The Crypto Story; JPMorgan to Offer Meta Pay as a Checkout Option; DeFi: Reborn; Embedded finance a $51 billion market opportunity;
In this edition:
1️⃣ The Crypto Story
2️⃣ NFT sales have to go through Apple’s in-app purchase system
3️⃣ The United Kingdom is Europe’s biggest DeFi district
4️⃣ JPMorgan to Offer Meta Pay as a Checkout Option
5️⃣ DeFi: Reborn
6️⃣ Successful wallets will be part of ecosystems
7️⃣ The danger of Big Tech’s interest in finance
8️⃣ Embedded finance a $51 billion market opportunity
9️⃣ Buying journeys: unique as individual consumers
🔟 Bridging the Gaps in Private Markets Software
The Crypto Story
Where it came from, what it all means, and why it still matters by Matt Levine
“There was a moment not so long ago when I thought, “What if I’ve had this crypto thing all wrong?” I’m a doubting normie who, if I’m being honest, hasn’t always understood this alternate universe that’s been percolating and expanding for more than a decade now. If you’re a disciple, this new dimension is the future. If you’re a skeptic, this upside-down world is just a modern Ponzi scheme that’s going to end badly — and the recent “crypto winter” is evidence of its long-overdue ending. But crypto has dug itself into finance, into technology, and into our heads. And if crypto isn’t going away, we’d better attempt to understand it.”
NFT sales have to go through Apple’s in-app purchase system
Does it mean we should expect an increase in the cost of NFT purchases?
Apple updated its App Store guidelines Monday with new and clearer language explaining its policy toward cryptocurrency trading and non-fungible tokens.
The company has no issue with crypto exchanges or any other apps that allow the trading of digital tokens and currencies — provided those exchanges have the requisite regional licenses to operate where the app is distributed.
But in order for apps to sell NFTs and related services, they’ll have to go through Apple’s in-app purchase systems and “may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.”
The fight to funnel payments through Apple’s own payment system, justified by the iPhone maker as the only sure way to secure users and their sensitive information, has spanned legal tussles with Fortnite maker Epic Games and confrontations with governments like South Korea’s.
Apple charges a typical 30% fee on payments it handles, which has yielded significant income from products like Fortnite that include a lot of in-game content unlockable by deep-pocketed players.
Apple specifically guides against any app functionality that lets NFT holders “unlock features or functionality within the app,” which may have served as an oblique workaround to its payments rule. That may affect some NFT projects that use the token like a membership card, providing added perks and access not otherwise accessible.
Still, Apple will allow users to display, browse and share their NFT collection with others in apps across its iPhones and iPads.
Source Bloomberg News
The United Kingdom is Europe’s biggest DeFi district
The United Kingdom ranked 17th in the Global Crypto Adoption Index this year, up from 21st the year prior. And in terms of raw transaction volume, the United Kingdom is 1st in CNWE and 6th worldwide, with $233 billion in cryptocurrency value received from July 2021 to June 2022.
A lot of this activity was DeFi related. Nearly 20% of the web traffic to both NFT and lending contract-related websites across all of CNWE came from the UK in particular this year.
The UK’s crypto market was also unique in that it was the only top-five Western European country that grew from July 2021 to June 2022 in terms of the raw number of on-chain transactions its citizens engaged in each quarter.
This suggests that crypto adoption rates were more resilient in the United Kingdom than elsewhere in CNWE. “I would like to think it’s because we’ve tried to provide certainty as far as crypto regulation and taxation in the UK,” said Dion Seymour, a Crypto and Digital Assets Technical Director at Andersen LLP and former Policy Advisor at HMRC, the UK’s tax authority. “No one wants crypto tobe taxed, but if there’s uncertainty about how it will be taxed, that can cause some level of conster- nation too.”
Another important barrier to crypto adoption that Seymour felt the UK is continuing to break down is insufficient consumer protections. “Consumer protection absolutely needs to be considered if we want DeFi to become mainstream. We will continue to see a lot of conversation among policymakers, The World Bank, World Economic Forum, OECD, HMT, FCA, and obviously HMRC this year.”
Source Chainalysis Inc.
