– Christoph Tutsch, CEO at ONPEX
With hard Brexiteer, Boris Johnson elected as the new Conservative Party leader, no-one really knows which direction the UK is heading in when it comes to its post-Brexit future. Christoph Tutsch, CEO at ONPEX, discusses what impact this new leadership could have on the UK’s payments and banking landscape and for businesses on both sides of the Channel, whatever the outcome.
The shape of the UK’s post-Withdrawal relationship with the European Union (EU) is still uncertain. The new date for the country’s departure has been set for the 31st October 2019 but, with a new leader and Prime Minister, MPs in Westminster are no closer to agreeing a deal than they were two years ago. More worryingly, the possibility that the UK will walk away from the EU without a deal is still very real and becoming increasingly more plausible, with Johnson stating the UK will leave on the set date, “with or without a deal”. So, how could this affect the banking and payments landscape, and businesses currently providing financial solutions for customers operating within and outside of the UK?
As Europe patiently awaits the next steps from the new British government, both businesses and consumers are becoming increasingly agitated with this growing uncertainty.
Brexit and the payments ecosystem
The banking and payments landscape within the UK stands to change substantially – not just in the event of a No Deal Brexit, but even under the Withdrawal Agreement brokered by former PM, Theresa May, and the Labour Party’s proposed customs union. Not only this, but the UK’s new PM has stated his determination to negotiate his own deal with Michel Barnier, causing all manner of uncertainty. This may have significant ramifications for payment providers and their partners inside the UK, when it comes to cross-border commerce.
The UK government warned the cost of card payments between the UK and EU will likely increase in a No Deal scenario, and these cross-border payments will no longer be covered by the European surcharging ban – which prevents businesses from being able to charge customers for using a specific payment method. Customers of financial service providers may see these charges come into force immediately, with American Express being a key example of an issuer already not covered by these regulations.
What’s more, the cost of processing international Euro transactions could also increase in the event of a No Deal Brexit, due to UK financial service firms losing access to existing passporting facilities to the EU market under this scenario. However, to mitigate this threat many are establishing EU-based subsidiaries. This will ensure these institutions can continue offering services following the UK’s exit from the EU from its dedicated EEA subsidiary.
What about cross-border payments and the Single Euro Payments Area (SEPA) schemes?
The UK’s participation in SEPA could be impacted by Brexit. This scheme is essential to cashless Euro payments made across Europe, as it ensures making a payment internationally is as easy as making a payment at home with BACS, CHAPS and Faster Payments. Payment providers and their UK partners will no longer benefit from the scheme, when processing payments between the UK and the EU, if the UK is no longer part of it.
However, according to the Cash and Treasury Management file, there are three possible post-Brexit scenarios that will impact the UK’s inclusion in SEPA. These are: remaining in the European Economic Area (EEA); leaving the EEA but having a free trade agreement (FTA) between the EU and UK with a “functional equivalence”; and finally, having no legal alignment.
If the UK remains in the EEA following Brexit, it can continue to participate in SEPA schemes. However, if the UK leaves the EEA or doesn’t agree on an alignment of the relevant legal framework, the European Payments Council (EPC) will have to assess the UK’s eligibility for being part of SEPA, following an application from the UK PSP community.
Alternatively, if the UK leaves the EEA and puts in place an FTA with the EU, thus establishing a ‘functional equivalence’ of the EU legal framework, UK scheme participants will be able to continue trading as normal using SEPA. This is because the UK will then meet the required criteria to participate in SEPA schemes. Still, in this situation, the EPC may have to assess any functional equivalence of the UK’s legal framework with EU law.
Regardless of the outcome, banks and businesses need to ensure they have the financial infrastructure in place to enable customers to pay for goods and services quickly, effectively and securely, from anywhere in the world. Many of the UK’s banks are already striving to find payment solutions which can support them in continuing to operate across borders.
At ONPEX, we’re already prepared for any outcome between the UK and the EU. Thanks to our flexible Banking*-as-a-Service (BaaS) platform, we can offer multi-currency banking* and cross-border payments regardless of the Brexit result. All of this is possible due to our platform being asset and payment channel agnostic and our Application-Programming-Interface (API)-first philosophy.
How can businesses navigate Brexit?
This year, EY found 56 per cent of banks, investment banks, and brokerages are relocating operations to Europe following Brexit turmoil – with £800bn of assets being moved with it. With the uncertainty surrounding UK PSPs’ status in the European market, businesses are turning towards their continental counterparts to facilitate payments in this transitional period.
However, APIs could be the key to ensuring that business continues as usual within both the UK and Europe. This is because APIs can provide UK-based financial institutions with the facilities needed to make cross-border payments seamlessly, by connecting different payment schemes (e.g. SWIFT and SEPA) offered from a European-based regulated financial institution, like ONPEX. Therefore, with cross-border payments and APIs becoming a must to maintain continuity of service, PSPs with these facilities will have the upper hand.
