Why the EoT is the next big “thing” we need to secure
There have been plenty of recent predicitons of the dangers of giving artificial intelligence free rein, hinting at a dark future where humanity is enslaved by superintelligent robotic overlords.
But perhaps we’ve just been watching too many sci-fi action movies. Tomorrow’s AI-dominated world is more likely to feature devices with sensors and actuators connected to each other and their environments via the internet – or other networks. It’s more likely that these, not murderous androids, will be the first autonomous machines to dominate the human realm.
One recent event that supports this line of thought has been the launch of Vodafone’s Economy of Things, a next-gen IoT platform designed to allow connected devices not only to communicate but also to trade with each other.
This new technology has been implemented to, among other things, remove the “range anxiety” that comes with owning electric vehicles. It enables connected cars to communicate with charging points, guide the driver to one that is currently available, then pay automatically. Perhaps this marks the point where we finally step closer to the frivolous-yet-exciting utopia of smart fridges replenishing themselves without human intervention – and, more importantly, to making technologies such as machine to machine (M2M) smart energy trading practical.
The tech behind autonomous machine-to-machine trade
At the core of the transactions carried out autonomously by connected machines lies the smart contract – the code of a transaction protocol stored on the blockchain that will only run when certain conditions have been met.
Although we often refer to the blockchain as a database shared across multiple nodes, one feature that distinguishes it from predecessors is its programmability.
Originally, smart contracts were the fundamental building blocks of Ethereum, a second-generation blockchain technology. Presently, however, other blockchain solutions supporting smart contracts also exist.
Vodafone, for example, uses IBM’s Hyperledger Fabric – an open-source business blockchain framework hosted by the Linux foundation.
There are some major differences between Ethereum and Hyperledger Fabric, though – for example, the former is an entirely transparent, public network, while the latter is permissioned and can be only accessed by certified users.
What they do have in common is the ability to act conditionally: they can trigger events when pre-coded conditions have been met. This is thanks to the original architectural principle of weaving compliance into the network itself.
As a result, smart contracts can store, validate and self-execute rules. They can be represented as cryptographic boxes that unlock value when specified conditions have been fulfilled. In the Vodafone example, the car can be charged once it has made full payment.
Smart contracts are not the digital equivalents of legal contracts, and can be applied to a wide array of agreements including wagers or votes.
Smart contracts’ potential to become ubiquitous is further enhanced by the fact that they can be extended to any tangible assets joined to a digital network.
For smart contracts to work in real life situations, however, two other technological challenges must be surmounted. First, legal contracts or agreements must be translated into functional code while ensuring that no relevant details get lost in translation.
Second, as the example of recharging electric cars suggests, tamper-proof blockchains need to be integrated with less secure external systems to join the physical devices with digital platforms that smart contracts run on.
Is blockchain a solution to IoT’s security issues or a new problem?
Inarguably, an economy of things can open a whole new universe of business opportunities by bypassing intermediaries, creating markets for underused assets, and automating micropayments.
However, it is not exempt from the “ease-of-use versus security” trade-off that all disruptive digital technologies need to juggle.
Until now, the IoT has been all about the user experience, and has treated security as an afterthought – although the past two years have witnessed an uptick in IoT security solution offerings.
To assuage concerns, vendors of EoT technology tend to point to blockchain as the panacea for the traditionally weak security posture of IoT devices quoting its transparency and immutability. But these qualities are primarily true for public, permissionless networks, and even there only with caveats.
New security solutions are being and will continue to be developed to protect the terabytes of personal and payment data EoT systems will generate, especially where the blockchain meets the off-chain world.
To get a taste of the complexity that EoT could add to an already intractable system, consider how a single off-chain data source – for example, a sensor – can be manipulated by bad actors to trigger the execution of a smart contract to their own advantage.
Although a two-tier IoT landscape with security-first critical solutions segregated from dodgy mass market devices can be a likely future scenario, putting security at the heart of the whole IoT sector may considerably increase trust and adoption of advanced IoT technologies in the long run.
Green investing: the global system for rating companies’ ethical credentials is meaningless
As the war in Ukraine rages, finance professionals on Wall Street and in Europe recently attracted outrage by suggesting that investing in arms manufacturers should be treated as ethical investing. In the fight against tyranny, they argued that such an investment “preserves peace and global stability” and defends “the values of liberal democracies”. As such, it belongs in the increasingly lucrative investment category known as ESG or environmental, social and governance.
ESG is viewed as a kitemark for socially conscious investing. If you tick a box that says you want your pension or savings to be invested ethically, whoever looks after your money will put it into ESG funds – meaning funds that hold only companies with an ESG rating.
Unfortunately, the label is not currently worth the paper that it’s written on – and not only because of the controversy over defence contractors. My recent research shows that this completely undermines ESG’s potential as a force for good. As we shall see, however, regulators are at least making moves in the right direction.
How ESG works
ESG investing conjures up ideas of companies devoted to a fairer and more sustainable world. You imagine them reducing carbon emissions and water usage, creating good jobs with equal pay and opportunity, or ensuring that they are well managed and accountable to shareholders, employees and customers.
From a standing start around a decade ago, Bloomberg reckons that US$41 trillion (£31 trillion) of financial assets under management will carry the ESG label by the end of 2022. This is projected to rise to US$53 trillion by 2025, or one-third of all the assets under management in the world – an incredible statistic. Yet the more closely you look at what ESG means, the harder it is to get clear answers.
Companies are scored on their ESG performance by a host of ratings agencies, the biggest of which are MSCI and Refinitiv, both headquartered in New York, and Amsterdam-based Sustainalytics. These agencies produce opaque scores using differing methodologies. Scores aggregate hundreds of inputs that mask often inconsistent and incomplete data provided by the company being rated. There is no standardisation across the industry, and no regulation of the ratings.
Equally troubling is the way that fund managers assemble the ESG funds that they offer to financial advisers and amateurs as investment opportunities. Any fund can be labelled ESG so long as the fund manager has taken ESG factors into account, but some funds turn out to be much more ethical than others.
