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THE GREAT DISRUPTOR: PREPARING FOR THE DECENTRALISED FINANCE MOVEMENT

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Imagine a world in which all types of financial requirements – savings, accounts, credit cards and more – are universally accessible to anyone with a smartphone and internet connection. All without the need of a bank.  

Kristjan Kangro

Welcome to a future of Decentralised Finance (DeFi), as the cryptocurrency market continues to disrupt traditional financial infrastructure and, in turn, offer big benefits for business. Here, Kristjan Kangro, Founder and CEO of Change, one of Europe’s leading cryptocurrency investment platforms for retail investors, advises on the DeFi movement and why it’s important for businesses to take stock now.

One unlikely consequence of the pandemic is that it has brought the growing case for a more transparent, digitalised approach to global finance to the fore.

With national lockdowns around the world placing large parts of the economy on hold, many well-established financial markets have collapsed, only some have managed to sustain market share – and just a very small minority have grown.

At the same time, interest rates have hit an all-time low – some to as little as just 0.05 percent –  alongside asset and commodity prices, and government bond yields too.

The result is a marked shift in the way we view traditional finance. Low business confidence has impacted our regard for banks and the like – a recent report revealed almost a third (32%) of SMEs have lost trust in their banking provider1. Conversely, investment in cryptocurrency continues to warm in offering a safe-haven currency amid market volatility. This was seen as bitcoin recently surpassed the $50k mark for the first time.2  At Change alone, we saw our user base up 180% year-on-year this July as more people go beyond initial curiosity to actively invest in cryptocurrencies – a figure which looks set only to grow.

And so, as economies around the world continue to pivot towards the emerging ‘new normal’, there is a pressing need for a modernised financial architecture which is able to better deal with the challenges – present and future – presented by the pandemic.

Cue the growing case for DeFi.

In its simplest form, DeFi is a system by which financial products are available on a public decentralised blockchain network without the need for a centralized middleman, such as a bank or other financial institute. In this way, transactions are based on a complex model of validation written on blockchains thereby negating the complicated procedures, checks and security requirements associated with traditional financial requirements.

Despite having been around for a number of years now, the past year has seen the DeFi category garner greater interest than ever before in providing the disruptive force needed to modernise financial services and drive growth.

This can be attributed to a number of key commercial benefits. Fundamentally, the DeFi model enables total accessibility because anyone can access its tools regardless of citizenship or location. To date, this is seen in its widespread use by ‘unbanked’ businesses in developing markets such as – at Change, for example, our VISA card has become vital in enabling business transactions in developing economies such as Indonesia and Sub-Saharan Africa.

Going forward, however, the acceleration of DeFi will open the world of finances up to wide-ranging new possibilities, so businesses can trade in areas they may not have been able to before without third-party approval.

Another huge advantage is the speed and ease at which DeFi transactions take place. Previously, a business owner might invest hours in bank manager meetings and other investor relations to maximise capital potential. Equally, any new source of capital would be subject to numerous checks and anti-laundering procedures. Because the use of blockchain technology eliminates the need for an intermediary to process, validate, or authenticate transactions, investments are built purely on factual data – thereby optimising productivity and driving efficiencies.

Further gains come in the form of futureproofing. With widespread permanent working-from-home and the end of many bricks and mortar establishments, the typical businessperson is now much more accustomed to operating from the convenience of their home. The DeFi movement aligns to this, creating ease and making tiresome transactions a thing of the past.

It is also important to note that this architecture offers increased financial security. This is because it ensures total transparency, full transactional history and is immutable – whereby it is nearly impossible to change a transaction once it is written. In this way, investors from around the world are afforded a set degree of standardisation regardless of where they are, the local economy, any new government measures – or even a worldwide pandemic.

With the Covid crisis serving to highlight unseen weaknesses in the traditional financial system and ignite greater interest in cryptocurrency, businesses have a unique window of opportunity to spearhead the DeFi transition. With benefits that include improved efficiencies, new capital opportunities and futureproofing, it’s virtually a no-brainer.