Additionally, API-driven technology provides greater levels of simplicity, transparency and automation. These qualities are particularly important for cross-border payments from the UK to the European mainland and will be key to success. This is due to the fact that customers are facing an unprecedented level of uncertainty in regards to Brexit, and are striving for new levels of knowledge to offer peace of mind going forward.
With ONPEX’ innovative BaaS solution, organisations can create payment services which fit their exact needs, by building financial solutions using API-based technology. These transparent, automated and simple to use solutions easily plug into the organisation’s existing infrastructure. They can manage and exchange a number of different currencies, issue multi-currency IBANs and many more innovative payments and banking* features.
Additionally, our clients are able to track a payment from either end of the process, from the moment it is made, to when it is received. This provides our clients’ customers with the transparency needed to operate in uncertain times.
What happens next?
No one quite knows what the future will hold if the UK leaves the European Union. Businesses need to futureproof themselves now and cross-border payments need to be a key strategic pillar of any business model. Without this, financial institutions will certainly be left behind, particularly those in the UK.
Therefore, organisations need support with payment solutions that can easily facilitate cross-border payments seamlessly and with complete transparency. This is something that is made easy with ONPEX and is enabled via our flexible technology.
Regardless of what lies ahead in terms of payments regulation, technology and methods, ONPEX will continue to provide simplicity, automation and transparency to the payment and banking* industry for years to come.
For more information on how ONPEX’ flexible and automated technology can support your business, visit www.onpex.com.
*ONPEX S.A. is a Payment Institution supervised by the CSSF in Luxembourg.
WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?
By Ken Timsit, ConsenSys
Over the last 10 years, researchers, software developers, start-ups, and large companies have been conducting experiments aimed at determining whether networks based on blockchain technology can ultimately – in whole or in part – replace the infrastructure on which financial institutions and capital markets are built.
In today’s electronic databases, any information can theoretically be replicated at will. This is why most governments allow only regulated actors to keep records of digitized assets (banks, depositories), to avoid pitfalls such as the execution of misleading transactions or the creation of artificial assets. With blockchain, these pitfalls can be avoided at the source code of the technology, which is available to all members of the network. The creation of Ethereum enabled a more robust blockchain network capable of “smart contracts”, which once programmed, can run automatically without the results being modified or manipulated.
Contrary to what some critics argue, the potential of the blockchain is not the creation of a free and unregulated space in which everyone can invent new financial instruments. Rather, the potential lies in creating a much more efficient and globalized commercial and financial infrastructure, in which many layers of control and intermediation are no longer needed as they are replaced by transparent and immutable IT rules that ensure the same risk management functions.
For example, bonds are essential financial instruments on which a large part of our economy and savings are based. The issue and exchange of a bond requires the intervention of several dozen financial institutions (issuers, intermediaries and investors). Some regulated players in this intermediary chain exist mainly to ensure that it is possible to know, at any time, who holds each bond, in order to guarantee their rights to its bearers.
It is theoretically possible to simplify these stacks of operators by linking them to a global blockchain network, open to all stakeholders in the industry. The blockchain network can thus ensure at any time that the number of outstanding bonds corresponds exactly to the number of bonds issued, and that each exchange transaction is carried out without the risk of default.
The blockchain revolution is first and foremost the reduction of costs and delays caused by the current financial infrastructure. The blockchain revolution also creates innovation opportunities for consumers, savers, and investors.
The Web3 revolution, often used to refer to the blockchain revolution, will be driven by the reduction in transaction costs, allowing the emergence of new peer-to-peer business models that we are not yet able to accurately predict, but which will probably participate in a rebalancing of the relationships between financial institutions and their clients. Some international peer-to-peer payment and loan-to-peer savings investment models are already attracting increasing interest from the most sophisticated consumers.
Where are we in 2020?
Today, the blockchain revolution is still in its infancy. Transaction volumes through blockchain networks, public and private, are low compared to those of existing systems. The fixed costs of the technology are still relatively high, and the user experience leaves something to be desired.
However, innovations abound. It is already possible for me, from my smartphone, to buy digital assets whose value is equal to about one US dollar, and to lend them in three clicks to other users who will pay me between 1% and 10% per year for this service, depending on the type of platform.
The number of large operational business projects is still small, but very promising. Numerous international commodity trading players have joined forces to create Vakt and komgo, two platforms that contribute to a significant simplification of trade and oil financing. Similar and competing projects, Voltron and Marco Polo, are being launched. On the corporate side, the Capbridge 1x platform (Singapore) already allows shares to be traded on an Ethereum blockchain network. Other important projects such as LiquidShare (France), SIX Digital Exchange (Switzerland), Daura (with Deutsche Borse and Swisscom in Switzerland), Synapse (Hong Kong Stock Exchange) are in preparation. The World Bank, Société Générale and Santander have issued bonds on an Ethereum blockchain network. These initiatives are still experimental but have attracted significant interest from financial institutions around the world.
