second implementation phase of the project, that is aimed at circumventing the correspondent banking network, allowing direct payments between banks. 

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Kiffmeister’s #Fintech Daily Digest (09/24/2020)

Malaysian Central Bank Exploring Digital Currency

Bank Negara Malaysia is exploring the merits and feasibility of issuing CBDC. Preliminary findings highlighted that this may offer some solution to the challenges associated with cross-border payments (e.g. synchronised cross-border transaction between different currencies across different platforms, reduced number of intermediaries and improved transparency of payment status). 

Visa’s Crypto Strategy Is Driving Its Next Stage Of Growth

Forbes recently spoke with Terry Angelos, SVP global head of fintech at Visa and Cuy Sheffield, senior director, head of crypto at Visa. They revealed that one area that Visa has been spending time on is offline digital currency payments. When central banks think about CBDCs, one of the potential features that they are paying attention to is offline payments. There are a lot of technical challenges around enabling this functionality in a secure manner. So Visa is continuing to advance research on that front and will probably have more to talk about in the coming year. 

3rd Global Crypto-Asset Benchmarking Study

This report reviews key crypto-asset industry developments since 2018 based on data from 280 companies in 59 countries and across four main market segments – exchanges, payments, custody and mining. It found that full-time equivalent employee growth slowed considerably following the late-2017 market frenzy, users primarily interact with service providers to enter and leave the crypto asset ecosystem, and the share of crypto-asset-only companies that did not conduct any KYC checks at all dropped from 2018’s 48% to 13%. North American and European service providers indicate that business and institutional clients make up 30% of their customers. This figure is much lower for APAC and Latin American firms at 16% and 10% respectively. 

European Commission to launch blockchain regulatory sandbox by 2022

The European Commission in collaboration with the 30-country alliance called the European Blockchain Partnership (EBP) plans to launch a pan-European blockchain regulatory sandbox by 2022. The European Commission will work with EBP on the sandbox to test use cases of blockchain and digital assets in the European Blockchain Services Infrastructure (EBSI). The EBSI aims to deliver cross-border digital public services across the EU using blockchain technology.  

How Tokenized Bitcoin Promises The Future For DeFi

As most of decentralized finance applications continue to be build on Ethereum, Bitcoin just doesn’t quite fit into this ecosystem. And so, developers stepped up to the task to create a ‘wrapped’ version of Bitcoin, starting with wBTC, renBTC, and the newly re-launched tBTC, by the Keep Network. Investors can now convert BTC into tBTC, and use this new token to access the DeFi markets on Ethereum. 

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Kiffmeister’s #Fintech Daily Digest (09/23/2020)

 How to Build a Stablecoin: Certainty, Finality, and Stability Through Commercial Law Principles

This article spells out how to build a USD stablecoin legal basis by leveraging the core commercial law principles of (i) focusing on the principles of settlement finality, (ii) rules for adverse claims, (iii) discharge of the underlying obligation, and (iv) the concept of a security entitlement. It maps out how these principles are embodied under the U.S. commercial laws of investment securities (UCC Article 8) and of payments (UCC Articles 3, 4, and 4A). The goal in doing so is to show how innovators can incorporate novel, technology-driven market practices and business models into the existing financial law framework in a proven and effective way. 

TransferWise reports accelerating revenue growth to 70% in its March, 2020 fiscal year

Money transfer service Transferwise posted strong growth, continued profit and new customer records in the fiscal year ending in March. Revenue was up 70% from fiscal 2019 at £302.6 million, and it managed a fourth year of consecutive profitability, generating £21.3 million in net profit after tax. Transferwise now has 8 million worldwide customers versus 6 million in the preceding fiscal year. The annual numbers exclude much of this year’s performance, and therefore wouldn’t truly convey the COVID-19 impact on its business, but CFO Matt Briers said that the crisis has been “financially positive” for the firm due to the shift to online services. 

Digital Solutions for Small Businesses in the Middle East and North Africa

Small and medium-sized enterprises (SMEs) dominate the business landscape in the Middle East and North Africa region, yet they face impediments to growth, being handicapped by limited access to credit, unfavorable business environments, and talent gaps. Digital technologies present new opportunities for these businesses to achieve faster growth. To increase demand for digital services, governments should develop digital literacy and awareness programs as well as foster consumer trust by strengthening frameworks for cybersecurity, digital identification, data privacy, and consumer protection. The digital strategy must be underpinned by financial sector and business environment reforms, particularly strengthening financial infrastructures and business support. 

Meet OUSD: The First Stablecoin That Earns A Yield In Your Wallet

Peer-to-peer commerce company Origin launched Origin Dollars, or OUSD, a stablecoin whose reserves leverage decentralized finance (DeFi) so that balances grow wherever it resides, no staking or account required. OUSD will be backed one-for-one by the three big stablecoins on Ethereum: Tether’s USDT, Circle and Coinbase’s USDC and MakerDAO’s DAI. Users can mint OUSD by depositing any of those three into Origin’s new app, or they can just buy it on Uniswap. Either way, the OUSD will just start growing in their wallet, no further action needed. 

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Kiffmeister’s #Fintech Daily Digest (09/22/2020)

U.S. SEC, OCC Issue First Regulatory Clarifications for Stablecoins

The U.S. Office of the Comptroller of the Currency (OCC) clarified national banks’ and federal savings associations’ authority to hold reserves on behalf of issuers of certain stablecoins. The clarification addresses the use of stablecoins backed by a single fiat currency on a one-to-one basis where the bank verifies at least daily that reserve account balances meet or exceed the number of the issuer’s outstanding stablecoins. It applies only to situations where there is a hosted wallet. 

