What Business Opportunities Can be Captured as Banking Evolves in the Next Decade

What Business Opportunities Can be Captured as Banking Evolves in the Next Decade

Zion Market Research's findings indicates that as of August 2022, the worldwide fintech-as-a-service platform market size is expected to increase to over $949 billion by 2028, with a compound yearly growth rate (CAGR) of about 17%. 

A report issued by the Treasury Department in November 2022 describes in detail how big and small businesses are providing financial services at actual consumer points of need, opening up a new market for startups, small businesses, and regional banks to diversify their product offerings and compete with national banks and institutions. 

What we currently think of as banking will evolve into the foundation of our daily digital activities, taking on new forms and legal requirements. Here are the top Three banking trends and opportunities that Entrepreneurs can leverage, to capture the market.

1. A New Crop of Fintech Companies will Spawn from the Transfer of Wealth By Gen Z.

Gen Zers financial habits and behaviors will shape the next decade of banking, as the wealth transfer proceeds discreetly. By 2031, their income will have surpassed that of millennials, and it will have increased 5x by 2030 to $33 trillion, accounting for more than a quarter of global revenue. 

Survey results released in November 2022 by the Stanford Graduate School of Business, the Rock Center for Corporate Governance, and the Hoover Institution of 2,470 investors indicated significant demographic differences, with younger shareholders indicating want fund managers to pursue ESG objectives.

As a result, Fintechs and BaaS (Banking as a Service) platforms will emerge, catering specifically to young wealth and focusing on concierge-style wealth management. And as it spreads out the red carpet for young people, the banking industry will continue to become more democratized.

2. The Embedded Financial Ecosystem Will be Improved By Additional Regulations.

Several McKinsey partners coauthored an article in October 2022 that stated embedded finance generated $20 billion in revenue in the U.S. alone in 2021. Today's consumers have access to "buy now, pay later" services for online purchases, one-click payments on Uber, Amazon, or Walmart, and the ability to plan vacation and lodging with built-in insurance options.

Embedded finance's infrastructure is still in its early stages, and the business has developed swiftly without any oversight or quality control. Regulators will get more involved as the business develops, leading to more specialized, effective banking products. In the end, customers will benefit since a better banking product will be produced.

3. The Normalization of Crypto Through Regulation.

One of the pillars of decentralized financial currencies continues to be the future of finance. It will manifest itself in a number of ways over the next several years, including through securities and legislation, the debut of the first consumer enterprise product, and an increase in use cases outside of finance.

Utility and private business token investments, which are equity certificates produced on the blockchain often linked to a firm's shares, may soon be subject to Securities & Exchange Commission (SEC) regulation. This oversight will be appreciated and bring about adequate investment-risk disclosure, but it will also mean that they are no longer available to everybody.

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How Mastercard is Bringing Cryptocurrency Trading to Banks

How Mastercard is Bringing Cryptocurrency Trading to Banks

According to Mastercard Press release, the firm will bring crypto trading capabilities to banks. Mastercards' 2022 New Payment Index highlighted that 29% of respondents globally hold cryptocurrency as an investment and 65% indicating crypto-related services should be part 'n parcel of services provided by their financial institutions. Understanding there is demand, Mastercard has introduced Crypto Source, a program to enable financial institutions to bring secure crypto trading capabilities and services to their customers.

Ajay Bhalla, President, Cyber & Intelligence at Mastercard has stated, “At Mastercard, trust is our business. What we are announcing today is a connected approach to services that will help bring users safely and securely into the crypto ecosystem. Our recent investments in this space, such as the acquisition of CipherTrace and Ekata, are providing us with a unique set of capabilities to help provide our customers and consumers with the most technically advanced solutions available in the market,”.

How will Mastercard Accomplish this?

Mastercard has partnered with licensed and regulated crypto custody providers, to create an ecosystem that provides  a comprehensive suite of buy, hold and sell services for select crypto assets, augmented with proven identity, cyber, security and advisory services. In addition to Crypto Source, Mastercard will extended Crypto Secure, to ensure security to the crypto ecosystem and support card issuers in their compliance with complex regulations. 