There are broadly three types of funds. The ones likely to be the most ethical have sustainable investment or a reduction in carbon emissions as their objective. Then there are those that exclude whole sectors such as tobacco or the aforementioned weapons manufacturers. You know you’re definitely not getting exposure to whatever is excluded, but the logic behind what is included might be harder to discern.
The third category is funds that have been relabelled as ESG. According to investment research firm Morningstar (which owns Sustainalytics), 536 funds across Europe were relabelled in this way in 2021, double the number that were relabelled similarly 2020, so we’re talking about a huge chunk of the industry. Many funds have higher fees than non-ESG funds, which suggests that this is one attraction of relabelling.
What scores mean
There is also a fundamental issue with what ESG scores mean. For example, recent research found that tens of leading banks including Wells Fargo, Citi and Morgan Stanley were awarded higher ESG scores despite increasing their lending and investments in fossil fuel companies.
This was possible because ratings agencies are solely concerned with assessing the external environmental, social and governance risks to a company’s ability to generate cash flow and profits in future (known as “materiality”). They are not concerned – contrary to what most people probably assume – with the risks that the company poses to the environment or society. So when the ratings agencies increased the ESG scores of those leading banks, they were simply saying that the environmental and social risks to profits were lower than previously.
Were weapons manufacturers to be considered ESG, you could apply similar logic: the Ukraine war has reduced the risks that these companies will be hit by a peaceful period in which they don’t sell much hardware, so arguably their ESG score should rise. The only reason this is not happening is because the defence sector gets excluded from ESG funds for not being considered ethical per se. Sector exclusions are arguably the only ethical judgement in this entire business.
ESG ratings agencies have also been using artificial intelligence and machine learning to make scoring even more unhelpful. They scan the internet for company ESG disclosure statements and public sentiment about company activities on social media, and feed this data into algorithms that often increase the ESG scores of the companies in question.
The problem is that ESG disclosures are usually just marketing documents. Unlike company financial reports, there is no legal requirement for them to be assured by certified public accountants. Companies can cherry-pick positive facts and ignore whatever they don’t want us to see. The entire US$41 trillion of stocks with ESG ratings is being coloured in this way. My research terms this the “ESG echo effect”. It means that the more a company markets its ESG disclosures, the better its ESG ratings are likely to be.
Hope for the future
So what are the regulators doing? New EU rules introduced in 2018 make ESG reporting more meaningful by requiring large listed companies to report on a series of metrics annually alongside their financial reporting. They have to not only weigh the external risks to their profits and cash flow, but also the ways in which their activities threaten environment and society (including both types of risks is known as “double materiality”). From April 6, large UK-listed companies must meet similar requirements (though only for climate issues initially).
The US has also just published proposals requiring company ESG disclosures, but only for climate-related risk and there’s no double materiality requirement. The Chinese appear to have taken a similar approach in new rules introduced in February.
The EU also introduced rules in 2021 requiring fund managers to define and label ESG funds in specific ways for the first time. This is a massive shift which gives investors much more clarity over what they’re putting their money into. Meanwhile, the EU and China have published proposals for international standards
for defining green investments and guiding investments towards sustainable projects across six industrial sectors, with a focus on mitigating the climate crisis.
Overall, progress is promising but it’s still patchy. Many parts of the world still need to get on board with requiring companies to do a double materiality analysis. Small and medium businesses everywhere need disclosure requirements, albeit with a lighter reporting requirement than bigger companies (just like with financial reports). Disclosures need to be assured by certified public accountants – even in the EU this is still voluntary. And ESG ratings agencies must be regulated: they have broadly been ignored by regulators to date.
The point is that there’s a huge business opportunity in sustainable business. But if ESG is to live up to its potential, we’re still a long way from making it meaningful.
Unlocking greater efficiency through all-in-one finance
As businesses increasingly embrace digital transformation, the number of cloud-based services and SaaS vendors they rely on to operate has soared. According to one recent report, the typical company now uses an average of 110 applications, representing a 700 per cent increase from 2017.
In many cases, this is due to hyper-specialisation – or the practice of breaking a critical process down into several workflows. Each of these is performed by an independent, niche product requiring its own integrations, subscription fees and onboarding. Hyper-specialisation was already a problem in 2019, and it’s only getting worse.
When it comes to finances, a business could handle their commercial banking through Chase, their AP through Bill.com and their corporate cards through American Express. That means jumping across three different platforms and tabs just to manage their expenses.
Modern companies are eager to simplify their tech stacks. And now, there’s a more holistic option.
Tech-forward solutions such as Rho consolidate cash and spend management on a single platform for greater efficiency, savings and control. With a flexible suite of integrated products – including banking, cards, expense management, budgeting and AP – businesses can implement the services they need to achieve their financial goals and trust that they’ll work seamlessly together.
Here are three key benefits businesses can unlock by choosing an integrated platform and taking an all-in-one approach to their finances.
When information is siloed on multiple, isolated systems, a finance team could spend hours (if not days) compiling datasets, pulling reports and chasing receipts, invoices and approvals. These manual tasks aren’t just draining; they also distract from high-level analytical and strategic work that can have a real impact on a growing business.
With an integrated platform, everyday workflows such as invoice processing, approval routing, receipt capture and expense categorisation are fully automated, with data flowing seamlessly.
Integrations with accounting software automatically sync and categorise all transactions – from card spend to bill pay – directly to a business’s general ledger, eliminating the need for tedious data entry. That means a finance team can generate expense reports, reconcile transactions and close their books with a click – saving more than 20 hours of manual work every month.
Control and visibility
When finance tools are integrated, it’s easy to enforce company-wide expense policies and gain greater visibility into spending across cost centres.
With Rho, for instance, virtual corporate cards can be issued in seconds and assigned to individual team members, departments, vendors or expense channels. Each card comes with its own customisable permissions and auto-enforced spending limits, empowering teams to collaborate safely on their finances without putting the company’s bottom line at risk.
