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SHOULD CRYPTO ASSETS CONTINUE TO BE TREATED AS COMMODITIES; THE ROLE OF CONSENSUS ALGORITHMS IN THE CLASSIFICATION OF ASSETS

By Francesco Roda, Chief Risk Officer at Koine

 

Digitalisation of value is beginning to permeate markets, following the launch of several initiatives in 2019[1]; in June of the same year, Facebook catapulted digital assets to notoriety with Libra[2].

Markets are attracted by the benefits of the new digital world: broader liquidity, efficient distribution, lower costs and more efficient use of capital.

At the intersection of the digital world and financial markets lies the handling of rights over assets and the transmission of value, firmly anchored to the concept of a currency.

Currencies are well defined and understood in financial markets but have fuzzy contours in the digital world. Uncertainty renders the translation of cash from financial to digital problematic. Banks invariably point the finger to risk; money laundering is deemed to be higher in the digital world.  This is, in my view, unsubstantiated – so long as intermediaries follow the rules.

Stable coins appear to address this issue elegantly: a token linked to fiat but that does not require intermediaries[3] – neither new nor established ones.

Yet, stable coins and large-scale electronic money initiatives[4] may soon see a third contender in the race for innovation.

The current generation of mainstream crypto assets possess very few traits of real-world currencies; the absence of yield and material costs of carry, coupled with high volatility, render crypto assets unsuitable for payments. Similar considerations apply to gold; indeed, early initiatives of gold backed coins failed to attract interest or failed to launch at all.

Proof of stake is a new consensus algorithm that could reshape crypto assets; this is an alternative to proof of work, the consensus mechanism that underpins all major coins like Bitcoin and the current implementation of Ethereum[5].

Staking refers to the coins that miners[6] are required to deposit to guarantee their work. The network rewards authentic verification with a fee and penalise bad miners by taking away their deposit if it determines that they violated the blockchain rules.

Miners can continue to earn a fee, which is proportionate to the amount of coin deposited, for the duration of the deposit held by the network. This makes the return on deposits risk free.

In other words, proof of stake blockchains offers the opportunity to earn a risk-free interest on the deposits; this makes them akin to central banks which provide money supply management and risk-free deposits[7] to the economy[8]. The risk-free return paid on the coins deposited anchors their value, albeit endogenously, to a known reference point, potentially rendering valuations relative to exogenous prices, more stable.

New coins may render stable coins redundant and, if successful, compete with central bank issued currencies.  Their classification from a regulatory point of view may prove challenging: the decentralised nature may prevent them from being treated as currencies or financial assets. Their ability to transmit and store value would point to the opposite conclusion, with intermediaries would face regulatory uncertainty. The pooling of coins from different parties, for example, to meet the minimum amount required to participate in the staking process, could be viewed as a collective investment scheme, albeit no cash nor financial instruments are involved.

[1] For example, SocGen issued a covered bond (EUR 100m) in April 2019 on Ethereum and the German regulator authorised a USD 250m real estate-backed token on Ethereum.

[2] Lybra is issued by a consortium on a permissioned blockchain and is backed by a basket of currencies. If it is successful in satisfying regulation which is ill prepared and not coordinated globally to deal with large scale electronic money services initiatives, Libra will be a major innovation in cross border and domestic payments.

[3] With the exception, of course, of its initial issuance against, and redemption for, cash.

[4] Mobile payment volumes in China reached 277.4 trillion yuan ($41.51 trillion) in 2018, up more than 28 times from five years ago, according to the People’s Bank of China (PBOC). Alipay alone has over 600m active users.

[5] Ethereum has a plan to migrate to a proof of stake algorithm.

[6] Miners are the agents on a blockchain that verify the authenticity and validity of transactions, prior to adding them to the blockchain.

[7] As opposed to a central bank, proof of stake blockchains pay interest on deposits on an almost continuous basis, with the interval given by the time difference between blocks; given the short time interval between blocks, compounding can be approximated with a continuous function.

[8] This is valid only if the blockchain is truly decentralised, i.e. no parties can exercise control on it.

 

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Finance

2021 TRENDS: TECHNOLOGY CONTINUES TO TRANSFORM FINANCIAL SERVICES

By Angus Panton, Head of Banking and Financial Services at Expleo

 

Angus is responsible for leading strategic client relationships and driving business forward within Expleo’s financial services, banking & fintech and insurance portfolio.

 The financial services industry has evolved at an incredible rate in recent years, underpinned by rapid advances in technology.

In fact, our own consumer research into people’s attitudes toward technology revealed that 62% of people consider easier and faster banking one of the best technological developments of the past decade. And it seems traditional banks are listening, with 56% now putting digital disruption at the heart of their strategy.

At the same time, rather than going away as traditional banks would have hoped, younger banks like Monzo and Starling have matured into formidable rivals for customers and their cash, putting pressure on the rest of the financial services sector to step outside its comfort zone, innovate rapidly and embrace a fail-fast culture.