JPMorgan to Offer Meta Pay as a Checkout Option
Meta has launched a partnership with JPMorgan Chase & Co. Payments to offer Meta Pay as a checkout option for J.P. Morgan merchants
In an announcement sent to PYMNTS Tuesday (Oct. 25), the company said this means J.P. Morgan Payments merchants can add Meta Pay — known as Facebook Pay until June — to their websites as a checkout option on both desktop and mobile.
“Meta’s partnership with J.P. Morgan Payments offers choice for customers and merchants, and further enables people to quickly, easily and securely pay for things on even more of their favorite websites, ultimately streamlining connections between people and businesses,” the announcement stated.
The news came one day after a major shareholder issued an open letter calling on Meta to slash its spending — and public focus — on the metaverse.
Altimeter Capital Management CEO Brad Gerstner, who holds 2.5 million shares in the social media and tech titan, warned that the company “has drifted into the land of excess — too many people, too many ideas, too little urgency” due to its focus on a metaverse that even it believes is at least 10 years and $100 billion away.
Gerstner said Meta should spend no more than $5 billion a year — down from the $10 billion to $15 billion pledged by CEO Mark Zuckerberg — and cut its workforce by 20%. He added that the public is “confused by what the metaverse even means. If the company were investing $1–2B per year into this project, then that confusion might not even be a problem.”
Earlier this month, reports emerged that Meta’s virtual reality, Horizon Worlds, was sputtering as its user base steadily dwindled, with just 9% of worlds built by creators receiving at least 50 people, and most receiving no visitors at all. This goes against what makes platforms of any kind attract users and scale, as PYMNTS Karen Webster wrote.
“The reason people walk by an empty restaurant and walk into a busy one is the perception that the busy one is better,” Webster said. “Two-sided networks have a different challenge — which having built and launched one, Mark Zuckerberg should know. Without both sides on board, there is no platform. It’s Platform Economics 101, and it’s been that way since Istanbul’s Grand Bazaar was founded in 1730.”
Caveat: a rebirth does not equate to a boom; the two are necessarily mutually exclusive. Hence, neither Spartan Labs nor CoinMarketCap are claiming that DeFi will experience a boom in the months to come. Instead, these are simply, in our opinion, several steps that the ecosystem should take to move forward from the lessons learned in the past.
According to Spartan Labs Inc. for the DeFi ecosystem to bounce back stronger from the relative lows that it is currently mired in, and for it to truly learn from the lessons of the past, there are three main pivots and progressions that must take place.
First, all given DeFi protocols should necessarily prioritize their own sustainable cash flow-generation capacities to a much larger extent. In the past year or two, most DeFi projects were (in large part due to all the extreme euphoria generated by the bull cycle) very much overtly focused on the user-acquisition/TVL bootstrapping aspect of their roadmaps and operations. However, and in the wake of the bull cycle, we are starting to realize now that this might not be the best strategy for the long-term sustainability and overall longevity of DeFi protocols in general. This is something that we will elucidate further in the next section.
Next, the tokenomics models that have come to dominate the DeFi space must also evolve to adapt to the changing/changed times. Instead of liminal mercenary capital, protocols must learn (through their tokenomics strategies) to attract the appropriate user-base that are aligned with their respective long-term goals and visions.
Finally, we also believe that the rise of synthetic assets will power the DeFi space forward and sustain it to a large extent in the many years to come. After all, the derivatives space is one that is still very much largely untapped when it comes to DeFi and web3. With the rise of synthetic assets, perhaps the potential of this DeFi sub-vertical can be maximized to the point that it should really have been.
Successful wallets will be part of ecosystems
Meanwhile, banks are using easy instant payments (for instance, those offered by Pix in Brazil) and more user-friendly apps to encroach on territory previously carved out by wallets. Wallets have high adoption; more than 70 percent of the respondents to a recent survey said they use digital wallets, with an average of three different wallets each. However, the frequency of use and volumes transacted remain stubbornly low. In Brazil, half of the respondents to a McKinsey & Company payments survey said they spent no more than 300 reais ($56) a month through their digital wallets. Despite heavy investment in rewards to acquire customers, wallet providers apparently have yet to create a value proposition strong enough to significantly change usage levels.
Meanwhile, banks and wallets are shaping a variety of partnerships to access capabilities, enhance their value proposition, and extend their geographic reach. In Africa, for instance, M-Pesa has partnered with KCB and NCBA to offer overdraft and microloan products, while the Tanzanian mobile remittance provider NALA has partnered with Equity Bank to gain access to the Kenyan market.
