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.
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.
Bringing Automation to Banking
Ron Benegbi, Founder & CEO, Uplinq Financial Technologies
Automation is everywhere you look these days; from supermarkets to warehouses to automobiles. This prominent trend shows no sign of abating anytime soon. However, some sectors remain behind others when it comes to adopting automated technologies. Banking is one such segment, but there’s now evidence to suggest that this could be about to change.
What do we mean by automation?
There are a lot of ways to define automation, but broadly the term applies to any technological application where human input is minimized through design. Over the years, automation has evolved from a basic level, which took simple tasks and automated them, all the way to advanced automation powered by Artificial Intelligence (AI). In general, automated solutions work to increase productivity and efficiency within businesses and often result in a reduction in costs associated with human capital.
Why has the banking sector been slow to adopt automation?
The banking sector has been built on a number of long-standing, tried and tested processes and protocols, which have been continually fortified and refined over time. This is one explanation as to why the sector has been so slow in adopting new, automated methods within its operations. Additionally, many major financial institutions have spent decades building their own internal legacy computer systems, which are often incompatible with modern automated solutions.
When combined, these two issues have caused a significant lag in the banking sector with regards to the adoption of automated technologies. This lag has created a market opportunity that a number of fintech providers have been able to exploit in recent years. Offering a more responsive and tech-first user experience, many fintech providers are leveraging the power of automation to better meet the banking needs of their customers. However, there is still time for the banking sector to start bridging this gap.
Does automation have a place in the banking sector?
The opportunity for automation to play a role within banking can be transformational.
To achieve this, it’s important that legacy organizations begin to learn from their more tech-savvy, smaller counterparts. If used effectively, automated financial solutions can greatly improve the experience of banking customers, both on a personal and business level. So, what exactly does this change look like, and how far away are we from seeing it become a reality?
A good place to start is the small business credit lending process, where not much has changed since the 1980’s. Over that period, the world has greatly transformed, but the methods used to assess credit worthiness have remained somewhat static. For the most part, banks assess data related to businesses’ accounting and banking records and from credit scores. For many businesses, especially the newer and less established ones, this antiquated approach is having a detrimental effect. In fact, it’s often cited as a contributor to the huge funding gap between SMBs and their larger counterparts.
How can automation benefit the banking sector?
By adopting more automated technologies, lenders in the banking sector can begin to assess more comprehensive information when making credit decisions. Notably, new methods exist, which enable additional data sets to be evaluated, in order to build a more accurate financial depiction of a business’ overall position. This data can come from sources like external market attributes, economic indicators, demographic data and exogenous shocks.
By leveraging additional data sets through new methods of financial automation, banks are now in a position to respond more effectively to small businesses, including those in emerging and evolving markets where there is a lack of conventional sources of information.
With more ways to access funding, facilitated by alternative data and automated processes, small business owners can improve their operational efficiencies and accelerate their growth efforts. In doing so, legacy oriented financial institutions can now better equip themselves in protecting against new, nimbler tech-based disruptors.
MYTH BUSTING THE ROLE OF OPEN SOURCE IN FINANCIAL SERVICES
Nigel Abbott, Regional Director North EMEA, GitHub
There is no denying the financial services (FS) industry is under pressure to innovate. Not only have customer and consumer expectations for digital experiences surged in recent years, but the emergence of nimble and ambitious fintechs have disrupted the market. Yet, despite striving for innovation being table stakes across the industry, FS organisations inevitably face familiar hurdles that slow their progress, including concerns surrounding security, compliance, and the ability to act fast.
Open source is increasingly seen as a route to drive innovation and create new value. The FS sector’s utilisation of open source and the transformative role it can play is accelerating – on paper, at least. According to the recent Fintech Open Source Foundation’s (FINOS) 2021 State of Open Source in Financial Services survey, as many as 80 percent of FS leaders said that innovation, reduced time-to-market and total cost of ownership are factors for FS businesses to consume open source.
But the reality is these positive adoption figures don’t tell the whole story. The survey also revealed that 75 percent of FS technology leaders said their businesses are either not “open source first”, or that they did not know if they were. Tellingly, less than one in ten (eight per cent) said that their business has put in place policies to encourage open source contribution.
The statistics point towards disparity between uptake of open source and the ability to use it to its full potential. But why?
For me, it comes down to some common myths about the role of open source that need demystifying:
Myth #1: There are limits to the innovation that open source can deliver
This could not be further from the truth. All enterprises, including FS companies, rely on open source software to build the best software for their customers, improve infrastructure, and unlock the potential of their engineering teams. Nationwide, for example, has completely redesigned its DevOps processes to respond faster to market changes and keep pace with customer expectations to remain relevant. The impact is transformative when they actively embrace it and participate fully in the open source community, creating a win-win situation for end-users.
Myth #2: Data can be shared without consent
Quite the opposite. Open source does not require FS businesses to share all their secrets and give away their competitive advantage. Instead, taking an “innersource” approach allows financial institutions to take the skills of developers who are accustomed to using open source tools and brings these inside the company firewall, providing a secure internal platform for working collaboratively on projects.
Myth #3: Open source is not secure
The most common misconception is that higher security risks are associated with code being openly available to anyone who uses it. But the open concept is, in fact, one of the biggest security strengths of open source. This is because of the collaborative nature of how code is built. The open source community has a shared responsibility for developing and maintaining secure code, and there is a vast global pool of developers identifying and fixing security issues. Supported by the right tools and processes, open source makes it easier for developers to code securely throughout the entire software development lifecycle, reducing the amount of time and financial investment in delivering secure products. Research from Red Hat found that security is regarded as a top benefit for enterprises using open source.
Myth #4: The open source community lacks finance sector contributors
This is untrue. Financial enterprises of all shapes and sizes are prominent participants in the open-source community and lead by example, sharing meaningful code contributions. Challenger banks and institutions such as Goldman Sachs contribute to open source initiatives via FINOS. By opening their code and ideas, FS companies can share lessons and support the whole community – helping them deliver better services and more value to their customers. And crucially, they are advancing a community that they can systematically tap into and benefit from.
Open source is already delivering innovation in the FS sector. But the bottom line is that there is so much extra value it can bring. Unlocking the full potential of open source to effect change does not just require buying DevOps tools. Open source requires organisation-wide understanding and support, a culture of collaboration and a progressive DevOps and governance process to thrive. Only then can it deliver its true value and accelerate innovation.
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