Is the metaverse payments’ next frontier?; API-enabled fintech products; Why did Bitcoin crash?;

In this edition:

  1. Crypto securities
  2. Apple goes into lending independently of banks
  3. Payvidors, unbundled: opportunities in healthcare fintech
  4. The new financial services industry emerging
  5. API-enabled fintech products
  6. Adoption of cryptocurrency and the importance of compliance
  7. Is the metaverse payments’ next frontier?
  8. Into the Chinaverse
  9. Is Everything in Crypto a Scam?
  10. Why did Bitcoin crash?

Crypto securities

A great piece by Matt Levine Bloomberg LP Opinion Columnist.

A weird model for US cryptocurrency regulation would go like this:

1. Virtually all cryptocurrencies are securities, and sales of them to US retail investors are securities offerings under US law. Not literally all of them — Bitcoin is not a security — but many modern crypto projects are of the form “we will sell millions of dollars’ worth of some token in order to fund our efforts to build a platform, and then the token holders will have an economic share in the growth of that platform.” That looks like equity to me, and also I think to the US Securities and Exchange Commission.

2. Virtually none of those sales are registered with the SEC, making them illegal securities offerings.

3. The SEC has about a five-year backlog to notice, investigate, and sue the people who do those offerings.

This is a weird model because five years is just a lifetime in crypto. It’s one thing for someone to do an offering of $10 million of some crypto token to build a project, and then the SEC calls them up and says “nope, give the money back.” That’s fine, you just give the money back. It’s another thing for someone to do an offering of $10 million of some token to build a project, and build the project, and grow into a huge business, and do a series of follow-on offerings, and then the SEC calls them up after five years and says “this is all illegal.”

Maybe it’s fine? If you sell securities illegally, the main punishment is that you have to buy them back at the price you sold them for. If you run a short-lived scam that fizzles out, that is an expensive punishment; you have to give back all the money. If you run a hugely successful business that happens to have started with an illegal securities sale, it is not so expensive: If you sell your tokens for $1 and now they’re worth $20, no one will take you up on your legally mandated offer to buy them back at $1.

Arguably this is a good regulatory model? The SEC lets everyone sell tokens illegally, and then the tokens that work out work out, while the ones that don’t work out have to give the money back?

Anyway here’s the crypto news from 2017:

US regulators are investigating whether Binance Holdings Ltd. broke securities rules by selling digital tokens just as the crypto exchange was getting off the ground five years ago, according to people familiar with the matter.

The Securities and Exchange Commission’s review pries into the firm’s origins and those of its BNB token, which is now the world’s fifth-biggest. Investigators are examining if the 2017 initial coin offering amounted to the sale of a security that should have been registered with the agency, said the people who were granted anonymity to discuss the confidential probe.

I guess if you’re selling crypto now you have about five years to build up enough of a business and a lobbying arm to be able to avoid, or at least afford, trouble with the SEC.


Apple goes into lending independently of banks

Apple is making its biggest move into finance by offering loans directly to consumers for its new “buy now, pay later” product, taking on a role played in its other lending services by banking partners such as Goldman Sachs.

Short-term loans made through the iPhone maker’s new Apple Pay Later service, announced on Monday, will be made through a wholly owned subsidiary, Apple Financing LLC, the company said.

Big Tech’s move into the core banking business has been long feared on Wall Street after years of an uneasy alliance in areas such as mobile payments. In the past, Apple has worked with Goldman to issue a credit card in the US, as well as with banks such as Barclays in the UK to offer financing for purchases of its own devices.

However, those banks’ roles are diminished in its latest financial product.

Goldman Sachs is facilitating Apple Pay Later by allowing Apple to access Mastercard’s network, since the iPhone maker lacks a licence to issue payment credentials directly. But Apple is handling the underwriting and lending using its new subsidiary.

The set-up will allow Apple to earn interchange fees from each transaction as well as give the company more control over data and help accelerate international expansion of its financial products. However, if a customer fails to pay back the loan, Apple must swallow the loss.