1 https://fintechmagazine.com/banking/customer-trust-banks-remains-low-during-covid-19

2 Forbes 

Banking

WHY THE TIME IS NOW TO BANK BEYOND BORDERS

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by Lili Metodieva, MD of Monneo

 

As our world becomes more interconnected, so too does the need for banking systems to follow suit. In the past, businesses and individuals were often restricted to banking in a single country, but the rise of borderless banking is enabling both to benefit from greater financial freedoms. In this article, we will examine why this trend is so important and explain how Fintech companies are helping to make it possible.

 

What is borderless banking?

Simply put, borderless banking refers to any bank account, which allows users to spend, send and receive money across different countries and currencies, without incurring heavy fees. The concept has become increasingly popular in recent years, with more people now working in cross-border job roles and with many businesses requiring capital in a different currency than that of their country of origin.

For customers, borderless banking is making cross-border financial transactions more efficient and cost-effective. Through its rise, businesses and individuals can gain easier access to international streams of capital, which is crucial in this current moment of economic uncertainty. In fact, 74% of companies say cross-border payments have helped their business to survive [1].

 

Where do IBANs come in?

International Banking Account Numbers (IBAN) play a crucial role in facilitating borderless banking. The globally recognised system enables cross-border transactions to happen safely, by providing each international bank account with its own unique 36-digit alphanumerical code. On account of this code, financial institutions can quickly identify where funds are coming from, as well as where they’re going to.

More recently, providers such as us have been able to deliver Virtual IBANs (vIBAN). Working alongside a network of well-established European and International banks, we’re able to offer businesses a single platform interface that consolidates the management of all IBAN accounts. In turn, our multi-currency service makes conducting global financial transactions incredibly straightforward.

 

How has Brexit affected borderless banking?

The COVID-19 pandemic has accelerated the growth of borderless banking and services related to it, but other developments, such as Brexit are beginning to stand in its way. Most notably, the drawn-out withdrawal process has seeded a growing reluctance amongst risk averse, larger organisations to settle transactions using UK bank accounts or IBANs, due to unfounded concerns around regulatory complexity.

Despite leaving the EU, the UK remains a member of the Single Euro Payments Area (SEPA), so it’s unclear why these concerns around British IBAN accounts exist. Regardless, this unfortunate development must be addressed quickly as it has the potential to adversely affect the livelihood of businesses and individuals at a time of critical need.

 

What does the future hold for borderless banking?

There’s clear demand for borderless banking and borderless payments, but the discrimination of certain IBAN accounts represents a major obstacle, which could stand in the way of their widescale adoption. Moving forward, there needs to be a push towards borderless IBANs, which will make international financial transactions more reliable. At the end of the day, this is what IBANs were originally created for, so it’s important the current problems are rectified quickly.

To ensure this can happen, the industry needs protection and clarity from regulators. Likewise, it’s now time for membership organisations to stand up on behalf of the sector and lobby for the financial inclusion of businesses.

If the confusion regarding UK IBAN accounts can be sorted in a timely manner, businesses across the nation, as well as those further afield can look forward to a future of more streamlined and effective financial services. With this support, the diverse sector can deliver further access to innovative financial services and products, which improve outcomes for businesses and consumers alike.

As a sector, Fintech has the potential to provide vital assistance to the wider economy, particularly in an era of increased cross-border business. At Monneo, we’re committed to being part of that change and as a part of organisations like ‘Accept my IBAN’, are working towards reporting and ending IBAN discrimination.

[1] – https://www.mastercard.com/news/research-reports/2021/borderless-payments-report/

 

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Banking

IT’S TIME FOR BANKS TO SIT THEIR CUSTOMERS DOWN AND TALK OPEN BANKING

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Eugene Danilkis, CEO at Mambu

 

We are living in an experience economy, and banking is no different. Customers need innovative payment and finance management solutions. New entrants are edging into the landscape and challenging existing players. This should mean users have a better view of their finances and the tools they need to manage their money – but banks are failing to deliver.