From there, all charges are reported in real-time on a centralised dashboard, so business leaders can see the details behind every transaction, track their financial performance and confidently plan their budgets without having to wait for an official report.
Too often finance teams are stuck juggling multiple, disconnected tools, which slows progress and gets in the way of high-impact work.
But there is a better alternative. When finance tools are centralised on a single platform such as Rho, workflows are streamlined, manual tasks are minimised and teams are freed up to focus on more strategic work that accelerates their company’s growth.
What’s more, businesses can eliminate more than $60,000 a year in fees alone and earn lucrative cashback up to 1.75 per cent on card spending – both of which help to directly boost the bottom line.
The benefits of consolidation continue when it comes to unlocking more credit to fuel expansion. Rho’s holistic underwriting model considers every aspect of a customer’s business, which allows Rho to offer a higher, scalable limit that supports a company’s spend.
Finally, when it comes to something as important as corporate finances, dedicated, human support is critical for empowering growth. Chatbots just don’t cut it when there are real needs to address. Rho uniquely pairs a modern, digital platform with personalised one-on-one support to set finance leaders up for success and help organisations thrive in every step of their journey.
To read about the benefits integrated finance has to offer and explore Rho’s full product suite, visit rho.co.
By Sebastian Morales, VP Finance, Rho
INDUSTRY VIEW FROM RHO
5 reasons why banks are best equipped to win at BNPL
Ten billion dollars.
According to McKinsey’s Consumer Lending Pools data, that is the annual revenue banks are losing to the ever-expanding roster of fintechs that are capitalising on financial institutions’ inadequate response to increased consumer demand for timely and flexible payment options at the point of sale.
Yet despite the daily headlines, the explosion of buy now, pay later (BNPL) unsecured lending is still in its early innings. And while it certainly appears that fintechs are better positioned to succeed, the fact is that most banks have yet to even get in the game: either they don’t know where to start or they’re underestimating the threat of losing out on a growing value pool of new and younger customers who, according to Juniper Research, are predicted to spend $995 billion via BNPL by 2026 – four times BNPL’s 2021 projected volume.
And this is unfortunate. Because without a BNPL offering, banks may be missing out on the biggest customer acquisition opportunity to date – one that they are inherently equipped to win over the fintechs.
Here are five reasons why:
So why aren’t more banks competing in the BNPL space?
For many, the notion of overhauling their existing infrastructure and the lack of technological expertise and resources to bring BNPL to life understandably feels like a huge obstacle. Yet today technological solutions exist that can seamlessly integrate into a bank’s system of record, transforming historically inefficient, inflexible legacy infrastructure into an agile and secure powerhouse for delivering high-value omnichannel solutions. Through strategic partnerships, as such, banks can leapfrog learning curves and technological challenges to bring a broader set of payment options to merchants and their customers quickly, easily and securely.
It’s time that banks not only accept that BNPL is here to stay but actually bring BNPL into play. According to a 2021 study by Amount in conjunction with PYMNTS, BNPL usage more than doubled in 2021 and is projected to jump significantly higher in 2022. Our research also revealed that 70 per cent of current BNPL users are interested in bank-issued BNPL offerings – and more than three-quarters of those that use one of the top three BNPL pureplay providers today are interested in switching to a BNPL product from their bank.
While there are numerous BNPL providers in the market today, there are also numerous gaps within the design of their products and business models that can be uniquely finessed by banking competitors. Today, the only thing holding banks back from competing against the BNPL players is their reluctance to step up to the plate.
To learn more about the unique opportunities for banks to overtake the BNPL competition, download Amount’s consumer research report, Banking on Buy Now, Pay Later.
By Adam Hughes, CEO, Amount
INDUSTRY VIEW FROM AMOUNT
“Imagine a world...”
Daniel Andemeskel, Head of Innovation Management at Universal-Investment Group and Founder and Managing Director of UI Enlyte
“Imagine a world where you can invest as if you were buying books online – simple, secure, efficient,” begins Daniel Andemeskel, Head of Innovation Management at Universal-Investment Group and Founder and Managing Director of UI Enlyte, an end-to-end digital asset investment platform.
In today’s traditional investment management industry this vision might sound utopian, with traditional methods of investing far from this frictionless idea of investing with a few clicks online. As Andemeskel elaborates, the current financial services industry struggles from “siloed” or segregated processes, resulting in prolonged, paper-heavy financial activities. These siloed services lead to further complications, such as burdensome processes for clients, investment opportunities that don’t cater to their needs, or no access to non-fungible asset classes to invest in.
Other industries have seen or are starting to see this digital transformation, and there is no reason for the financial service industry not to follow suit. Thanks to recent innovative technologies such as blockchain, big data and artificial intelligence, creating this digital investment future is becoming a reality.
Blockchain has been one of the biggest contributing factors to the financial industry’s ongoing innovation. It is the underlying technology behind digital assets including cryptocurrencies, NFTs (non-fungible tokens) and tokenised financial assets. It provides a decentralised infrastructure to issue and distribute digital assets while reducing the silo-based processes of the conventional world. Financial services and their clients benefit from the operational efficiency of a digital, blockchain-based infrastructure. The benefits of this new technology allow platform providers such as UI Enlyte to offer clients a more simple, secure and efficient investment process.
In recent years the adoption rate and market size of the digital assets market has been increasing rapidly. The major digital asset group, cryptocurrencies, reached a value of €2.8 trillion in early November 2021. With a cumulative average growth rate of over 155 per cent in the past four years, cryptocurrencies and digital assets are proving to be the fastest-growing asset in history. It is the capabilities that accompany this technology that drives this tremendous growth and look to make a frictionless investment industry.
In recent years the adoption rate and market size of the digital assets market has been increasing rapidly. The major digital asset group, cryptocurrencies, reached a value of €2.8 trillion in early November 2021. With a cumulative average growth rate of over 155 per cent in the past four years, cryptocurrencies and digital assets are proving to be the fastest-growing asset in history. It is the capabilities that accompany this technology that drives this tremendous growth and look to make a frictionless investment industry.