More specifically, Mastercard will use Paxos crypto trading platform to let financial institutions offer cryptocurrency trading to their customers. Paxos will handle custody and trading, while MasterCard will handle regulatory compliance and security. Paxos offers similar services to PayPal, which launched crypto services in late 2020. The platform is known for providing blockchain infrastructure that allows other companies to offer crypto-related products and services

What Does the Offering Include?

The offerings to financial institutes will include:

• Technology and partnership support to enable buy, hold and sell of select crypto assets
• Security management including Mastercard’s identity solutions, crypto analytics, transaction monitoring, anti-money laundering, ‘Know Your Business’ and lifecycle stages, cybersecurity, and biometrics
• Crypto spend and cash out capabilities offered through a range of products, including crypto cards, open banking and cross border services. Financial institutions would also be able to offer additional functionality using Mastercard’s technology such as digital receipts and loyalty solutions
• Crypto program management including program design, product development and technology implementation, as well as go-to-market optimization and marketing consultancy services, providing end-to-end support for banks, fintechs and issuers to offer crypto programs at scale

The So What?

As the cryptocurrencies normalize in both value and maturity, so does the adoption by mainstream. Financial institutions and service providers will be remiss to not enter a market, where there demand. In the end, its about maintaining market share by aligning and providing services that customers expect from their providers.

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Another Day, Another Crypto Attack, Costing Users More than $5 Million

Another Day, Another Crypto Attack, Costing Users More than $5 Million

There has been a recent influx in crypto wallets being wiped out. This at a time, when crypto currency is going through growing pains, both from a technology resiliency and asset class point of view.

The Solana network is viewed as one of the most promising newcomers in the crypto market. Solana’s sol token is one of the largest cryptocurrencies after bitcoin and ether and it touts backers like Chamath Palihapitiya and Andreessen Horowitz. It is also considered a strong challenger to Ethereum with faster transaction processing times and enhanced security. 

Not any more...

Starting Tuesday evening, multiple users began reporting that assets held in “hot” wallets — that is, internet-connected addresses, including Phantom, Slope and Trust Wallet — had been emptied of funds. The Twitter account Solana Status confirmed the attack, noting that as of Wednesday morning, approximately 7,767 wallets have been affected by the exploit. “Engineers from multiple ecosystems, with the help of several security firms, are investigating drained wallets on solana,” according to Solana Status, a Twitter account that shares updates for the entire solana network.

Elliptic’s estimate is slightly higher at 7,936 wallets.  Blockchain audit firm OtterSec tweeted that the hack has affected multiple wallets “across a wide variety of platforms.”

The identity of the attacker is still unknown, as is the root cause of the exploit. Accroding to Tom Robinson, chief scientist at Elliptic, “it appears to be due to a flaw in certain wallet software, rather than in the solana blockchain itself.”

The incident comes one day after the $200 million hack of the Nomad blockchain bridge. It’s the latest crisis to grip the crypto market in recent weeks.

“Four addresses are currently linked to the hacker, a far cry from yesterday’s ‘decentralized looting,’ which involved over 120 individual users,” said crypto investor and analyst Miles Deutscher. “This implies that it was a singular party who conducted the SOL exploit, although the specific details remain ambiguous.”

The identity of the attacker is still unknown, as is the root cause of the exploit. The breach is ongoing.

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Is the NFT Boom Finally Bottoming Out

Is the NFT Boom Finally Bottoming Out

NFT or non-fungible tokens had reached mass hysteria in the recent past and then came the crypto winter. The winter continues and even took pegged or stable coins down with them. Billions of dollars in wealth seemed to have vanished over night, but many in the crypto space stay positive. 

A recent WSJ headline, “NFT Sales Are Flatlining", which is based on data provided by Nonfungible, which compares trade in NFT's to moments in time in the past years. It has been reported that NFT average sales have declined by ~92%, compared to September of last year. Furthermore, the digital wallets that hold these assets have also dropped by 88%, as compared to November of 2021.