Wallets are more embedded in customers’ daily lives when they are part of ecosystems. This enables them to grow by extending into e-commerce, ride hailing, food delivery, messaging, travel, and other adjacent categories. For instance, prominent ride-hailing players in Southeast Asia, such as Grab and Gojek, are looking to capitalize on their high-frequency use and rich customer data by extending into groceries and other categories with larger ticket sizes. Players with higher ticket sizes but lower frequency of use, including e-commerce platforms Jumia in Africa and Shopee in Southeast Asia, are pushing in the opposite direction, seeking to boost user engagement through gamification and other approaches.
In Africa, M-PESA Africa morphed from a mobile money service into an ecosystem by forming partnerships to create a super app with seamlessly integrated mini apps in e-commerce, travel, health, agriculture, and other categories. User engagement and monthly revenue per user have risen, with more than a million monthly active users since the launch of the super app in 2021.16 In Latin America, Rappi — a Colombia-based, on-demand delivery service with more than 30 million users and a presence in more than 100 cities in nine countries — has expanded its super app into offerings such as e-commerce, insurance, and loyalty points.
Wallets that are not part of an ecosystem involving e-commerce, social media, or ride hailing will find it tougher to succeed, since capturing customer mindshare is difficult when use cases are limited. Exceptions can be found, however, in markets where wallets have a significant first-mover advantage, such as MoMo (M_Service) in Vietnam.
Source McKinsey & Company
The danger of Big Tech’s interest in finance
The UK financial regulator has warned that Big Tech’s growing interest in payments, lending and other finance products might harm competition and leave traditional providers at a disadvantage.
The Financial Conduct Authority is launching an inquiry this week into moves by Apple , Amazon , Google and Facebook’s parent Meta into retail financial services. It is asking the Big Tech companies, their partners and potential rivals for their views on Silicon Valley’s expansion into payments, deposits, credit and insurance.
While acknowledging that consumers may benefit in the short term, the FCA suggests that Big Tech companies might be able to “exploit their ecosystems” and large data stores to “lock consumers in”, as in other markets where they already face regulatory scrutiny, such as mobile app stores.
Source Financial Times
Embedded finance a $51 billion market opportunity
This sizing focuses on the largest embedded finance markets today, namely payments, lending, and banking, as well as the subcategories within them. We expect the US market to more than double from $22 billion in 2021 revenue to $51 billion by 2026 across those three markets — a 19% compound annual growth rate.
Revenue growth will stem primarily from a substantial increase in transaction value through embedded finance platforms. We will see increasing penetration in certain industries and significant revenue multiples across smaller subsegments, such as business-to-business (B2B) payments and BNPL.
Source Bain & Company
Buying journeys: unique as individual consumers
As online channels have grown more sophisticated, they have transformed traditional buying behaviours, adding new tools and layers of complexity. Access to (and by) consumers is important for the future success of any consumer-facing business. But the paths individuals now take to find information, compare products and transact are almost infinite, varying by product category, shopping mission and occasion, and even user mood.
These pathways are increasingly challenging to predict: they don’t necessarily follow traditional demographic lines, can include multiple sources of information, and vary significantly in the time taken to purchase.
Enabled by the internet, smartphones and emerging technologies, these nonlinear ‘loopy journeys’ reflect the chaotic, conflicting and often unpredictable nature of people’s decision-making, even if to consumers they are clear, considered and rational.
These purchasing journeys blur the boundaries of physical and online stores, and can be long: only 4% of consumers would buy within an hour, 16% the same day. Nearly half (49%) deliberate for any length of time from a day to a week, with a further 17% taking a month or more. And these findings are just as relevant outside big ticket items, though lower-value, lower-risk purchases are likely to have accelerated timelines.
This turbulence of journey — bouncing between cycles of want, information and affirmation — combined with the length of time to purchase offers significant opportunities to engage with consumers.
This can be a challenge when there’s no common starting point for buying journeys.
Most begin online, but other than Google, there are few clear patterns. Amazon is more popular for 35–44 year-old men, social media has little draw for anyone, and stores are more valuable to older people (29% of 65+ start in store vs 12% of under 35s), as much a place to interact with products as to seek independent advice from an individual.
