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Web3: How Close Are We to a Whole New World Wide Web?

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By Hugh Scantlebury, CEO and Founder of Aqilla

 

You’d be forgiven for thinking that Web3 is a new concept. It’s been in the news a lot over the last 18 months as cryptocurrency use continues to grow (El Salvador made bitcoin legal tender) and metaverse discussions gather pace (Facebook becomes Meta). Celebrities have also started to take a keener interest (Madonna releases controversial NFT art collection). But the term was first used back in 2006 in an article by New York Times journalist John Markoff. Seen at the time as future gazing and blue-sky thinking, it took until 2014 and Ethereum co-founder, Gavin Wood’s Web3 musings to ignite the public’s imagination.

Today, big tech hitters like Elon Musk, Jack Dorsey, and Mark Zuckerberg are bringing Web3 closer. And companies outside the tech sector are getting involved too. Starbucks, for example, has announced it intends to unveil a Web3-based rewards program. There’s talk too that Web3 has the potential to create a much more equitable and frictionless global trading environment. All of this got me thinking about the start of Web3’s mainstream crossover and what it could mean for our everyday lives.

What is Web3?

Hugh Scantlebury

But let’s not get ahead of ourselves: What is Web3, anyway? Web3 is a concept for the next generation of the World Wide Web based on blockchain technology. And blockchain is a system that records personal data and financial transactions. But unlike the transactions that you make with your credit card or via your bank account — or the personal data you share with online organisations — information is stored across several decentralised computers or servers (the block). These machines are linked to a peer-to-peer network (the chain) rather than housed centrally in a financial service provider’s or online company’s data centre.

The decentralisation offered by blockchain sits at the heart of Web3. It’s why lots of people talk about Web3, blockchain and cryptocurrencies in the same breath. The intention behind Web3 is to provide users with increased data security, scalability, and privacy. It’s also hoped that Web3 will give more control back to individuals on how their data is used and accessed — and give users self-sovereign identity. In many ways, it’s a reaction to the monetisation of personal data, like the kind we’ve witnessed with Facebook, other social media platforms and tech giants — and an attempt to combat their influence.

Web3 also incorporates token-based economics, including NFTs (Non-Fungible Tokens). The most famous (and most expensive) NFT sale to date was Beeple’s Everydays: The First 5000 Days, which sold for $69.3 million and rocketed NFTs into the public consciousness. Be very wary of these; they’ve got what many refer to as the Emperor’s New Clothes potential.

What does Web3 mean for the financial sector?

Most people would welcome improved online security and privacy and a return to the more democratised ideals of the early web pioneers. But to date, Web3 has been a little bit like driverless cars and nuclear fission, always five years away but looking like it could finally be a reality very soon.

Part of the problem is that we’re not fully set up to deal with the new implications of Web3 – especially from a financial perspective. Central banks do not handle cryptocurrency or NFTs; you can’t pay for your supermarket shop with bitcoin — yet! However, last month, in a positive sign that things are moving in the right direction, the European Central Bank announced its intention to standardise a way for Eurozone banks to offer crypto assets through a crypto regulatory framework.

The proposed framework will consider crypto company risk profiles and capabilities — and should start to give more confidence in the technology to the mainstream financial community. But many Web3 purists question if the involvement of traditional banks and fintech might curtail some of the advantages and economic democratisation that Web3 promises.

Web3 and Decentralised Finance

Web3 also offers the chance for more mainstream adoption of decentralised Finance (DeFi). It’s based on secure distributed ledgers like those used by cryptocurrencies and is intended to deliver financial products without using banks and exchanges as intermediaries. Robinhood Markets, which hit the headlines for opening stock markets to amateur investors and trading “meme stocks,” is possibly the most famous (or notorious) example of a DeFi service provider.

DeFi uses Ethereum’s decentralised blockchain to enable two parties to exchange currencies by entering into an agreement known as a smart contract. Recorded on the blockchain, the DeFi transaction is completed once both parties decide on their agreed conditions.

DeFi ultimately creates a more flexible and accessible way for people to benefit from financial services, such as taking out loans. It also cuts the lengthy vetting process usually conducted by banks. This means those with poorer credit scores can access such services. But it comes with risks as there’s no third-party involvement or regulation.

Reaching our destination

For all its current issues, there’s a groundswell of optimism around Web3 right now — and it’s an optimism I wholeheartedly share. The hopes and aspirations for our future that are bound up in the next version of the web represent some of humanity’s best ideals, as well as its capacity for imagining a brave future and then making it a reality.

However, perhaps for the moment, there’s still too much theoretical blue-sky talk and not enough practical work, particularly around cost, crypto mining, energy consumption, scalability, accessibility, and user experience. To make Web3 a reality, we need our cleverest people to develop the environment. People that can give it safe, practical applications and a stable framework — while still maintaining the core principles of decentralisation, democratisation, and data sovereignty. It will definitely require some experts from the global banking sector — those who understand what it took to enable secure transactions at the dawn of Web2.

