Fintech Digest

Binance Was One Step Away From Suffering Great Losses

Fintech Weekly | 07.11-13.11

Previous week in fintech: Binance was one step away from suffering great losses, Blockchain technology was used in public bonds, FTX collapse dealt a blow to Bitcoin and the market as a whole, New York Fed has become one step closer to modernizing critical payments infrastructure, and Europeans began to cheat more online to obtain free purchases.

TOP NEWS | 07.11-13.11

  • Binance was one step away from suffering great losses
  • FTX collapse dealt a blow to Bitcoin
  • Blockchain technology was used in public bonds
  • Crypto has become more accessible
  • Twitter to undergo dramatic changes
  • JP Morgan and Mastercard made paying bills easier
  • Fund services firms remain offline-oriented 
  • Saudi Arabia has every chance to become a global fintech hub
  • New York Fed has become one step closer to modernizing critical payments infrastructure
  • Cryptocurrency market requires stricter regulation after FTX collapse
  • A better CBDC version is coming
  • The Dawn of fraud and the sunset of e-commerce: What’s happening to the european market

Binance Was One Step Away From Suffering Great Losses

Binance almost agreed to a deal that would have gotten it into a lot of trouble. The cryptocurrency exchange signed a non-binding LOI intending to fully acquire its competitor FTX, but later pulled out of the deal.

The world's biggest bitcoin exchange was going to fully acquire the FTX, which had asked for the help due to a serious liquidity crunch. 

It is worth noting that the deal would not apply to the US divisions of both companies. Benkman-Fried stressed that FTX US provides stable withdrawals and operates normally.

However, the deal that was supposed to protect users, didn’t happen. Binance abandoned its plans to acquire FTX after conducting due diligence. The company was also confused by the latest news about the misuse of investors' funds by FTX and the possible investigation of the exchange's actions by the United States.

FTX owner Bankman-Fried, who took responsibility for the situation in which the crypto exchange found itself, resigned from his post. At the end, FTX filed for bankruptcy.

Ftx Collapse Dealt a Blow to Bitcoin

After the bankruptcy of the world's second-largest trading exchange, FTX, the entire cryptocurrency market was in freefall. Bitcoin was hit hard, with its prices dropping more than 10% last Wednesday.

Bitcoin is trading around a two-year low, with additional losses threatening to erase virtually all of the gains gained over the last two years.

The price of bitcoin fell to $17,260 on July 29, the lowest level since the start of 2022. Ethereum, the world's second-largest cryptocurrency by market value and the fourth largest by market capitalization, fell 15.1% to $1,330.26 before recovering slightly. At the same time, the price of altcoins including Dogecoin, Ripple and Cardano fell by double digits.

How's it going in FTX, a native FTX token, you might be thinking. It's even worse: it's down about 75% to an all-time low.

Blockchain Technology Was Used in Public Bonds

UBS AG has become the first financial institution to issue a digital bond. It is publicly traded and settled on both blockchain and traditional exchanges.

This digital bond is valued at 375 million Swiss francs and has the same legal status, structure, and rating as traditional bonds.

UBS chose the blockchain platform SIX Digital Exchange for its product. And the assets themselves will be traded on the SDX and SIX Swiss Exchange.

According to UBS, settlement is rapid and automated, and no central clearing counterparty is required.

Crypto Has Become More Accessible

One of the oldest cryptocurrency trading platforms, US-based company is entering the payments market. The company is launching a new cryptocurrency payment product, expecting to bridge «the gap between blockchain and everyday life». executives are convinced that cryptocurrency can become more common as a payment method. This idea was the starting point for the Gate Pay creation.

Initially, Gate Pay users will have access to 20 cryptocurrencies for payment. But in the future, the company plans to increase its number to 130. 

Twitter to Undergo Dramatic Changes

Elon Musk wants to turn Twitter into a financial super-app like Chinese social network WeChat. He shared his plans during a broadcast in Spaces.

Musk wants to build a payment infrastructure on Twitter, with debit cards and bank accounts connected.

Considering the fact that the company filed the appropriate registration documents last week, the billionaire is dead set.

Twitter has already experimented with financial services on its platform. For example, the company added the ability to leave tips for authors and charge subscription fees to exclusive content.

Presenting his vision for the company's future, Musk said that the platform would become similar to the Chinese social network WeChat.

JP Morgan and Mastercard Made Paying Bills Easier

JP Morgan, together with Mastercard, introduced a new Pay-by-Bank service.

The Pay-by-Bank service provides ACH payments that employ open banking, allowing clients to authorize the sharing of their financial data with trustworthy parties in order to pay bills directly from their bank account. This implies that while paying a bill, clients simply need to input their routing and account numbers.

It streamlines customer onboarding and lowers the risk and cost of retaining bank account information for billers and merchants. According to JP Morgan, the offer will be beneficial for regular payments.

A handful of billers and merchants are currently testing Pay-by-Bank ahead of a rollout to take place next year.

Fund Services Firms Remain Offline-Oriented

Only a third of trust, corporate and fund services have deployed digital transformation projects, the TrustQuay report says.

A survey of 120 private banks, trust, corporate, and fund service providers discovered that 90% of those surveyed expect their operations to be significantly more digitized and automated over the next five years. Only 33% took the first step on this path, consolidating their data on a single platform.

The increased regulatory burden is also frequently cited as a motivator for the use of digital technologies. 86% of respondents anticipate greater digital engagement with authorities. However, just a quarter have built a centralized worldwide regulatory compliance system.

Even fewer firms reported having a customer portal that allows them to interact with customers online.

The research also shows a growing interest in SaaS solutions, with 70% of respondents stating they will use the technology in the future.