And of course, many projects aim to revolutionize global payments by creating digital assets on blockchain networks that are fixed in Euros, U.S. Dollars or other currencies, such as those of the Monetary Authority of Singapore, the South African Reserve Bank, and Union Bank of the Philippines. Since the announcement of the Facebook-initiated Libra project, many governments have expressed concern about the possibility of private companies controlling global payment flows, and have asked their domestic financial institutions to redouble their efforts to explore competing initiatives.
All of this is to say that adoption is happening, albeit gradually. The middlemen and intermediaries of the financial world will not be replaced overnight. Moreover, the exact formation or architecture of the new financial system is impossible to predict with accuracy. However, it’s safe to say that blockchain will enable a financial system that is more efficient and yields more value-add to consumers, users, and investors.
RECOLLECTING 2019 CRYPTOCURRENCY TRENDS & LOOKING FORWARD TO 2020
Marie Tatibouet is the CMO at Gate.io
It has been a bold and progressive year for the digital asset market with exciting announcements flowing in from technology behemoths and government bodies around the world. However, Facebook’s launch announcement of Libra (though they are now facing regulatory issues) and China’s new cryptocurrency law caught all the attention, affecting the Bitcoin price, and the overall market sentiment.
In 2019, the global market saw several catalysts emerging for mainstream adoption despite increased scrutiny around several burning issues such as wash trading and security breaches. For over 400 cryptocurrency exchanges in the world, being able to constantly improve on aspects around user experience and fund security is the only way to be sustainable. However, only a handful have real trading volume and technical expertise to build strong trust in the community. For instance, global wash trading has been the hottest topic of discussion in 2019 but new rankings on CoinMarketCap clearly indicate that the industry is working towards eliminating market manipulation.
Looking back at 2019
In 2019, digital asset organisations have constantly innovated to attract users but at the same time, the trading process has become increasingly fragmented, spiking the time gap between new users becoming long-term users.
Holding & Lending Funds
Since 2014, the Bitcoin margin trading market has expanded from $10 million to $100 billion. Margin trading has been a great use case in the cryptocurrency space. Many exchanges launched the feature to provide diversity to the trading experience and attracting a huge amount of users to the platforms. It allows traders to multiply their profits on successful trades, providing a range of possibilities for both profits and losses.
Staking is a process where users can buy digital assets and earn interest by keeping (holding) them in a cryptocurrency wallet for a particular period of time. It has proved to be a strong use case for digital asset companies as it encourages user participation. In 2019, staking programs brought stable earnings for cryptocurrency investments made by the users. For instance, HODL & Earn launched by Gate.io in August 2019 has been bringing stable earnings for cryptocurrency investments made by its users. The competitive advantage for HODL & Earn is its annual interest rate, which is as high as 32%.
Crowdfunding as an approach to build and grow products has seen a lot of traction over the last decade or so. One of the highlights this year was the emergence of “Initial Exchanges Offerings”, more commonly termed as IEOs, an alternative to traditional IPOs where companies can raise funds by selling a quantity of digital assets to investors, supervised by cryptocurrency exchanges. With over 1.5 Billion funds raised, IEOs shook the entire cryptocurrency space in 2019.
Owing to the richness and variability that we have seen so far, there has been no one clear winner to pick, but there’s also no ignoring the leaders; Gate.io has the second best average IEO returns, raising over 80 million dollars in its first 5 projects and has similar offerings panned out for 2020.
Deals and Discounts
Discount deals are being increasingly leveraged by digital asset companies, encouraging users to maximize their capital. Holiday seasons such as Black Friday are packed with jaw-dropping discounts. However, as an industry, we should aim to integrate discounts in digital currencies into the mainstream world, which would bring price stability.
Dynamic User Relationship
Cryptocurrencies are being taken seriously and companies are designing consumer-specific strategies. It is a great indication of the fact that more and more people are interested in trading digital assets. However, we have a long way to go when it comes to tackling the industry challenges and unlocking value for the entire ecosystem.
Regulation, Security, and Mass Adoption
Central banks of the US, Europe, China, and Ghana are looking at creating their own central bank digital currencies, putting a structure to the adoption of the blockchain technology across finance and other industry verticals. Japan’s recent regulation amendments, China’s new crypto law have laid the right frameworks for mainstream crypto adoption.
While we have major countries pushing for the mainstream adoption, security remains a major concern. Cryptocurrency thefts and frauds in Q3, 2019 annual stand at USD 4.4 billion and this will only increase if fund safety mechanisms aren’t strengthened. Therefore, the strongest will survive as far as digital asset security is concerned.
Nonetheless, blockchain technology is helping to create an innovative and accessible financial system around the world and its mainstream adoption is closer than we can fathom.
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WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?
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