With more than €700 billion in assets under its administration, Universal-Investment is one of the leading European fund service platforms and Super ManCos. The launch of an investment platform for digital assets supports UI Group’s position as an innovator in the fund service industry, highlighting the potential of investing with the end-to-end digital asset investment platform UI Enlyte. UI Enlyte is a regulation-compliant institutional-grade digital asset investment platform that covers the entire investment process of digital assets fully digitally on one platform – from the onboarding of clients and the issuance of digital assets to administration and reporting. With this one-stop-shop solution, fund promotors, asset managers and investors can grow their business by leveraging the benefits of blockchain technology, whether end-to-end or as a white-label solution. UI Enlyte’s service offering includes security token offerings (STOs), a crypto custody solution building up to 20 per cent crypto exposure in traditional §284 funds as well as tokenised fund shares. Having received the ISO 27001 certificate earlier this year, UI Enlyte provides all offerings with market-leading certified security.
As anything with value can be tokenised, or digitised and put on the blockchain, Enlyte is able to offer greater diversification to clients and investors. As soon as the regulatory environment allows, “Enlyte’s midterm goal is to create digital funds consisting of numerous digital assets, instead of having only one single investment into one kind of asset choice,” said Andemeskel.
Further advantages give clients and investors exposure into transparent ESG assets, creating a mindful investment journey. Andemeskel thinks this will go even further: “a more connected and inclusive world where a farmer somewhere in South Asia, Africa or South America could offer their products directly by issuing their investment, or their crops and their products, on the blockchain and at the other side of the world, everyone can invest In them directly.”
From the blockchain’s capabilities and these ideas, platforms such as UI Enlyte make the investment journey as easy as buying a book online – simple, secure and efficient.
INDUSTRY VIEW FROM UNIVERSAL INVESTMENT
Cryptocurrency has an impact on economies. That’s why some are afraid of it – and some welcome it
One month into 2022 and the debate on cryptocurrency is already heating up, with calls for regulation causing a rift between jurisdictions that are “crypto friendly” and those that aren’t. Which will determine the future of the market?
Russian Deputy Prime Minister Dmitry Chernyshenko has reportedly signed a roadmap to regulate crypto operations in Russia. The news comes after Russia’s central bank published a consultation paper that proposed a blanket ban on crypto-related activity in the country.
The paper, titled Cryptocurrencies: Trends, Risks, and Regulation, states “a wider adoption of cryptocurrencies creates significant risks for the Russian financial market”. It says non-state-based currencies pose a threat to citizens’ well-being, through loss of investments as a result of market volatility, scams and cyber attacks.
Jurisdictions have grappled with the idea decentralised digital currencies provide an alternative to sovereign currency – and thus pose a threat to central banks’ power over monetary policy.
Although Russia has stopped short of completely stifling operations inside its borders, the latest events follow a broader trend of nations struggling to embrace cryptocurrency. Future bans or regulations will determine the future of the industry.
Crypto ban or crypto friendly?
Mining involves running software on computer servers to solve cryptographic algorithms. This process validates transactions and maintains a shared record of transactions across the blockchain network. People who participate, the “miners” are automatically rewarded in cryptocurrency.
Mining is an international industry, and large capital outlay goes towards the land, power and infrastructure needed to set up mining warehouses.
The mining ban in China drove miners to sell or ship their equipment overseas and invest capital in friendlier jurisdictions, particularly the United States. One consequence was the strengthening of the network, as mining operations were diversified. As such, future bans may have less of an effect on the market.
Currently, most Bitcoin mining occurs in the US, Kazakhstan, Russia, Canada, Malaysia and Iran. Some networks face great challenges. In Kazakhstan, for instance, power has reportedly been rationed away from miners to conserve energy during electricity shortages, forcing miners to leave the country.
Reports estimate this will cost Kazakhstan’s economy US$1.5 billion (or A$2.14 billion) over the next five years, including US$300 million in tax revenue.
Crypto isn’t entirely ‘anonymous’
Crypto has come a long way since Bitcoin’s anonymous launch in 2009. There are now thousands of cryptocurrencies, with an estimated total market cap of US$1.66 trillion (about A$2.36 trillion).
It’s often stated, including in the recent report from Russia’s central bank, that the anonymity of cryptocurrencies enables illegal activity such as money laundering, terrorism financing and drug trade.
This isn’t entirely true. In fact transaction history on public blockchains, such as Bitcoin and Ethereum (the largest by market capitalisation), is public.
Many governments (including those of Australia and the US) collaborate with large private blockchain analytics firms to monitor citizens’ crypto wallet addresses and transactions. They do this to mitigate risks of money laundering and tax evasion.
Contrary to popular belief, most cryptocurrencies aren’t anonymous; they are pseudonymous. If a person’s identity is linked to their wallet address via a central touch point, such as a cryptocurrency exchange or an email, that wallet is traceable to the individual.
Research (commissioned by Zcash but carried out by the Rand corporation) found there isn’t widespread illicit use of “privacy coins” preserving users’ anonymity.
Policy will determine future directions
Cryptocurrency continues to become increasingly mainstream as an investment asset class, technological infrastructure and a social experiment in non-state-based infrastructure.
With this, crypto communities hold growing influence in public policy debates. For example, crypto advocates were able to slow down a major federal government infrastructure bill in the US last year.
Yet jurisdictions are choosing different pathways regarding policy and regulation. Some such as China and Russia view it as a fiscal and ideological challenge to sovereign monies. Others view it as an opportunity for innovation, investment and economic growth.
As different approaches emerge, 2022 may be a defining year for both the crypto industry and those competing to either ban or welcome it.
Past examples suggest countries that welcome crypto networks reap economic benefits through innovation, investment, jobs and taxes. Business benefits of adopting crypto as a digital asset include access to new demographics and technological efficiencies in treasury management.
At the same time, the effects of policy and regulation on the industry demonstrates cryptocurrency isn’t a completely decentralised thing that exists only on the blockchain.