According to Nonfugible's data published as of Q1 2022, it has been reported that, “The NFT market experienced strong euphoria in 2021, mainly driven by the Collectibles segment,” it tees off, “But at the end of the year, the various volumes began to decline and this trend continued in the first quarter of 2022.”. 

Additionally commentary in the report suggests that 2022 data trends as an inevitable correction from the previous peaks. “Overall, the indicators are bearish,” says the NonFungible release. “As we announced in our 2021 annual report, a decrease in NFT sales volume due to the saturation of the collectible market was to be expected…However, this drop in sales volume is accompanied by a much smaller drop in the volume of dollars traded (only 5% drop)… With nearly $8 billion traded in the first quarter of 2022, the market cannot really be considered to have collapsed. We are observing a stabilization of the NFT market, in line with the last quarter of 2021.”

What is our disposition on NFT?

We see NFT's similar to pink sheet investments i.e they are speculative and risks associated with these assets are high. Unlike pink sheets though, NFT's are also tied to the bigger trend of Metaverse, which in itself is in its infancy stage. There is now a standards body to define Metaverse, which may also include provisions about NFT's. Therefore, the key for each investor to manage the risk based on their own threshold. More to follow...

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Is Bitcoin and Stock Market Correlation, a Signal of Maturity For Crypto Currencies

Crypto currencies continue to bottom out, as 2022 marches on, and we're only a few days into the new year. 

Show me the correlation:

Bitcoin, the world’s most valuable crypto currency by market value, dropped 8% to trade around $35,000. Bitcoin had previously hit a record high of $69,000 in November. Meantime, Ether, the second-largest crypto currency by market cap, sank nearly 10% to trade in $2,400 territory. 

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While, the crypto currencies were taking a nose dive, so was the over all stock market. 

The Nasdaq, home to many of the biggest tech firms, dropped ~10% below a record set in November, indicating a technical correction. Right around the same timeframe, Dow Jones Industrial Average (DJIA) fell 313.26, closing below its 200-day moving average since December 2021. The S&P 500 fell 1.1% and closed below 4,500 for the first time since October 2021.

These correlation have led some analysts to speculate that Crypto currencies are now showing a strong, positive correlation with the stock market. According to Joanna Ossinger report on Yahoo Finance:

The 40-day correlation coefficient for the digital token and the tech-heavy Nasdaq 100 has reached almost 0.66, the most in data compiled by Bloomberg since 2010. A similar correlation with the S&P 500 is at a record too.

Why do investors flock to crypto currencies?

There are varying set of reasons, though the most common and often cited by institutional investors, is that crypto currency is used to hedge against inflation. Secondarily, it's used as a lever to gain higher returns on an investment class that is not dependent on the movements of the stock market. 

According to Wharton professor Jeremy Siegel, "Let's face the fact, I think bitcoin as an inflation hedge in the minds of many of the younger investors has replaced gold," he told CNBC. "Digital coins are the new gold for the millennials."

What does this all mean for main stream?

Crypto currencies are here to stay, as this asset class has a strong footing in developing countries, due to fears of local fiat devaluation and inflation. In the developed world, gold is usually the go to commodity to hedge against inflation. 

Technical analyst Katie Stockton of Fairlead Strategies has suggested that, "The correlation between bitcoin and high-growth benchmark ARKK still stands at ~60% year-to-date, versus ~14% for the price of gold, reminding us to categorize bitcoin and altcoins as risk assets rather than safe havens,". 

Whilst gold has been around for ions, bitcoin just turned 13. This simply implies that when it comes to crypto currencies, the technology is still maturing. With complimentary technologies such as NFT's and Metaverse starting to take a strong foothold, digital or crypto currencies will become their enablers. 

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From Space Travel to Metaverse, 4 Trends that will shape 2022

As 2021 draws to an end, the tea-leave readers have started foreshadowing the trends that will become prevalent in 2022. Depending on which pundit the industry leaders prescribe to, the outcome may look different. Therefor we've complied a list of our own.