Saudi Arabia Has Every Chance to Become a Global Fintech Hub

Saudi Arabia is moving closer to its goal of becoming a worldwide fintech hub, with large sums of money being invested in local firms, and its number is blooming. In the recent year, the number of financial technology businesses in the Kingdom expanded by 79%, with $400 million in funding.

According to the annual Saudi Fintech report, on the Kingdom's road to open banking, there has been an increase in practically all fintech sectors, especially infrastructural activity.

With the establishment of a co-working space, the Hub, and the completion of an accelerator program to assist entrepreneurs with regulatory applications, Fintech Saudi Arabia has played a significant role in the growth of the fintech industry.

Following the launch of three new digital banks and the introduction of open banking, growth in the Kingdom is expected to continue.

New York Fed Has Become One Step Closer to Modernizing Critical Payments Infrastructure

The Federal Reserve Bank of New York has revealed a CBDC prototype. It is a blockchain-powered experiment in cross-border digital money transactions. 

The debut initiative of the New York Fed's new innovation center, Project Cedar is a research endeavor to establish a technological foundation for a theoretical wholesale CBDC.

The initial part of the research examined whether employing blockchain technology may enhance the speed, affordability, and accessibility of cross-border wholesale payments.

Most FX spot transactions now take two days to settle. Payment senders and receivers are subject to settlement, counterparty, and credit risk during this period, which can hamper an institution's ability to convert assets into cash.

Payment settlement took less than 15 seconds during the testing. And, owing to the simulated ledger network, atomic computations are performed, which means that both sides of the transaction are completed concurrently or not at all. This lowers the hazards.

Furthermore, the architecture of the project enabled payments to be taken 24 hours a day, seven days a week, with support for interoperability by facilitating transactions across homogenous ledger networks representing a range of financial institutions.

Advertising a BNPL Product Could Result in Jail Time

The Financial Conduct Authority of the United Kingdom has issued a warning to BNPL officials. They may now risk jail time if they do not follow severe financial marketing guidelines.

The FCA has already sent letters to several providers and retailers to take action. It states that communication or "explainers" on BNPL products are considered financial promotions, which fall within the jurisdiction of the regulator. And if you conduct a promotion that is confusing, unfair, or deceptive, you might face up to two years in prison.

According to a source at one BNPL business, the FCA is regulating the sector through a «loophole».

Background info:

The UK government unveiled the first measures for new rules controlling the fast-growing but contentious BNPL sector during the summer.

While the law is being finalized, the FCA has taken aggressive efforts to use existing authorities to bring corporations into compliance.

Cryptocurrency market requires stricter regulation after FTX collapse

According to the CEOs of three big-league crypto companies, the cryptocurrency industry in the United States requires clear regulation. They said that its absence has resulted in the majority of transactions happening offshore.

The statements were made in a Twitter conversation with Sen. Elizabeth Warren (D-MA) late Wednesday (Nov. 9) after she noted that the collapse of bitcoin trading platform FTX «shows how much in this market is like smoke and mirrors».

Warren also stated her intention to press the Securities and Exchange Commission for increased consumer protection, a move that drew criticism from Coinbase CEO Brian Armstrong. He said that because FTX is a foreign exchange, it is not regulated by the SEC.

Ripple CEO Brad Garlinghouse also entered the discussion, adding that companies need a system that promotes trust and transparency. He also cited Singapore's regulatory framework as an example.

At the same time, Circle CEO pointed out that Warren should «help write sound policy» rather than «punt this merely to enforcement».

And it’s not just about crypto firms. According to a PYMNTS poll, 52% of conventional financial businesses considering blockchain and cryptocurrency adoption are concerned about uncertain legislation.

The Singapore Monetary Authority and the Federal Reserve Bank of New York are collaborating to investigate the usage of wholesale CBDCs for cross-border payments.

A Better CBDC Version Is Coming

The BIS Innovation Hub is launching a new prototype CBDC. It is expected to be more cyber-resistant, scalable and confidential.

CBDCs frequently involve a trade-off between three parts: cyber resilience, scalability, and privacy. The Tourbillon project should eliminate this problem by combining technologies such as blind signatures and mixed networks with cryptography research and CBDC design into a cohesive whole.

For better results in cyber resiliency,  the initiative will test quantum-resistant encryption.

The prototype is expected to be completed by mid-2023, and the results will be applicable to both wholesale and retail CBDC, according to BIS.

Good to know:

The Dawn of Fraud and the Sunset of E-Commerce: What's Happening to the European Market

Speaking shortly, the inflation is here. The bad news is that, among other things, it brings out the worst in buyers. At least that's what the reports say.

As inflation and energy prices rise, consumers are increasingly getting goods fraudulently (and therefore free), Signifyd's report says.

Meanwhile, a McKinsey & Company report states that European consumers are cutting costs, increasingly prefer stores with lower prices, and high prices make them uneasy.

Inflation bothers everyone: 

  • nearly 60% of Europeans complain about the poor state of their country's economy  
  • 36% doubt the successful economic recovery

As a result, consumers are cutting back and e-commerce sales are down. Experts predict that this situation is unlikely to change under the magical influence of the holiday shopping season.

Furthermore, SCA requirements requiring verification of identity before making transactions put customers under pressure. 

According to a poll of 2,000 buyers in each nation, half of Italian customers, 45% of French consumers, and 36% of UK consumers have had to cancel purchases because of SCA issues.

All of that leads to an increase of fraud. UK consumers surveyed in The State of Commerce in Europe 2023 admitted to perjure themselves when receiving their purchases:

  • 32% admitted to lying about poor delivery to obtain a refund while keeping the product;
  • 26% admitted to lying about the item not being delivered to get it for free;
  • 4% claimed they returned an empty package or a box containing anything different than the original goods to keep an online purchase and receive a refund.