The “buy now, pay later” service is the latest addition to a growing suite of Apple financial services, all managed through the Wallet app that comes pre-installed on every iPhone.

Apple said it did not see a need to apply for a banking licence at this time.

Several tech companies, including Amazon, PayPal, Stripe, Shopify and Block — formerly known as Square — offer financing to small businesses that sell through their platforms. However, few Big Tech groups beyond specialist fintech companies such Klarna and Affirm have extended loans to consumers for general purchases, as Apple is planning.

Apple said its decision to go it alone was in part taken to avoid sharing personal data with third parties. The company will not charge fees for late payments, in line with Klarna and Affirm, but will restrict access to further short-term credit.


Payvidors, unbundled: opportunities in healthcare fintech

There’s long been chatter about the analogies between financial services and healthcare. Both are massive, regulated markets with technological adoption challenges, legacy oligopolies, and tons of customer pain — and even fear!

But most of the wildly successful fintech companies haven’t done much in the healthcare sector. Why? The unique laws of physics of our $4 trillion healthcare system, primarily a result of third-party payor (e.g. insurance carriers, self-funded employers, and government entities) and esoteric regulatory dynamics, make healthcare a hard market for a generalist company to go after. For this reason, our bet is that dedicated, healthcare-specific fintech companies will win in this space — although many lessons learned from general fintech can certainly be applied.

What big, hairy problems could these vertical-specific fintechs tackle? One way to answer this question is to look at the most important incumbents in healthcare financial services, and unbundle their components to identify opportunities for substantive improvement and areas of unmet need.

The biggest healthcare fintech incumbent is UnitedHealth Group (UHG), a Fortune 5 company with nearly 15% share in the U.S. health insurance market — a large share for such a fragmented market. UHG, also the largest single provider of care delivery services in the country, is a combined payor and provider, or “payvidor”, as are its peers, Anthem, Inc., CVS/Aetna, Cigna, Humana, and Centene Corporation. Together, as of May 2022, these 6 entities represent nearly $1 trillion in market cap. Even more remarkably, all except CVS have risen in market cap in the last 4 months, even as much of the stock market has fallen precipitously.

The Fintech Components of a Payvidor

Despite the financial success and scale of these payvidors, their consumer- and provider- facing experiences remain frustratingly dated, opaque, and inefficient. Thus, upstarts have found opportunities to pick off and go after specific pieces of the payvidor services map with an aim to outperform on experience, performance, and cost structure, focusing on the following core components:

Insurance products

The bulk of payvidors’ revenue comes from health insurance products, including Medicare, Medicaid, employer (group), and individual health plans. The total addressable market (TAM) in health insurance is immense — over 90% of Americans have some form of health insurance, and segments like Medicare Advantage and individual ACA plans are growing at nearly 10% and 21%, respectively.

But, despite their prevalence, legacy insurance products are far from consumer-centric or user friendly: the average NPS among the six payvidors mentioned above is a measly 9 on a 100-point scale, and the experiences of healthcare providers who contract with and get paid by these insurance companies is typically equally dismal.

Read more through the link.


The new financial services industry emerging

So financial services is expanding and growing in all sorts of ways, attracting capital from many sources and garnering more and more involvement from big tech. There are opportunities galore, but the nature of these opportunities has changed.

Oliver Wyman break out the emerging industry into the following service segments:

Risk intermediation services.

We define this as any service that involves matching those who have money with those who need it, while the provider takes some financial risk along the way — be that credit risk, market risk, interest rate risk, and so on. Of course this is the core of the incumbent industry, risk intermediation services are now extremely high capital intensive, and with ultra-low interest rates for a decade they have been in low-growth mode. No doubt the shift to rising interest rates will change this and lead to better returns for risk intermediation services, but the penetration of risk intermediation services with customers is mature if not saturated, so the growth is akin to a rising tide lifting all boats, not new value creation as defined by new services to new customers.