Personal finances are a complex beast, emotional pulls are strong, and the worry of financial security is always on the mind. It’s the job of banks to be the shoulders customers can lean on and trust.

Open banking was supposed to take this to the next level, enabling banks to deliver personalised products and services based on improved data sharing and customer insights. But three years on, adoption remains sluggish. So, why is open banking failing to live up to its promise?

 

A missed opportunity

Open banking was introduced to the UK in 2018, but consumers are still mired in confusion as to what it means and how it helps them. According to Mambu’s global open banking survey, 61% of consumers say they’ve never used open banking, despite more than 8 in 10 using one or more mobile banking apps.

Eugene Danilkis

This is a problem for banks and consumers alike. Lack of understanding around the technology is hindering its adoption, despite this being in the best interests of both. By enabling the secure sharing of financial information, open banking creates an improved customer experience. Not only does this minimise friction and make online payments faster and easier, but allows for personalised services and greater automation, enabling customers to take advantage of tools like budgeting apps.

For banks, open banking is an opportunity to build innovative new products that will improve the customer journey, helping them retain accounts and acquire new ones. By collaborating with third parties, banks can hyper-target customers and build services that address specific user needs, increasing customer satisfaction and in turn brand loyalty.

It’s true there’s been a recent spike in open banking users. According to Juniper Research global, open banking users rose from 18 million in 2018 to 40 million in 2021. But this can be traced to the necessities of a pandemic rather than any sudden clarity in communications.

 

Putting customers at the heart of communication

Mambu’s research shows more than half of consumers (52%) have never heard of open banking. COVID-19 may have increased the uptake of the technology, but it hasn’t increased understanding among users.

So, what can banks do to encourage consumers to embrace open banking? Fundamentally, they must better educate their customers in terms they understand. This means talking to them like human beings, using clear and transparent language to simply explain the personal benefits open banking brings and why it’s really just smart banking.

The understanding gap between technology and terminology shows that consumer demand is there, but better communication is needed. Making sure consumers truly understand the tools they’re using, the control they now have over their finances and how open banking improves the customer experience is vital to dispersing the current fog of confusion. It’s the benefits of this technology that banks need to hone in on: customers ultimately care about what open banking can do for them and how it’s going to make their lives easier.

Centering the customer and their needs in this way will allow banks to fully realise open banking’s potential. The technology has already given them the opportunity to develop valuable services for customers that help build brand loyalty. But the industry has failed to put the customer at the heart of their communications and processes, and show them how much better banking can be.

 

Building trust

Key to reversing this trend is addressing consumer concerns around data privacy and financial safety. Yes, banks need to prioritise simplicity and clarity in messaging, but this isn’t an excuse to shy away from important conversations. Just because there’s an understanding gap around open banking doesn’t mean consumers aren’t switched on about tech and financial issues.

Mambu’s survey found nearly three in five customers have concerns about privacy and security in relation to open banking. So, it’s vital that banks provide reassurance and relevant information about data sharing from the outset if they’re to assuage these fears.

The industry can also encourage greater adoption by developing and improving open banking interfaces. Banks are the gatekeepers to how easily end-users can authorise certain actions, manage third-party access and navigate different open banking functions. If the interface is user-friendly, customers will have a better experience of the technology and be more likely to use and recommend these services.

 

Time to get talking

Customer communication is holding the industry back.. The ability of open banking to transform financial services is a concept that industry players are well-versed in. But the feeling isn’t mutual for customers.

Banks are failing to capitalise on the open banking opportunity by engaging with new and existing customers about what the technology can do for them. Debunking  common myths can open the door to increased growth and trust for banks, as they seek to open up new revenue streams post pandemic..

Make no mistake, open banking isn’t going away. But customers will if banks don’t get talking.

 

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