As we look past the end of 2020 and into the future, technology is only going to play a bigger role across the banking sector. With that in mind, we’ve outlined the biggest tech-driven trends we can expect to see in 2021 and beyond that financial services need to take note of.

 

Personalisation

Marketing experts have promoted the benefits of personalisation to attract, and keep, customers. Big data – and artificial intelligence that helps us process, store, and drive insights from the data – means that personalisation will be possible on a scale never seen before.

Banks now have information about their customers’ behaviour and social and browsing history. AI enables real-time multi-channel integration of these insights to deliver a personalised one-to-one marketing experience for their customers at the time when the information is most relevant and useful (e.g a car loan or credit card).

That said, sorting through torrents of unstructured data for useful information is no small undertaking. It requires powerful data analytics technology if institutions are to reap rewards.

 

RPA

Already, financial firms have quietly introduced machines that think. Moving forward, robotic process automation (RPA) will continue to impact financial institutions to help them be more efficient and effective.

This includes processes such as customer onboarding, verification, risk assessments, security checks, data analysis and reporting, compliance processes as well as most other repetitive administrative activities. This frees up a bank’s workforce to perform more complex, value add activities.

Importantly, RPA shouldn’t been seen as a risk to jobs, it should be seen as an exciting opportunity to innovate. After all, with basic processes taken care of, people will have more time to focus on creativity in order to drive improvements.

 

Chatbots

According to Gartner, by 2020, chatbots will interact with the customers of 85% of banks and businesses. According to one report, financial chatbots save over four minutes on every interaction, so it’s within a bank’s interest to use them.

Customers of financial institutions have come to rely on the 24/7 service these conversational interfaces provide, as the possibility of an instant response and quick complaint resolution improves the experience of personal banking significantly. Conversational interfaces also provide an easy and economical way for organisations in the financial sector to receive customer feedback.

 

Blockchain

Blockchain will continue to disrupt financial institutions, beyond just ensuring data security.

Cases across the globe are already proving the value of blockchain in a wide variety of banking and investment applications, such as solving challenges faced by investment banks, to helping customers make safer payment transactions.

Industry-wide adoption of blockchain is unlikely to occur until we reach a tipping point, however – when that time arises, the regulators will need to determine best practice and how to oversee its use.

 

Biometrics – especially around mobile payments

Mobile payment innovations could do away with traditional wallets entirely as global consumers become less reliant on cash. Google, Apple, Tencent, and Alibaba already have their own payment platforms and continue to roll out new features such as biometric access control, inducing fingerprint, and face recognition, which is likely to become the preferred route of access over the next decade

 

Greater collaboration between fintechs and traditional banks

While many financial institutions are continuing to adopt new technology to enhance operations and improve customer service, Fintechs provide exciting avenues for ongoing innovation. Already, financial institutions have realised they must learn how to use fintech to their competitive advantage, and this is only going to continue in the years ahead.

 

Tech-first is the only approach

A tech-first approach is now the only approach. How banks leverage RPA, Blockchain, Chatbots and Biometrics will determine their ability to tackle cyber risk and compete with highly scalable alternative banking providers, who are reducing the lending cycle down from a few weeks to a few hours.

Businesses are digitising their customer journeys and scaling-up transformation. They’re finding more agile ways of working, boosting productivity, building key skills of the future in-house and modernising with targeted investment in technology, data, testing, assurance and information.

If innovative technology is implemented incorrectly, then there can be a severe, negative impact not only in terms of working ability but a knock-on effect in the form of consumer trust.  Something no business can afford to lose…especially at this time.

This can all be avoided by embedding continuous quality to help drive digitalisation and innovation. Combined, they achieve excellence in execution and help to deliver greater cost-efficiency, by identifying and mitigating business risk at every step. At Expleo, we’re experts at shaping agile cultures across entire organisations, and at fully-equipping teams for the path ahead, embedding quality right down into your own DNA too.  We help identify and mitigate business risk in technology-led transformations, using standardised methodology, industrialised automation solutions, global delivery and deep domain knowledge. With Expleo as a trusted partner, businesses can embed continuous quality to drive digitalisation and innovation.

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Finance

IN THE AGE OF ‘NEAR ME’ SEARCHES, FINANCIAL SERVICES MUST LEVERAGE TECHNOLOGY TO WIN NEW CUSTOMERS

by Paul O’Donoghue, VP solution engineering, Uberall

 

The coronavirus pandemic has seen a dramatic increase in digitalisation across all aspects of our lives, from remote working and online shopping to digital banking. Indeed, during the UK’s lockdown period, six million people – the equivalent of 12% of the UK’s adults – have made the switch to digital banking, and according to Deloitte, over 60% of people who used online banking more during lockdown say they are likely to continue doing so in the future.