There are also some sustainability and environmental issues to tackle. Bitcoin’s decentralised structure means it has a substantial carbon emissions footprint. It’s estimated that Bitcoin uses electricity at an annual rate of 127 terawatt-hours. To put that in context, that’s more than Norway’s entire yearly electricity consumption. It also makes bitcoin transactions incredibly slow — some can take nearly a quarter of an hour. Web3’s blockchain power usage simply can’t be allowed to spiral in this way.

Sir Tim Berners-Lee is one person that I would trust to lead the way to Web3. He is currently working on a web decentralisation project with the Massachusetts Institute of Technology (MIT) called ‘Solid’. This group aims to change how web applications work today through actual data ownership and privacy. Initiatives like these could catapult Web3 into the mainstream, but to get there, we need to cut through the hype, consider what’s achievable now, and what needs to happen to reach the ultimate goal.

Think back to how Open Banking, which at the time was a big, bold step for the global financial community, has created a much more dynamic, democratised way of running our personal finances. With the proper application and hard work by principled, intelligent people, we could deliver an internet with less exploitative data harvesting, freer trade, and greater online security. So, enough talking about what could be and let’s make it happen!

Business

Know Your Business (KYB): Exceeding KYC

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Victor Fredung, CEO at Shufti Pro

 

Money laundering costs the UK more than £100 billion pounds a year, according to the National Crime Agency, emphasising the need for stringent ID verification of individuals and businesses.

ID verification, however, remains a moving target. The UK’s fraud prevention community CIFAS has warned of surging ID theft. The National Fraud Database increased by 11% in the first six months of 2021, with almost 180,000 instances of fraudulent conduct filed in the first six months of the year. This reflected the aftermath of the 2008 financial crisis, which recorded a 32% increase in identity fraud the following year. CIFAS is warning UK businesses and consumers to expect a continuation of the steep rise in identity fraud for 2021 and 2022 as criminals exploit businesses under pressure.

Businesses can respond with resilient Know Your Customer (KYC) software and protocols. KYC establishes customer identity; understands customers’ activities; qualifies the legitimacy of funding sources; and assesses money laundering risks associated with customers. To date, almost 6,000 financial institutions are using the SWIFT KYC Registry to publish their KYC data and receive data from their correspondent banks.

KYC regulations and procedures are appropriate when the customer or consumer is a named individual.  However, it’s not enough to verify the identity of individuals. It is also important to verify the identity of businesses.  Know Your Business (KYB) tools and regulations are designed for cases where the customer is a business or corporate entity. KYB is particularly important as criminals seek to exploit crypto currencies which can thwart verification techniques, such as anti-money laundering (AML) and KYC.

KYB verifies businesses by obtaining official commercial register data via APIs. By using the registration numbers and jurisdiction code of a business, a digital KYB service can collect confirmable information for the business. This enables corporate organisations to determine if they are dealing with authentic businesses or fake shell companies. KYB services particularly help financial institutions handling the funds of a large customer base and corporate entities.  During this process businesses must improve the customer digital enrolment and authentication experience. End-users resist proving their identity through for example, showing scans of their bank account statements and may abandon service providers whose online enrolment processes increase friction.

Usefully, KYB uses access to automated commercial registers through a data-powered business verification service, expedites due diligence and eliminates errors.  With advances in digital technologies and virtual data sets, KYB compliance and verification tools can mark businesses involved in undercover activities, gathering background data on the company including the registered address, status, company type, ultimate beneficial ownership structures, previous names and trademark registration. A financial summary of the company’s operational accounts is also provided by the authentication service, to help validate its authenticity.

Here, Artificial Intelligence (AI) can come into its own, determining the identity of individuals and the financial risk attached to that person with AML Compliance solutions. AML services can check the involvement of an individual company in any watchlist or financial risk database, at scale. Machine learning algorithms can detect forged documents or disguised ownership structures. Nationality verification and geolocation targeting can determine the true country of origin of international clients and the jurisdiction of the company.

However, adoption of KYB processes has been sluggish: last year research undertaken by kompany indicated only 5% of financial institutions (FIs) have an automated B2B or corporate banking onboarding process, with 75% of FIs still relying on Google searches to identify Ultimate Beneficial Owners (UBOs), annual filings and financial accounts. Financial services organisations also struggle to manage the complexity of KYB, and the siloed approach to managing information within an FI can make KYB adoption more challenging.

A further challenge for KYB compliance lies in accessing beneficial ownership information, especially in jurisdictions that do not require companies to submit relevant documentation. A lack of shareholder information makes it harder to investigate money trails and business authenticity. Timely availability of data, across international borders in the right format, is another hindrance, especially as company structures and management change over time. This is why geography and industry specific vendors will be of value to businesses needing to conduct ID checks. It is also why businesses must find the right vendors who can be a one stop shop to manage their KYB adoption and must prioritise the user-experience for frictionless onboarding and regulatory compliance.