Value technology services.

We define value-technology as technology that is being used to deliver a new service to an end customer, rather than just improving an operation or function. The industry has experienced a 10-year explosion in growth in payments and transaction-related services, most of which were garnered by merchants including big tech companies such as Alibaba Group, Amazon, and eBay, as well as new players like PayPal, Square, and Circle. Focus is now shifting toward monetizing new technology such as digital assets, tokens, and decentralized finance. At the same time, both incumbents and new players are looking for winning models in wholesale services such as through banking as a service (BaaS) and insurance as a service (IaaS).

Connected data services.

We define these as services that rely on using data or connecting different sources of data to create value for customers, such as helping customers manage their financial health or making it easier to manage logistics, real estate, mobility, health, and so on. Initiatives like open banking have not yet led to the sort of data-sharing explosion envisaged, but the acceleration in growth in wallets, financial life coaches, embedded finance, and so on all show that the potential from connected data services is being realized.

It is important to note that we believe the expansion in the nature of financial services is based on new data and technology and evolving customer needs and expectations, and as such will continue. Likewise, the faster growth in new capital-light businesses driving greater potential for value-accretion to the winners in providing these services will continue. What is far less certain is precisely who will win in delivering these services.


API-enabled fintech products

Payment solutions still account for the majority of fintech built with open banking and open finance

Platformable currently track 2,362 fintech that either use open banking APIs or are fintech platforms in their own right. Of this number, 100 are API aggregators specialising in harmonising fintech and bank APIs to speed up product development.

Most payment back-end and infrastructure — like FX services and B2B payment service providers — are headquartered in the US and Europe. These providers meet SMEs’ increasing needs for streamlining and payment process cost reduction with customers and suppliers.

There is also a large number of account keeping, budgeting and account/API aggregation fintech that offer generic bookkeeping and financial management solutions to SMEs. These offerings reflect the first wave of products built with open banking APIs in Europe and the UK under PSD2.

Other fintech apps built with open banking and open finance include digital banking, card and wallet management, consumer lending and credit services, and alternative lending. Many of these offerings target individuals and households.

Account aggregators and providers of digital banking, payment infrastructure, data analytics and card management are also leveraging their B2B2C capabilities to tap into opportunities in embedded finance. Such examples include Flutterwave, Grab, Mollie and Railsr.

The bulk of API-enabled fintech target SMEs and individuals

Like last quarter, SMEs and individuals/households are the top customer segments targeted by fintech using open banking and open finance APIs. Products targeting these segments account for over 90% of all fintech globally. The most popular categories for SMEs are payments (549 total products) and financial management solutions (181 total products) that enable SMEs to streamline banking and transaction processes. Similar products focused on individuals and households aim to cut payment transaction costs (212 products) and/or enable better management of financial health (57 products).

These products tend to be fairly generic and do not target sub-populations within that broader segment by designing specific features that meet the needs of end-users. However, some do take a human-centred, design thinking approach. We welcome those solutions, such as Stilt, a credit provider for immigrants in the US, Grab, a financial services platform for ride-hailing drivers in Southeast Asia, and TerraMagna, an embedded financing provider for farmers in Brazil.

Since last quarter, we’ve also seen some growth in business operations (65 products), including data analytics to support SMEs in leveraging financial data and fintech digital transformation in their businesses.


Adoption of cryptocurrency and the importance of compliance

The adoption of cryptocurrency has increased steadily over the years with the global cryptocurrency market reaching $1.7T and the total transaction volume of cryptocurrency growing to $15.8T in 2021.