In the competition to limit but benefit from cryptocurrency, Australia has emerged as a potential destination of “crypto friendliness”. A report published in October by the Senate Select Committee on Australia as a Technology and Financial Centre looks favourably on cryptocurrencies.
It proposes market licensing for crypto exchanges, streamlined taxation arrangements and a regulatory structure for “decentralised autonomous organisations”, or DAOs. These function using the same philosophy of self-governance as decentralised cryptocurrency networks, using blockchain technology and cryptocurrency tokens to manage participation and enforce rules.
Australia’s choice is to capture the enormous economic potential of decentralised digital assets. How this will impact the national economy remains to be seen. But if history is a lesson to be learned from, we can expect policy to shape outcomes.
Ethical and secure technology to verify your users’ digital identity
Javier Mira, president & CEO, FacePhi
Rapid global digitalization, driven by worldwide events such as the Covid-19 pandemic, has caused a change in the way we relate to each other. The main consequence has been an increase in the number of digital interactions between users and companies, which leads to an increased risk of fraud and cybercrime, as well as the logical concern of users about the management of their personal data.
Based on this, new demands arise in terms of digital identity verification involve guaranteeing companies, in the first place, that the person with whom they are interacting is really who they say they are. Also, in a context where the relationship with the user is mainly digital, it is essential to make the entire process safer and simpler, providing an excellent user experience as an added value.
To meet these needs, companies have cutting-edge technology at their disposal, such as biometrics; a solution that for many is still something from science fiction movies. However, today the verification of digital identity is a reality that is part of our lives and, almost daily, we make use of it through gestures as simple as unlocking our mobile phones.
Secure, customizable and ethical solutions
Talking about technology should imply adaptability to different scenarios where it can be useful, without forgetting other attributes such as simplicity, reliability and security.
FacePhi, leader in technology for users’ identity verification specializes in digital onboarding and authentication, offers highly secure solutions -backed by its leadership in the financial sector, the most demanding in this matter-, sophisticated and customizable for verification of digital identity.
This technology, based on Artificial Intelligence, Deep Learning and Neural Networks, always has the user’s consent and also ensures ethical and unbiased use -regardless of ethnicity, age and gender-, thus protecting the most valuable thing: their digital identity. FacePhi’s solutions have become the most complete in the market, adapting to any type of company, regardless of its size or the industry it belongs to, such as finance, health, insurance, travel and transportation, sports events, shared mobility or public administration.
Thanks to digital identity verification, based on digital onboarding and biometric authentication technologies, we can complete everyday operations such as opening bank accounts, withdrawing cash at ATMs, making an appointment and accessing medical service, checking in for flights and hotels, or collecting a pension from home.
This technology has come to stay and firms such as FacePhi are prepared to help companies in these processes. After all, what is safer and more practical than using our human traits as a key to protect our digital information?
INDUSTRY VIEW FROM FACEPHI
The Brazilian company growing as fast as the fintech market
The payments industry in Brazil has grown and changed over recent years. Currently, the number of options offered to consumers is many, each with a different peculiarity. It is very common for Brazilians to depend on credit options and count on new technology to help them when opening their own business.
The market has been quickly transforming itself, and it is essential that fintechs keep up with this fast growth. The fintech industry achieved more than US$319 million in investments in January, which is 54 per cent of the total amount invested in Brazilian start-ups through the period. In 2021, 176 rounds of fintech investments added up US$S3.7 billion, almost double the volume in 2020 of US$1.9 billion. In 2019, the segment raised US$ 1 billion. These new companies offer many more opportunities than traditional banks, which are normally antiquated with the same old portfolio of products and services and expensive fees.
When it comes to the ideal company to help the growth and success of a business that is just starting out, it is very easy to think of Hash, a Brazilian fintech from the payment services market with a business model focused on B2B. Its product connects entrepreneurs and customers through a platform capable of transforming large companies into financial service providers. After its foundation in 2017, the company started to look at what was missing in the market and how it could improve the tools available in the market for its clients, resulting in the creation of an innovative and personalised solution for each of its customers.
With a product that can be entirely customisable, Hash’s platform enables companies to absorb the financial flows of their customer network through a solution adapted to the needs of each industry. The company provides financial infrastructure for corporations to embed payments solutions into their own custom ecosystems, with no regulatory, compliance or technological barriers. Those clients are then capable of offering better and more competitive solutions for SMBs inside their ecosystem.
Present in more than 40,000 establishments, Hash is the only company in Brazil to offer a complete payment services infrastructure independent of the industry sector or ecosystem in the market. More than 200 employees (known as Hashers) look for ways to solve the struggles of each client while adding value to clients’ businesses.
“We don’t expect to be positioned in the market as a fintech in the payment services industry that only offers financial solutions for customers, but we aim to be the right arm of companies that expect quality and a differentiated service,” says João Miranda, Hash’s Founder and CEO. “Our clients can track the progress of their sales and have control over the financial flows of their entire customer network. We understand what our customers’ needs are and we deliver personalised solutions according to each segment.”
Hash finished 2021 with almost 2 million transactions processed. By the end of this year, Hash expects to reach close to 16 million transactions. Growing faster than the market and with the main objective to offer “end-to-end” payment infrastructure for non-financial B2B corporations, the company expects to accelerate even more in 2022, with potential to double the growth achieved in 2021.
Hash expects to grow first in the payments industry, taking advantage of its unique position and developing new financial solutions such as banking services and card issuance. After that, the company will enable more financial services on its platform on top of its payments volume (such as credit, loans and insurance).
In the long term, the goal is to become the largest payment infrastructure fintech in Latin America, democratising the market, offering a different culture for entrepreneurs and building space besides well-known companies for new start-ups in the segment. Hash aims to revolutionise the future of B2B transactions, offering financial services options that create a better and fairer competitive ecosystem.