Banks have experienced difficulties with KYC verification for their customer onboarding, transaction authentication, and remote banking services. This why they may find it hard to trust a KYB service provider. However, FIs and businesses face a pressing need to determine the ultimate beneficial ownership structure of the corporations they are dealing with. The need for a credible, cross-border KYB provider has rarely been more pressing, and according to Forrester, Know-your-business IDV will ‘make or break Identity Verification players.

Know-your-business IDV can make critical difference in identity verification.  With the increase in B2B commerce it has become more urgent to verify both individuals and organisations and their representatives.

The cost of not adopting KYB technology is dwarfed by the prospect of data breaches, fraud and reputational damage. For financial institutions, legitimacy and verification of the business is key for growth. The software solutions exist and are ready to be implemented.  he National Fraud Database increased by 11% in the first six months of 2021, with almost 180,000 instances of fraudulent conduct filed in the first six months of the year. This reflected the aftermath of the 2008 financial crisis, which recorded a 32% increase in identity fraud the following year. CIFAS is warning UK businesses and consumers to expect a continuation of the steep rise in identity fraud for 2021 and 2022 as criminals exploit businesses under pressure.

Businesses can respond with resilient Know Your Customer (KYC) software and protocols. KYC establishes customer identity; understands customers’ activities; qualifies the legitimacy of funding sources; and assesses money laundering risks associated with customers. To date, almost 6,000 financial institutions are using the SWIFT KYC Registry to publish their KYC data and receive data from their correspondent banks.

KYC regulations and procedures are appropriate when the customer or consumer is a named individual.  However, it’s not enough to verify the identity of individuals. It is also important to verify the identity of businesses.  Know Your Business (KYB) tools and regulations are designed for cases where the customer is a business or corporate entity. KYB is particularly important as criminals seek to exploit crypto currencies which can thwart verification techniques, such as anti-money laundering (AML) and KYC.

KYB verifies businesses by obtaining official commercial register data via APIs. By using the registration numbers and jurisdiction code of a business, a digital KYB service can collect confirmable information for the business. This enables corporate organisations to determine if they are dealing with authentic businesses or fake shell companies. KYB services particularly help financial institutions handling the funds of a large customer base and corporate entities.  During this process businesses must improve the customer digital enrolment and authentication experience. End-users resist proving their identity through for example, showing scans of their bank account statements and may abandon service providers whose online enrolment processes increase friction.

Usefully, KYB uses access to automated commercial registers through a data-powered business verification service, expedites due diligence and eliminates errors.  With advances in digital technologies and virtual data sets, KYB compliance and verification tools can mark businesses involved in undercover activities, gathering background data on the company including the registered address, status, company type, ultimate beneficial ownership structures, previous names and trademark registration. A financial summary of the company’s operational accounts is also provided by the authentication service, to help validate its authenticity.

Here, Artificial Intelligence (AI) can come into its own, determining the identity of individuals and the financial risk attached to that person with AML Compliance solutions. AML services can check the involvement of an individual company in any watchlist or financial risk database, at scale. Machine learning algorithms can detect forged documents or disguised ownership structures. Nationality verification and geolocation targeting can determine the true country of origin of international clients and the off shore status of a company.

However, adoption of KYB processes has been sluggish: last year research undertaken by kompany indicated only 5% of financial institutions (FIs) have an automated B2B or corporate banking onboarding process, with 75% of FIs still relying on Google searches to identify Ultimate Beneficial Owners (UBOs), annual filings and financial accounts. Financial services organisations also struggle to manage the complexity of KYB, and the siloed approach to managing information within an FI can make KYB adoption more challenging.

A further challenge for KYB compliance lies in accessing beneficial ownership information, especially in jurisdictions that do not require companies to submit relevant documentation. A lack of shareholder information makes it harder to investigate money trails and business authenticity. Timely availability of data, across international borders in the right format, is another hindrance, especially as company structures and management change over time. This is why geography and industry specific vendors will be of value to businesses needing to conduct ID checks. It is also why businesses must find the right vendors who can be a one stop shop to manage their KYB adoption and must prioritise the user-experience for frictionless onboarding and regulatory compliance.

Banks have experienced difficulties with KYC verification for their customer onboarding, transaction authentication, and remote banking services. This why they may find it hard to trust a KYB service provider. However, FIs and businesses face a pressing need to determine the ultimate beneficial ownership structure of the corporations they are dealing with. The need for a credible, cross-border KYB provider has rarely been more pressing, and according to Forrester, Know-your-business IDV will ‘make or break Identity Verification players.