Simulatanously, the volume of illicit transactions have also increased reaching $14B in 2021 which has prompted many governments from around the world to now develop regulations around crypto compliance in an effort to protect investors and help track down and deter illicit activities in trading which include:

- illegal goods

- evading taxes

- manipulating markets

- financing terrorism

- and laundering funds

Regulations in place

Some prominent agencies in the US are defining frameworks to regulate cryptocurrencies, using their own set of methodologies and data:

Securities of Exchange Commission (SEC): The SEC considers ‘tokens’ that act like securities, cash, or cash equivalents and fall under its jurisdiction. Many crypto-assets (cryptocurrency) do not appear to be ‘securities’ because often, they do not take the form of stocks, bonds, etc. In April 2022, SEC announced the registering and regulation of crypto exchanges to separate asset custody to reduce investor risk. It further announced that it would partner with Commodity Futures Trading Commission (CFTC) to address platforms trading in cryptocurrencies

Financial Crimes Enforcement Network (FinCEN): FinCEN considers virtual currency (cryptocurrency) to be a money service business subject to FinCEN regulations. Virtual currency service providers must:

- Obtain a license from FinCEN

- Implement an AML/CFT program

- Maintain records and submit reports to authorities

Internal Revenue Service (IRS): It considers cryptocurrency to be property. It has indicated that virtual currency operates like traditional currency and does not have legal tender status in any jurisdiction

Commodity Futures Trading Commission CFTC : According to CFTC, virtual currencies (cryptocurrencies) are defined as a commodity, including bitcoin and ether. It has further stated that regulatory oversight authority over commodity cash markets is limited. The agency will partner with SEC to regulate platforms trading cryptocurrencies

Office of Foreign Assets Control (OFAC): It considers virtual currency (cryptocurrency) to be treated in the same way as fiat currency and highlights compliance obligations to be identical. Further, it also includes virtual currency addresses linked to authorized persons on its Specially Designated Nationals and Blocked Persons List (SDN List)

Options Clearing Corporation (OCC): In January 2021, the OCC published a letter that confirmed national banks and federal savings associations’ authority to connect to blockchains where they can validate, store, and record payment transactions in virtual currencies (cryptocurrencies)


Is the metaverse payments’ next frontier?

How will metaverse payments work?

Just like in the real world, buying and selling virtual goods requires payment rails. The question for payments companies is whether the rails in these aspirational metaverses of the future will be more around fiat and legacy rails such as card networks, or if they will revolve around cryptocurrency transactions stored on the blockchain. That’s because the metaverse has often been described as the embodiment of Web3 — a new iteration of the internet based on blockchain technology.

Many previous online worlds, such as the aforementioned Fortnite and Roblox, use their own in-game currency that can be bought with either fiat or crypto. Other more recent metaverse projects, such as Decentraland, NFT Worlds and The Sandbox — We Are Hiring!, focus on cryptocurrencies with blockchain as their main payment rail.

Taking a closer look at one of these examples, Decentraland is based on the Ethereum blockchain, and allows users to buy plots of lands as NFTs using the metaverse’s native cryptocurrency MANA. In order to make the payment, users need to buy MANA via an exchange and store it in a browser-based wallet such as MetaMask. Other examples of metaverse coins include ApeCoin (for the Otherside metaverse) SAND (The Sandbox) and HIGH (Highstreet).

Potential challenges for metaverse payments

Questions remain about the future of payments in the metaverse. One of the biggest is about whether the concept will actually meet the high expectations many companies have set for it.

Sceptics argue that the metaverse won’t produce killer apps that make them sticky for consumers and businesses in the long run. The worlds being depicted in popular science fiction (such as the Oasis in Ernest Cline’s Ready Player One) are years away from becoming reality, as the technology just isn’t there yet. There’s certainly enough excitement about the metaverse’s potential to spark sector-wide interest, but a failure to meet this potential could mean a wasted investment for payments companies.

If metaverse projects are crypto-native and require the use of crypto wallets, will consumers be inclined to make payments in the metaverse? Worldline said its customers in the metaverse wouldn’t need to use cryptocurrency, enabling a more ‘seamless’ experience — but if crypto is required to fully access the benefits of the virtual world, this could be a barrier to entry for some.