[On July 22 the OCC had announced that national banks may provide cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency. The OCC also reaffirmed that national banks may provide permissible banking services to any lawful business they choose, including cryptocurrency businesses, so long as they effectively manage the risks and comply with applicable law.]

Also, the U.S. Securities and Exchange Commission (SEC) said certain stablecoins might not be securities under federal law, but advised issuers to work with the agency and legal counsel to ensure this is the case. Whether a particular digital asset is a security under the federal securities laws is inherently a facts and circumstances determination. This determination requires a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold. 

Stablecoin Implications in the Euro Area

This European Central Bank (ECB) paper summarises the outcome of an analysis of stablecoins undertaken by the ECB Crypto-Assets Task Force. At the time of writing, the stablecoin debate lacks a common taxonomy and unambiguous terminology. This paper applies a definition that distinguishes stablecoins from existing forms of currencies – regardless of the technology used – and characterises stablecoin arrangements based on the functions they fulfil. This approach emphasises the role of technology-neutral regulation in preventing arbitrage, as well as comprehensive Eurosystem oversight, irrespective of stablecoins’ regulatory status. Against this background, this paper assesses stablecoins’ implications for the euro area based on three scenarios for the uptake of stablecoins. 

European central bank execs explain why CBDCs don’t need blockchain

Thomas Moser, an alternate member of the governing board at Swiss National Bank, is working on a research paper that proposes a retail CBDC without blockchain. The upcoming CBDC project will preserve transaction privacy — a key feature of cash — by utilizing the technology of blind signatures instead of blockchain. The paper is co-authored with cryptographer and technology expert David Chaum and Christian Grothoff. 

Eastern Caribbean Central Bank official says CBDC is ‘foolproof

The Eastern Caribbean Central Bank is inviting members of the public to register for access to its central bank digital currency (CBDC), in preparation for the second phase of its pilot. Following the first phase of the pilot, the central bank now plans to roll out the CBDC to Antigua and Barbuda, Grenada, Saint Lucia and St Kitts and Nevis. The ECCB is yet to announce the exact date of the launch. 

Fintech and big tech credit: a new database

Information on the size and characteristics of fintech and big tech credit is scarce. This BIS paper assembles and updates available data on fintech and big tech credit volumes for 79 countries around the world over 2013-19. The database is made available as a resource for researchers, policymakers and practitioners. The paper answers the questions: how large are fintech and big tech credit markets, both in absolute terms and relative to overall credit markets? What economic and institutional factors are driving their growth and adoption? How large and important could they become in the future? 

Detour: An altered path to profit for European fintechs

Venture capital funding for European fintech companies is dropping precipitously. This constitutes a significant challenge for fintechs, many of which are still not profitable and have a continuous need for capital as they complete their innovation cycle: attracting new customers, refining propositions and ultimately monetizing their scale to turn a profit. The COVID-19 crisis has in effect shortened the runway for many fintechs, posing an existential threat to the sector. The winners will be those that quickly recognize the changed context and that are most capable of responding with clear decisions and bold actions. 

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Kiffmeister’s #Fintech Daily Digest (09/21/2020)

China needs first mover advantage in digital currency race: PBOC magazine

China needs to become the first nation to issue a digital currency in its push to internationalize the yuan and reduce its dependence on the global dollar payment system, a commentary published in the People’s Bank of China (PBOC) China Finance magazine. It said the rights to issue and control a digital currency would become a “new battlefield” of competition between sovereign countries. The article also argued that the improved data feedback from a digital currency would help enhance monetary policy transmission.  The PBOC started its digital currency research in 2014 and completed the top-level design, standard formulation, function research and development, and joint debugging and testing in 2019. In April 2020 small-scale pilot work began.

Retail Central Bank Digital Currency: Design Considerations, Rationales and Implications

While CBDC technical feasibility is not yet established, this Reserve Bank of Australia paper considers some issues around its possible design, the possible rationales for issuance, and the implications of issuance. It concludes that, given the likely benefits and risks, at present there does not seem to be a strong public policy case for issuance in Australia. Nonetheless, it will be important to closely watch the experience of other jurisdictions that are considering implementing CBDC projects. [This paper also has a very nice and precise discussion of the infernal “account” versus “token currency taxonomy.]

Mastercard Launches Central Bank Digital Currency Testing Platform

Mastercard launched a virtual testing environment for central banks to evaluate CBDC use cases. The testing platform will enable central banks to simulate the digital currency’s behavior prior to deployment. It invites collaboration from other stakeholders on the project such as central banks, commercial banks, and tech and advisory firms, to assess CBDC tech designs, validate use cases and evaluate interoperability with existing payment rails available for consumers and businesses. 

Mastercard Delves Deep Into POS Financing With Fintech Jifiti

Traditional consumer credit companies are also engaging in buy-now-pay-later (BNPL) plans. Mastercard has expanded its payment options by partnering with FinTech Jifiti to allow both merchants and issuers to offer credit and consumer financing to Mastercard holders. The company had already forged alliances with Fly Now Pay Later, Splitit, Divido and Pine Labs to provide BNPL services worldwide. Per an Accenture figure cited by Mastercard, the BNPL industry boasts an astronomical market value of $1.8 trillion. 

A Dive Into Avalanche

Avalanche is an open-source platform for launching DeFi applications and enterprise blockchain deployments in one interoperable, highly scalable ecosystem. It is the first smart contracts platform that confirms transactions in under one second, supports the entirety of the Ethereum development toolkit and enables millions of independent validators to participate as full block producers. In addition to supporting sub-second finality, Avalanche is capable of throughput orders of magnitude greater than existing blockchain networks (4,500+ transactions/second), and safety thresholds well-above the 51% standards of other networks. 

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