Know-your-business IDV can make critical difference in identity verification.  With the increase in B2B commerce it has become more urgent to verify both individuals and organisations and their representatives.

The cost of not adopting KYB technology is dwarfed by the prospect of data breaches, fraud and reputational damage. For financial institutions, legitimacy and verification of the business is key for growth. The software solutions exist and are ready to be implemented.

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Addressing the ongoing global pilot shortage issue

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By Bhanu Choudhrie, Founder of Alpha Aviation

 

The Covid-19 pandemic brought the aviation industry to a halt, causing vast market disruption and putting the future of many key players at risk. Now, just as airlines were getting back on track, staffing shortages are causing new complications – and part of this issue is a growing pilot recruitment problem.

So, where does the sector go from here and what steps need to be taken to mitigate pilot shortages?

The root of the issue

Even before the pandemic, there was a global shortage of pilots, with people flying more due to a rise in more affordable airlines and falling fuel costs. In fact, the 2020-2029 CAE Pilot Demand Outlook suggested that the global civil aviation industry will require more than 260,000 pilots by the end of the decade.

However, when demand for air travel dropped across the globe, airlines were quick to offer early retirement packages to reduce immediate outgoings. Whilst this approach helped some airlines stay afloat during the slowdown, a wave of early retirements has left them on the back foot.

Bhanu Choudhrie

Now demand is coming back much faster than expected. In the US alone, the Bureau of Labor Statistics is expecting 14,500 openings for commercial and airline pilots each year until 2030, and this imbalance is already having a detrimental impact on the aviation industry. With flights being cancelled, travellers left stranded, and some airports losing service altogether, it is crucial that the larger aviation ecosystem comes together to work out a solution to effectively address this pilot shortage crisis, so that it can once again meet capacity demands.

Re-directing efforts to rebuild pilot pools

With vast swathes of pilots put on furlough during the pandemic – and therefore unable to maintain their license requirements, the damage isn’t just in the ongoing pilot shortage, but also in the decades of experience the industry has lost. In response to this narrative, last month a Senator in the US introduced legislation to raise the mandatory retirement age of commercial airline pilots from 65 to 67 – and the US are not alone in this shift. Last week, Air India announced that it will be raising their retirement age for pilots from 58 to 65. Now we need to see other countries and airlines follow suit to help retain the talent that can help guide and mentor the next generation of cadets.

Moreover, training schools and airlines will need to work together to challenge industry stereotypes and empower more women to pursue a career in the cockpit. Currently, just 5.1 per cent of the world’s commercial pilots are women. This means that for every twenty flights taken, only one of them will be piloted by a woman. Unfortunately, this gender imbalance has become a long-established trend within the aviation industry and, stereotypically, pursuing a career as a pilot has been considered a male occupation, with women type cast to cabin crew instead. Therefore, if we are to make proactive strides towards addressing the current pilot shortfall, finding a way to shift that percentage is essential.

The cost of training to be a pilot is also a key barrier the industry needs to address, and at pace. On average, the cost to train as an air transport pilot can exceed $100,000 – making a career in the cockpit unattainable to many. One way for the industry to help narrow the gap and mitigate what is often seen as a considerable financial risk, is to make bursaries more accessible. There are already a number of programmes in place, to support both aspiring pilots and those who need to maintain their licenses, however, now the industry needs to work on championing and expanding these support systems.

The industry also needs to start to embrace alternative approaches to alleviate this substantial outlay. For example, at Alpha Aviation, we have started running the the Multi-Crew Pilot License (MPL). This is a shorter, more simulator-focused way of training that not only opens up opportunities for prospective cadets from less privileged backgrounds, but also offers a more flexible training programme and quicker route to qualification – reducing the financial expenses for cadets to cover.

Technological innovations can also play a crucial role in advancing the training process to help support a consistent employee base. For example, e-learning programmes can enable airlines to expand cadet class sizes. No longer restricted by the physical capacity of training centres, e-learning programmes have the potential to significantly open up access to becoming an aviator and will ensure airlines can recruit the best talent, irrespective of locality. In addition to this, pilots still need to clock up over 1,500 flying hours to receive their ATP certificate. Therefore, investing in simulator training facilities is now pivotal in supporting cadets to keep on top of the legal requirements and improve their skills set at a significantly quicker pace, alongside supporting existing pilots to retrain on new aircrafts when necessary.

Looking ahead

The pressure on the aviation industry shows no signs of abating any time soon. Therefore, while it is great to see passenger numbers returning to near pre-pandemic levels, the industry needs to take this as a significant wakeup call and re-assess its pilot recruitment process.

At the end of the day, there is no quick fix – training top of their class pilots takes time, investment and enthusiasm. However, addressing the ongoing chaos and driving the sector out of this turbulent period is essential to the economic revival of the nation. Therefore, decisive action is needed – and it is needed now.

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