Methodology:

Like others, we could simply leverage artificial intelligence models, but decided to apply a simple methodology. We evaluated the foundational shifts that seemed to materialize in 2021 and applied a forward looking approach to them. From these trends, we've distilled the list down to Top-4, listed below in ascending order:

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Space Travel for the masses:

2021 saw an influx of Billionaires making their mark in space travel. Privately owned space firms like SpaceX, Blue Origin and Virgin Galactic, all sent civilians into space in 2021, opening the doors to space tourism.

Private space flights will get bigger in 2022. During this time SpaceX plans to put its Starship reusable rocket and space vehicle into flight for its first missions. 

SpaceX CEO Elon Musk said, "This is a profound revolution in access to orbit. There has never been a fully reusable, orbital launch vehicle. This is the holy grail of space technology. It is the fundamental breakthrough that is necessary for humanity to become a space-faring civilization."

Crytpo, Decentralized Finance (DeFi) and Decentralized Autonomous Organizations (DAO):

From SEC approved Exchange Traded Funds to universities accepting crypto as payment, cryptocurrencies have started becoming mainstream. In 2021, Cryptocurrency exchange app Coinbase passed TikTok and YouTube to become the most downloaded app in Apple's App Store a few times, highlighting consumer interest in owing crypto as an asset. 

Cryptocurrency, DeFi and DAO's are all tethered together. As crypto becomes mainstream, so will the need to use it as an investment lever. This will where DeFi and DAO's kickin. 

In 2020 the Total Value Locked (TVL) – a measure of DeFi transaction value – grew by 14x. In 2021, TVL has more than quadrupled to a total value of $111.27 billion. This shows a shift from traditional banking to smart contracts driven transactions, using crypto. 

Similar to DeFi, DAOs are organizations that leverage crypto and DeFi to achieve their targets. In a recent run, a DAO tried to purchase one of the 13 remaining copies of the US Constitution by using ether (ETH) balance as its collateral. Whilst this project didn't work out, venture capitalist firms took notice. As reported by CoinDesk:

Syndicate, a community-based investment system that simplifies the creation of decentralized autonomous organizations (DAOs), has raised a $20 million Series A funding round led by Andreessen Horowitz (a16z).

The Series A funding will go towards building extensive tooling, plus various types of formal and legal structuring that Syndicate needs to take DAOs to the next level, including adding a team of securities lawyers.

“When you reduce the cost of setting up an investment fund by 1,000x, what happens?” said Papper. “The answer is that setting up an investment fund becomes as easy as sending a tweet – not that we recommend setting up investment funds via tweets. But when it becomes as easy as that, the world just looks completely different, because the creativity is just absolutely phenomenal.”

Metaverse:

2021, or the pandemic in general, has influenced the next generations on how they can and will interact, both with technology and each other. Apple, Microsoft, Facebook (Meta), Nvidia, Google, Valve and many others are building hardware and software to be ready for this new universe. According to Wall Street, this is the next Trillion dollar market. 

U.S Investment bank has reported that, "The Metaverse will likely take many years to develop; however, NFTs and social gaming (e.g., online games and concerts attended by people's avatars) present two nearer-term opportunities for luxury brands."

According to Morgan Stanley, NFTs and social gaming could expand luxury brands' total addressable market (TAM) by more than 10% and result in upside for the industry that could reach $50 billion by 2030. 

According to Reuters one in five Roblox gamers (a Metaverse platform), update their avatars daily. This consumer behavior has led Morgan Stanley to suggest that luxury brands are exploring a number of collaborations with gaming and Metaverse platforms.

Privacy, Transparency, Governance and Accountability:

These 4 nouns may not be considered trends, albeit, they go hand 'n hand with and all technology shifts. By now, consumers are aware that technology giants scrape their data without consent and then sell it to advertisers for a hefty profit.

The European Union (EU) has fined Facebook (Meta) more than $250 million and Amazon nearly $1 billion for violations of its General Data Protection Regulation (GDPR) law. Apple has limited targeted advertising from App developers, and Google is going to remove tracking cookies from its Chrome browser by 2023.

We will continue to monitor the trends and share updates, so stay tuned.

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