To find out more, visit hash.com.br
INDUSTRY VIEW FROM HASH
Biometrics, messaging and coffee: the future of electronic payments
When the pandemic forced countries into lockdown, companies had to adapt operations and move online. The winners were those with an IT architecture that enabled them to embrace new business models quickly, often bringing in third parties to extend their portfolio and enhance their service proposition.
Success in sales depended on the ability to offer and facilitate simple electronic payment transactions, often through a payment initiation service.
According to PwC, global cashless payment values are set to increase by more than 80 per cent between 2020 and 2025, from 1 trillion transactions to nearly 1.9 trillion, and almost triple by 2030.
Electronic payments are the backbone of digital economies; in addition to driving innovation and creating cashless societies, they prompt greater inclusivity, enabling 1.7 billion unbanked adults – those without an account at a financial institution or whose data is not held online – to access funds and make purchases.
Payment methods such as contactless, digital wallets (Apple or Google Pay) and QR codes are now considered the norm and regulations such as the second Payment Services Directive (PSD2) prompt greater data sharing between financial services providers and third parties, making the process more convenient and secure for customers.
It is the new digital payment brands, such as Apple, Venmo and Square, that are leading the way, ahead of traditional financial services providers. Consumers now have more choice than ever before in how to save, invest, access and spend their money and as demand for digital services increases, so too will the number of innovations launched every year.
So what will the electronics payment sector look like in the future?
Worldpay says BNPL accounted for 2.1 per cent or $97 billion of all global e-commerce transactions in 2020 and is expected to double by 2024. Fintech companies offering this service view it as a flexible and convenient alternative to credit cards with the advantage of being able to pay for goods over a certain timeframe without incurring interest.
During the pandemic, its benefits became clear – it’s a convenient payment solution that doesn’t involve handling cards and has no reliance on PINs/passwords, fewer spending limits, added security, less administration and faster onboarding.
In June 2021, Veritran launched a digital payment service using facial recognition in Brazil and PayEye announced the first cinema in Poland (and globally) to use an iris-recognition payment system. It won’t be long before people regularly pay for travel while walking through a terminal or pay for merchandise when leaving a store.
E-commerce platform provider Mercator estimates 66 per cent of smartphone owners will use biometrics by 2024 and Juniper Research predicts biometrics will be used to authenticate $2 trillion of global sales by 2023, 17 times more than the $124 billion spent in 2018.
Due to launch this year and accessed online and via smartphones, the wallet will allow 27 member countries to share official documents, enabling holders to access a range of public and private services via a single online ID (fingerprint or retina scanning is favoured).
Payment firm Boku predicts over half the world’s population (some 4.8 billion globally) will use digital wallets by 2025.
Starbucks has a loyalty app that enables customers to accumulate and spend reward points for coffee, food and discounts. Users can also put money into their accounts and pay via their phone app, earning extra points. Last year, customers collectively had $1.5 billion in their balances, but this isn’t a bank – cash can only be used for drinks or food and there’s no cash-out.
Sensedia supports companies to become more digital, connected and open. Whether integrating channels, enabling partner ecosystems or creating modern multi-cloud/hybrid architectures, innovative companies rely upon Sensedia for API and microservices management to rapidly integrate their legacy systems. Find out more at sensedia.com
INDUSTRY VIEW FROM SENSEDIA
Solving today’s paycheck challenge: how businesses can make a difference
Ram Palaniappan, Founder and CEO, Earnin
The practice of paying people every two to four weeks started during the Industrial Revolution, when business leaders moved pay to a batch system as it was more efficient and cost-effective for them than paying employees daily.
Today, 64 per cent of the US population lives paycheck to paycheck, even among those earning six figures. The misalignment of bills, subscriptions and expenses with the bi-weekly pay cycle leaves people vulnerable to costly overdraft fees and high-interest loans, leading to increased anxiety over finances.
In fact, more than two-thirds of Americans are experiencing financial anxiety, with almost 24 per cent saying living paycheck to paycheck is the primary cause. This outdated system removes people’s flexibility and places them in an ongoing cycle of debt, inhibiting long-term financial success and causing higher levels of financial stress. They are often choosing from bad options, or have no options at all. Because of this, workers are seeking more choices and tools that help them effectively balance their finances to manage their lives. Wellness – including financial wellness – is an increasingly important factor in employees’ working lives.
How does this impact employers? Employee financial stress costs employers $4.7 billion per week in lost productivity. Ram Palaniappan, founder and CEO of Earnin, says increasing financial wellness benefits should be a top priority for businesses, especially those employing a large number of hourly workers.
An excellent solution, he says, is to empower workers with access to their pay as they earn it through earned wage access (EWA). EWA solutions give workers access to their money when they need it, resulting in increased productivity and lower stress for a better life. By partnering with Earnin to provide employees with early access to their wages through Cash Out and other financial tools, employers can offer more financial peace of mind, leading to happier and less stressed employees who benefit from better interactions with co-workers and customers.
With no mandatory fees, Cash Out is easy for employers to deploy using Earnin’s secure, zero-integration model that allows employees access to their paycheck ahead of payday quickly and easily.
In fact, 87 per cent of Earnin customers say the app has increased their motivation at work, giving them peace of mind that they can get paid before payday. Likewise, 75 per cent say Earnin has helped reduce unplanned absences, while 65 per cent say it has helped pay bills on time and reduce financial stress.
In Palaniappan’s eyes, employers must support employees with financial wellness solutions that promise to both stabilise and grow their financial future. With Earnin, Cash Out helps steady people’s finances by giving them access to income, while its other solutions help people maintain a positive bank balance and grow money through saving.
With the Great Resignation still upon us and inflation making it harder for everyday Americans to make ends meet, it will become all the more important for businesses to support employees with financial wellness solutions that prioritise both short- and long-term financial health. Will your organisation be up to the task?
Learn more about the benefits of Early Wage Access at earnin.com/employers.