Furthermore, even if there are already many metaverse platforms, one platform could end up monopolising the metaverse (similar to how Apple now has huge power over app developers in the mobile space). If that happens, will the leading metaverse insist on the use of its own coin across all goods and services? If so, that could be bad news for payment companies who invest time and money into a losing platform.


Into the Chinaverse

Once imagined as utopian or dystopian virtual spaces, the concept of Metaverse is becoming reality. Tech giants have already started to build it, from the hardware and infrastructure to the 3D and virtual reality content. Companies, such as Nike, Dior, L’Oréal, Moncler, and Tesla are racing to test and experiment in this new field.

According to analysts, by 2024 the Metaverse market could approach a $800 billion valuation, compared to $500 billion in 2020 (Bloomberg). Investors can even trade Metaverse ETFs on financial markets.

Now the Metaverse being widely considered to be a potential future of the Internet, FABERNOVEL has taken the opportunity to explore how China is embracing this new wave with its own specificities and practices. The development of the Metaverse in China will undoubtedly be connected to the outside world but also follow its own paths and rhythm.

Fabernovel is more than proud to present you this study, Into the Chinaverse, with our combined expertise in Consulting, Marketing and Technology to help entrepreneurs and decision makers to discover and understand the Metaverse, explore business and market opportunities linked to the Metaverse, and deploy full-scale solutions with Metaverse.

This 50+ slide study will help you better understand how Chinese tech giants, (Alibaba Group, Tencent, Baidu, Inc., ByteDance) have planned to participate in this new market. Which next-gen startups to watch? What have brands experimented to capture Gen-Z in China or re-invent new consumers scenarios? And, in a government-led economy, how to navigate in market where the usage of cryptocurrencies and NFTs is restricted?


Is Everything in Crypto a Scam?

Crypto, NFTs, and the metaverse are all words referring to what many say is going to be the next iteration of the internet. But it’s also a world filled with exploitation, scammers and outright theft. Given the recent collapse of the crypto market, can the utopian vision for Web 3.0 survive?

Why did Bitcoin crash?

The price of Bitcoin (BTC) briefly slipped below $21,000 in the early hours of Tuesday morning, a 52-week low for the world’s largest cryptocurrency by market capitalization.

Bitcoin dropped to lows of $20,950, according to data from CoinMarketCap, before recovering to its current price of around $22,620, down over 6% on the day.

With a current market capitalization of $430 billion, Bitcoin is down over 66% from its all-time high of $68,789 recorded in November 2021.

Bitcoin leads liquidation in the cryptocurrency market with $531.62 million liquidated over the past 24 hours, according to data from Coinglass.

The Bitcoin fear and greed index hit 8 out of 100, its lowest level since May 2022, suggesting extreme anxiety in the market.

Earlier today, Ethereum (ETH), the second-largest cryptocurrency, dropped to $1,094.70, also recording a 52-week low. Ethereum is currently trading at $1,220, up 1.3% on the day.

The primary reasons behind today’s bearish price actions are growing global inflation rates and rate hikes by the U.S Federal Reserve.

The U.S. inflation rate hit a 40-year high of 8.6%, but America isn’t alone. Rising prices are a global phenomenon, with all significant economies facing inflation.

The inflation rate of European countries including Germany (7.9%), France (5.25%), Netherlands (8.8%), and the United Kingdom (9%), shot up in May 2022.

Turkey is the worst-hit G20 nation, with inflation rates soaring past 73.5%, according to data from Trading Economics.

The increasing inflation rate globally is fueled by the rising fuel costs and changing supply-chain dynamics resulting from Russia’s ongoing invasion of Ukraine.

In order to control inflation, the Fed is expected to implement a 0.75% percentage point rate hike, which in turn would tremendously increase bond yields, according to the The Wall Street Journal.

The Fed will conduct a meeting to discuss the issue today, with an announcement expected to follow tomorrow if the planned rate hike goes through.




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