Whether it’s personal credit, loans, insurance or investing, customers are turning to their digital devices first to find financial services. But while customers are looking online, they’re also browsing to find local options, and as of May 2020, searches for “available near me” have grown globally by over 100% in just one year, per Google data. But how do financial institutions ensure that their local outlets are being found online, and that they can still attract new customers back in store, even with Covid-restrictions in place?

Considering nearly 60 million people in the UK alone are smartphone users, financial services have a huge opportunity to connect with more customers in their local area that are looking for financial services on their mobile devices ‘Near Me’. To succeed, financial companies must shift their digital strategies to fit this new paradigm, and move away from focusing on overall web traffic to instead optimising all the online touchpoints customers have with them, from the first online search, to engaging on social media and through online reviews.

 

Paul O’Donoghue

What are ‘Near Me’ searches and how do I optimise them?

The term ‘Near Me’ made its debut in Google when people were looking for something they needed right away and close to them — like an ATM when they needed cash. For financial organisations, ‘Near Me’ searches are particularly pertinent as customers typing in local search queries usually wish to make a purchase or take an action right away.

As ‘Near Me’ searches grew, search engines got smarter and customers didn’t need to add ‘Near Me’ every time they were searching for something with local intent. The definition of ‘Near Me’ has expanded and is no longer solely about finding a specific place, “It’s now about finding a specific thing, in a specific area, and in a specific period of time,” said Google’s VP of Marketing for the Americas, Lisa Gevelber.

When it comes to optimising local searches, this is about ensuring a high ranking in search results, which is critical to being found online. For example, when a customer Googles “best home insurance agency London”, they are presented with three results, but recent research found that if a location doesn’t rank in these top three results, the click-through-rate falls to under 8%.

To increase visibility and connect with prospective customers who are searching for services at the exact moment they are ready to invest, purchase insurance or apply for a mortgage, financial institutions must ensure their online presence is optimised. This starts with listing branches and independent locations on business directories, map services and review sites – the number one way to rank highly in local search. This sounds simple enough, but where financial organisations fall short is in the accuracy and consistency of their business information.

 

Three steps to ranking at the top of ‘Near Me’ searches

Google uses the accuracy and consistency of business address, opening hours, contact details, business name, website and postcode as trust factors to see whether they should send a user to a specific location. The more accurate the information is, the more likely Google will rank the location in one of the top three spots.

Yet accuracy and consistency across the most important directories are a real problem for many finance and insurance brands — a recent Uberall study found that 96% of business locations had inconsistencies across Google, Bing and Yelp. This may seem trivial, but these small discrepancies undermine major search engine trust factors. If information is missing or incorrect for a particular location, customers looking for financial services nearby won’t be shown that result at the top of their local search.

To optimise these trust factors and subsequently gain visibility, financial services organisations must ensure accurate and consistent business listings information across multiple directories for their locations. In addition, and to encourage brand loyalty and repeat visits from customers, replying to reviews and engaging with customers online is also a must. Below are some more tips for how these organisations can keep customers coming back in the age of ‘Near Me’:

 

Step 1: Find out if locations are optimised for ‘near me’ searches

  • Focusing on optimising listings and reviews is the best way to ensure connections with customers while they are searching for services near them. But first, it pays to understand how well locations are optimised across the directories that matter most for ranking in local search
  • Perform a quick search to see if your locations appear at the top of the results, or see where they rank on Google compared to Bing and Yelp
  • Knowing where you stand is key, and there are even tools available to help you find out your current online optimisation score.

 

Step 2: Optimise business listings

  • Enter address, opening hours, phone number, business name, website and postcode on the most important directories, including Google, Bing, Yelp, Apple Maps, Facebook and Trustpilot
  • Ensure that each location has the exact same information listed across different directories, review sites and search engines
  • Be as specific as possible about the business and what it does, as the more information provided, the higher the ranking for specific search queries will be
  • Include photos that display the highlights of the location.

 

Step 3: Optimise reviews

  • Ask customers to leave reviews online by encouraging them at the end of a customer service interaction, whether that’s in-store or digitally
  • Encourage them to leave reviews across the board including on Trustpilot, Yelp and Facebook — not just Google
  • Make sure to reply to reviews, wherever they are — Trustpilot found that 75% of customers agree that positive customer ratings would make them more likely to become a customer of a bank, compared to only 9% who disagree
  • Get as many authentic reviews as possible, as often as possible – review volume and velocity is critical for rankings.

‘Near Me’ searches are here to stay, even more so during the pandemic as people turn to local services. To ensure visibility and optimisation in these searches, it’s important to understand that business listings and review management go hand-in-hand. While having accurate and consistent business listings is a trust factor for search engines, so is a local review score, review volume and the frequency with which a business location replies to its customers. Search engines want to know that customers are engaging with you, that they can trust the information you are providing, and that you are engaging right back with customers when they need it most.

 

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