INDUSTRY VIEW FROM EARNIN
Account-to-account payments: the cardless payment method showing the greatest and most immediate potential
James Neville, CEO, Citizen
Account-to-account (A2A) payments are not new: certain types, such as direct debits, have been widely used for many decades. However, it has been Open Banking – the opening up of banks’ customer data – and real-time payment networks that have turned this arrangement into a fully fledged rival to debit and credit cards. Until recently, merchants had no choice but to bear the brunt of the high intermediary fees of card providers. But a tipping point occurred in November 2021, when one of the world’s major online marketplaces first considered not accepting certain credit cards, a year after the cost of card payments for retailers increased globally by 18 per cent to £1.3 billion.
Not only do A2A payments cost less for merchants than those made with cards, but they are also faster and safer. Money transfers between the sender’s and the receiver’s accounts are typically managed through the sender’s mobile banking app. This means the sender is logging into their existing bank app and using their existing banking credentials – a process protected by the intrinsic and rigorous security systems of their bank. Cyber-security is further reinforced by the fact that A2A transactions involve biometric identification via face ID or fingerprint when accessing the device used for making the payment. By removing cards from the traditional payment process, this alternative payment method can also enhance the customer experience and reduce shopping cart abandonment – which is a major pain point when card payment is combined with two-factor authentication.
Founded in 2017, Citizen was among the first companies licensed to provide payments and identity services using Open Banking. As James Neville, Citizen’s CEO and former CTO of Worldpay, explains, when a customer is making an A2A payment, they are first introduced to the transaction by being sent an email or a QR code containing a link to a bank selector screen. Having clicked on their bank’s logo, clients get redirected to their mobile banking app to approve the payment. Typically, an A2A payment such as Citizen’s would be offered as an option either at checkout or in the account management settings alongside a range of other payment methods – although Citizen does also have some clients who offer Citizen’s cardless payments as their sole transaction facility.
For those in the charity sector, every penny saved can make a real difference. In other sectors, such as gaming and trading, it’s the identity verification element of Citizen’s platform that brings the highest value by allowing payments to be linked to senders’ and receivers’ accounts – a vital tool for anti-money laundering.
Surveys suggest that the willingness to adopt A2A payment schemes is currently at about 60 per cent among users of mobile banking apps. However, uptake of the new technology will most certainly be driven by merchants, who see low costs and enhanced security against online fraud as an appealing proposition with a positive impact on their bottom line. Therefore, to incentivise users to switch over, Citizen is launching its own reward scheme which will allow consumers to benefit every time they pay with Citizen.
While other cardless payment methods such as digital wallets and buy now, pay later (BNPL) continue to gain ground in the payments space, Neville is convinced that A2A payments can get – and retain – a big share of this emerging market, thanks to their relevance to a broad demographic (all you need is online banking), as well as the inherent security features and simplicity of use cardless payments provide.
To try Citizen for yourself or to request a demo please visit www.paywithcitizen.com
INDUSTRY VIEW FROM CITIZEN
Why it’s time to put paper invoices in the recycling bin
Chris Todd, Senior Account Executive at Tradeshift
If the thought of an avalanche of paperwork puts you in a cold sweat, spare a thought for the CFO who called our sales team early in the pandemic. They had more than 1 million paper invoices stacking up in a shared services centre – and no one could access them. This well-known, global business couldn’t pay its suppliers. Even worse, the quarterly results were due in two weeks and they had no way to reconcile their numbers.
Is your business drowning in paper? Are suppliers constantly chasing to ask why they’ve not been paid? You’re not alone. According to a study by Ardent Partners, nearly half of all invoices are still submitted manually, on paper. Whatever happened to the dream of all-digital supply chains? And just how much of a problem does our continued reliance on paper pose?
Papering over the cracks
Digitalisation within large enterprises is, in general, quite advanced. However, the processes that underpin the critical relationships between these organisations and their ecosystem of suppliers have been largely overlooked, while budgets were allocated towards projects designed to digitise internal processes.
A lot of businesses have learned the hard way that you can have the greatest level of digitalisation internally, but if the partners you are dealing with – banks, suppliers, buyers, logistics handlers – are not engaged and connected, the whole process reverts to the lowest common denominator.
Senior decision-makers often tell me that their processes are already digital. Further discussion usually reveals that invoices are submitted using electronic means rather than collected in the post room. However, receiving a PDF invoice via email offers no real benefit over opening an envelope beyond speed of receipt. Why does that matter? Have you ever tried to fix an error on a PDF, or share data centrally with another teammate using a static file? Now consider how easy it is for multiple people to collaborate in real-time on a digital document accessible centrally via the cloud.
Without digitalisation, people cannot work on the same documents remotely, while the limited visibility of paper-based processes makes it impossible to make smart, collaborative decisions based on a shared view of the same truth. The result? Business leaders are flying blind at a time when they need to be able to see around corners to remain agile and avoid making costly decisions in today’s volatile market.
Breaking the cycle
Businesses are increasingly waking up to the urgent need to digitalise their relationships with suppliers. But where buyers see transparency and efficiency as the obvious and compelling benefits of digitalisation, suppliers often see it as an extra hassle just to get paid. Many are understandably resistant to a change that they perceive as largely for someone else’s benefit.
At Tradeshift, we believe in encouraging suppliers to join buyers in going digital. Tradeshift started as a free e-invoicing tool for suppliers, so seller value sits at the core of our technology proposition. We understand that when it comes to convincing suppliers to digitise, they care about three things above all else: simplicity, transparency and speed.
Facilitating every transaction across a digital platform enables each party to track and manage transactions in real-time and automates time-consuming processes such as compliance and formatting.
Of course, digitalisation offers a host of other supplier benefits, including enhanced collaboration, unlocking new forms of data-driven supply chain finance and, best of all, opportunities to connect to a growing, global network of other buyers. Additionally, the more transparent and intuitive processes mean suppliers get paid faster.
All of this provides a strong foundation on which to build deeper and more meaningful relationships.
The power of the network
Today Tradeshift is home to the world’s most dynamic community of digitally connected buyers and suppliers. And for large organisations looking to digitise at speed and scale, the beauty of being a single network is that very often we’re not starting from scratch.
