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Web3’s impact on the global economy

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Richard Shearer, CEO of Tintra

The difficulty in discussing web3, sometimes known as Web 3.0, is that it doesn’t exist yet. However, while the concepts involved may not be fully formed, and the technology infrastructure of the web’s next iteration complex, the potential economic impacts of web3 are likely to be tangible – and worth taking seriously.

What is web3?

In brief, the term ‘web3’ refers to a predicted third iteration of the internet. The internet we currently use is considered the second version, characterised largely by e-commerce and interactions with online platforms through various forms of social media. Some describe our current phase as a ‘user-generated web.’

Though we may not pay for all the services we consume on the internet, there’s still a toll involved – often in the form of personal data and other information about our preferences, which fuels intensely targeted advertising. Most of this data lines the pockets of enormous companies like Meta, Google, and Amazon: tech giants that are sometimes described as feudal lords reigning over their digital domains.

In the eyes of web3’s supporters, a new iteration of the internet could put an end to the tech giants’ overwhelming influence over personal data through blockchain-based technology. In the era of web3, the internet’s data would be recorded on the blockchain -a public ledger which would keep track of any data movement – and allow for a decentralised approach that would forgo the middlemen and permissions that limit current internet use.

These terms aren’t necessarily familiar or easy to grasp at this stage. Thinking about the practical outcomes for this kind of technology, however, is a good way to establish some possible economic outcomes as we edge closer to something resembling web3.

Economic uncertainties

There’s no consensus as to whether web3’s economic impact will be positive, negative, or some mixture.

Economics Observatory, an initiative run by UK research economists, captured the uncertainties here in a recent discussion of the cryptocurrency adoption that comes hand-in-hand with web3. As University of Cambridge researcher Sam Gilbert points out, “A collapse in crypto asset prices could force investors to sell off other assets to cover losses, reducing liquidity in the financial system and affecting investor sentiment. This could then have potential knock-on consequences for the real economy.”

On the other hand, the researcher points out that a Bank of England endorsed central bank digital currency might bolster monetary policies used to stimulate economic activity in the event of a downturn.

Despite these uncertainties, however, it’s possible to draw some conclusions on web3’s economic impact by thinking about how a blockchain-based internet (and its associated digital currencies) may allow for changes in terms of global payments.

Reduced friction for global transactions

These changes were hinted at in questions asked as part of the recent World Economic Forum Annual Meeting: “In the future, will we still send cross-border payments? Or will we be able to freely engage (in a compliant, trusted, and privacy-preserving manner) in the frictionless exchange of economic value?”

The prospect of freely exchanging currency isn’t just a minor aspect of web3, but one that animates discussions of the topic.

As early as 2018, Gavin Wood – co-founder of Ethereum – pointed to payments as a crucial element of web3. He pointed out that, currently, we don’t directly make our own online payments: “In reality, you must contact your financial institution to do it on your behalf. You are not trusted to do something as innocuous as pay your water bill. You are treated like a child appealing to a parent.”

By contrast, payments in a web3 setting would cut out the middleman altogether, with decentralised payment apps finalising transactions by recording them in the blockchain.

This proposed future of payments via open-sourced protocols could have profound economic impacts – not only by widening financial inclusion for those who are currently unbanked or underbanked, who can use e-wallets instead of bank accounts, but also by introducing a means of conducting international transactions between entire countries which are currently penalised by financial middlemen for transacting with their Western counterparts.

New levels of inclusion for emerging markets

Emerging market countries suffer most from the friction of international transactions – so, assuming that web3 could usher in new and frictionless payment methods, we can assess its economic impact by thinking about the implications of developing countries being given the freedom to transact without barriers or prejudice.

In this light, the potential economic benefits are hard to ignore. There is, after all, widespread agreement that cross-border payments – according to a report from the Financial Stability Board (FSB) – “sit at the heart of international trade and economic activity.”

The FSB goes on to point out that “faster, cheaper, more transparent and inclusive cross-border payments” – which web3 potentially offers – “would have widespread benefits for supporting economic growth, international trade, global development, and financial inclusion.”

In fact, inclusive cross-border payment systems are widely acknowledged to be economically beneficial: the Bank of England has made near-identical claims about the “widespread benefits” of faster and cheaper international payments, with an emphasis on emerging markets. As the Bank points out, payments like remittances are essential for low and middle-income economies as a form of development finance, while the IMF points to cross-border payment reforms as a means of unlocking economic growth.

In short: there’s universal agreement that easy cross-border payments are economically powerful.

If web3 can drive a future which sees emerging market economies free from the stringent regulatory restrictions that currently hamper their abilities to transact and trade, they will be in a position to bolster what the Bank of England predicts to be the $250 trillion worth of value that cross-border payments will represent by 2027.

Principles over practicalities

Nobody can say whether web3 will come to fruition, or whether it will look like the vision described by futurists.

What we can say, however, is that there’s clearly an appetite for change in the way we act and transact in online settings. There’s no question that people want to cut out the middleman and enjoy seamless web-based and financial infrastructure, whether for the controlled exchange of data or for cross-border remittances.

There’s also a clear economic benefit to making these payments as affordable and transparent as possible, with consensus among a range of financial organisations and thought leaders on that score.

As such, despite web3’s unpredictability, this kind of thought exercise can certainly point us towards the kinds of seamless, friction-free payment technologies that – whatever web3 may ultimately look like – the global economy will clearly benefit from.

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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