Similarly, consumers look in many places for advice, with reviews, physical stores and family and friends the most popular sources, and trust in most tech companies now approaching that of legacy retailers. Amazon, for instance, has the same levels among all adults as John Lewis (70%), with the highest-ranked M&S barely eight percentage points higher. Trust in the online giant further increases in younger groups, with 79% of 18–24s seeing them as a company they trust.
As technology continues to influence consumers’ researching and buying behaviours, brands must engage online, even where the journey starts or ends in store. A simple way to support, guide or provide relevant information throughout those journeys to better connect with consumers is through targeted advertising.
Bridging the Gaps in Private Markets Software
Learnings by Andreessen Horowitz team
To understand the different needs software could potentially address within an investment firm, it’s helpful to break down a typical firm’s activities into three different buckets of workflows: investing, capital raising and investor relations, and financial operations. Investing activities typically revolve around deal sourcing and execution, with associated tools providing CRM, market data, and data-sharing capabilities (e.g., data rooms). Capital-raising activities facilitate data collection and distribution between GPs and companies and between GPs and LPs. Tools in this bucket help with portfolio monitoring, LP CRM, LP onboarding, and ongoing LP reporting. Finally, financial operations activities encompass how dollars flow into and out of the fund, and the reporting associated with these transactions. Tools in this bucket help with fund accounting, waterfall calculations, capital calls, and distributions. For the purposes of this post, we intend to focus on the capital raising/investor relations and financial operations buckets, as we believe the stakeholders that populate these teams are not only underserved, but also act as central ecosystem nodes when it comes to potentially converting a tool to an exchange.
Having spoken to over a dozen GPs, RIAs, and LPs, we’ve boiled down our learnings to four main points. Most of what we heard tracked with our expectations, though we were somewhat surprised and particularly intrigued by our third and fourth learnings:
- Most incumbent offerings with significant scale are at least 20 years old, and they are typically owned by large incumbents or private equity firms. This means they aren’t necessarily motivated to move fast and break things or take big bets.
- Implementations are time consuming (multiple years), expensive, and extremely bespoke. This makes it challenging for any one software provider to create any sort of data-standardization requisite to eventually launch an exchange (like we have in public markets).
- While most scaled platforms offer the full range of capabilities, investment firms rarely consolidate their activities into any one provider because of concerns about business continuity or over-reliance. As a result of this, teams are using multiple tools for different workflows, which leads to a lot of duplicative flat file exports and email exchanges.
- Every large private markets investment firm is actively thinking about how to raise more capital from retail investors, as institutional LPs broadcast their “denominator problems” — the effect of public markets asset price declines inflating private markets portfolio allocations for institutional allocators — and retail promises more “permanent capital.”
Source Andreessen Horowitz
Visa moves forward with its crypto agenda by filing two diversified crypto-related trademark applications
Global financial services behemoth Visa has filed two crypto-related trademark applications with the United States Patent and Trademark Office (USPTO) detailing plans to manage cryptocurrency transactions and create a virtual environment “in which users can interact for recreational, leisure or entertainment purposes.”
The applications, which were filed on October 22 and disclosed by Washington-based trademark attorney Mike Kondoudis on October 27 further showed that the company planned on launching cryptocurrency wallets and software for auditing cryptocurrencies.
The applications also showed that the firm has its eyes peeled on Non-Fungible Tokens (NFTs) and other digital collectables as it plans on providing temporary use of non-downable software for users to view, access, store, and transmit them.
Visa’s crypto journey dates as far back as 2014 when Charlie Scharf, its former CEO, noted that there were some “interesting things” about Bitcoin. Early last year, Alfred Kelly the firm’s current CEO noted that crypto could become “extremely popular” in the next five years adding that even though that was not the case, he wanted to make sure that the company was in the middle of the crypto revolution.
Visa has been slowly stretching its tentacles into the crypto-ecosystem partnering with more than 60 crypto firms, including wallet service providers and crypto exchanges, to enable crypto payments at over 80 million merchants worldwide. In 2020, the San Francisco-based payments giant filed a patent application to create digital currency on a centralized computer using blockchain technology.
In December 2021, it launched crypto advisory services to help educate more customers about the nascent asset class. Last August, the firm purchased a $150,000 Crypto Punk NFT for its corporate collection later launching a program to help creators navigate NFTs. Earlier this month, Visa partnered with FTX to help the exchange rollout FTX-branded debit cards for the Latin American Asian and European markets.
Source Crypto News Flash