For example, we recently started working with a large customer in the transport and logistics space. We were able to show them that roughly 50 per cent of their suppliers were already active on the Tradeshift network and connecting with them was simply a matter of plugging into the network.
That’s the power of connecting through a digital network. It’s not just about improving processes, important as that is. It’s about creating a new, digital-first model of trade, where everyone can equally (and instantly) share the strategic benefits of better connected, more agile, more efficient and more resilient business. It’s time for every organisation to put paper where it belongs: in the recycling bin.
Find out how Tradeshift can help you digitise, automate and grow at tradeshift.com
INDUSTRY VIEW FROM TRADESHIFT
Could better regulation reconcile trading and ethics?
In France, the most notorious affair remains the scandal at Société Générale, which on 24 January 2008, announced a loss of 4.9 billion euros through unauthorised transactions by a young trader, Jérôme Kerviel. This loss is one of the biggest incurred by a single trader in financial history.
However, since the “Kerviel affair”, the behaviour of traders on stock exchange floors seems scarcely to have changed at all, despite increased regulation of markets and financial institutions.
Their behaviour has attracted much attention from the media, financial markets, universities, managers, and a general public unfamiliar with the trading world. Some observers characterise the behaviour of investment bank traders as unethical.
In a July 2021 academic article, we show the importance of the organisational and sectoral contexts in this (un)ethical behaviour.
Lack of scruples perceived as an “asset”
Most research into financial ethics adopts a quite narrow perspective on unethical behaviour that focuses on conformity and compliance with legal and moral standards. This perspective concentrates on individual actions and fails to grapple with the broader institutional context of investment banking.
Moreover, some researchers argue that traders are by nature unethical people drawn to an industry, which itself is devoid of any sort of ethics. They indeed suggest that moral virtues are in fact contrary to what is demanded of traders in the sector.
It seems important not to be restricted by these two perspectives and, on the one hand, to study the context beyond that of investment banking, and, on the other, to think about the conditions encouraging unethical behaviour among traders. Investment banking is effectively a sector that is conducive to unethical behaviour. What is seen as unethical outside the banking sector is considered an asset or a desirable quality within it.
In line with this view, we suggest that if the regulatory system does not seem to work despite being continually strengthened, this might be because it is not in fact intended to regulate traders’ behaviour.
According to our research, the monitoring systems have three design faults that prevent them from being able to control trader behaviour. We define these obstacles as physical, technical, and social distance.
Physical distance refers to the fact that those monitoring traders are physically distant from them, in accordance with the principles of separation of duties, and of independence. There is also a technical distance between traders and financial regulators because the latter rarely master the technical aspects of the formers’ activity. Finally, the social distance between regulators and traders arises from the fact that the regulators’ social status (prestige, remuneration and legitimacy) is seen within investment banks as inferior to that of the traders.
Our research shows that the very design of the regulatory systems does not allow them to control trader behaviour effectively but instead creates an illusion of internal and external regulation. Our conclusions raise doubts about the role of such systems in surveying trading activities.
While this state of affairs exists despite the strengthening of regulations and assurances by banks that such deviations belong to the past, there are some ways we can try to improve the situation.
The first is to better distinguish the different kinds of regulation. We propose to make a distinction between those we might call “primary” and those that are “secondary” regulatory features.
The primary forms combine the three factors mentioned above – physical, technical, and social distance. The secondary forms present one or two of these distances at a time. In investment banking, they include risk management and compliance. These secondary forms have little impact on either operations or trader behaviour. Changes to the rules are mainly aimed at secondary forms of monitoring.
Other regulatory features are less legal and formalistic, and more social. These primary checks are exercised at the heart of market activities, on the stock exchange floor itself. They involve desk officers and other traders and how they behave toward one another.
However, all ethnographic studies of the trading floor underscore that the social checks carried out there are mainly based on principles of competition and financial performance, with little thought for the risks they entail.
The Kerviel affair is a perfect example of the importance of this kind of regulation. In this case, a first-line manager discovered the trader’s fraud and called him to order. This goes to show how important recent steps to strengthen the role of desk officers have been. Overseeing financial operations, these employees act not only as experts and peers but also as managers in physical proximity to traders. Their technical literacy and sense of authority empower them to keep dealers in check.
Nevertheless, technical supervision is insufficient when the manager does not have the expertise required to understand and directly supervise trading. This was the case of the manager in charge of the desk where Kerviel worked, who failed to grasp the anomalies’ nature or magnitude.
Another important element is the permissive culture of trading floors, which values profitability and risk-taking more than respect for the rules and ethics. Thus, strengthening primary regulation requires that traders are adequately trained and socialised – in other words, a shift in the culture of stock exchanges. This would allow the sector to develop another primary check, exercised not by immediate superiors but by peers.
At present, such regulation exists in the sense that traders who watch one another are exercising social control. However, this mutual monitoring mainly has to do with the capacity of each trader to generate greater profits than the next. Indeed, this collective supervision permits and even pushes traders toward crime. Instead of prompting moderation, it encourages traders to take greater and greater risks, for themselves and others. This has everything to do with boasting, which often means showing fewer scruples than others, as evinced by the example of the former Goldman Sachs banker, Fabrice Tourre.
Tourre, who liked to go by the nickname of “Fabulous Fab”, sold structured securities to clients while hiding the fact that the creator of the stocks, Paulson & Co., had taken up positions against the portfolio. This desire to shine also partially explains the behaviour of Jérôme Kerviel, who was working in relatively low-return derivatives – a source of scorn among traders dealing in more profitable products.
Shifting such attitudes toward a less frenetic search for profit would have a decisive effect on the risks that traders create for their employers, their clients and the economy in general when the sums in question constitute a systematic risk, as was the case with the subprime loans.
What is at stake here is not just the internal culture of one bank or investment fund in particular, but more likely, a professional culture shared by actors across the industry who put the pursuit of profit above all else and despite the risks involved. Therefore, the desired shift implies going beyond consideration of the individuals involved – the banks themselves must be encouraged to change. That change is still a long way off.