Fintech makes the world a better place, Emerging market payments leapfrog the West, US Chip bans won't work, Crypto and banks must partner on KYC
IoT payments, when machines pay they will use CBDC not Visa!
1. Fintech makes the world better!
2. Emerging market payments leapfrog the West
3. US-China chip wars: bans won’t work
4. IoT payments will use CBDC not Visa.
5. Crypto and banks must partner on KYC
On the Lake, Yue Minjun 1994
1. Fintech makes the world better!
I have 93% good news!! Fintech is making the world a better place with 93% of users seeing benefits from using fintech apps in 2022.
Download here
I know that the news is depressing, but not today and not here! This is the best fintech report I’ve seen in months because it shows that fintech works! We should all thank Plaid for surveying 4000 US and UK consumers!
The slightly bad news (exactly 7% bad) is that 80% of consumers use “digital financial tools,” down from 88% in 2021. Now before you get depressed, let me tell you why. It was my demographic group that was entirely responsible for this 8% post covid drop.
“Hey, boomer!”
Boomers are still reluctant to use digital and like in-person banking, so much so that their adoption rate fell from a covid high of 79% down to 54%! This was the only demographic group to reduce usage. As a boomer banking on 3 continents, I’m afraid I cannot relate to my peers!
There’s a lot in this report, and almost all of it is good, but I’d like to focus on financial inclusion, where the good news is that differing income and demographic groups are all using fintech to meet their financial needs!
🔹 Across wage groups: Initially, fintech adoption skewed towards higher earners, but in three years, adoption rates by income converged at around 80%, showing that these technologies meet consumer demands across the income spectrum (<$50K: 77%, $50-$100K: 79%, $100K+: 82%). So there is still a slight bias toward higher earners, but the gap between low and high earners shrunk from 25% to 5% in two years.
🔹 Across gender groups: While men reported higher fintech usage than women in 2020 (65% vs. 52%), the past two years saw those figures align (89% vs. 88% in 2021, 82% vs. 78% in 2022).
🔹 Across racial groups: Black people (88%) and Hispanic people (92%) continue to use fintech at the highest rates, compared to White people (74%) and Asian people (79%).
What was not a surprise was that trust and data go together. A total of 83% prefer to direct where data goes rather than having companies decide for them!
So what’s keeping the other 20% of consumers from using fintech? Most are concerned about security, including digital KYC and the inconvenience of logging onto an app.
So while progress is being made, digital isn’t for everyone. Just ask a boomer!
Takeaways:
Fintech is genuinely making the world a better place; we’ve got the numbers to prove it.
Age is a factor and my group, the boomers, are reluctantly digital. Not this boomer!
The number one reason to use fintech apps is to save time, which surprisingly beats saving money which takes third place!
2. Emerging market payments leapfrog the West
Emerging market payments are now leapfrogging those in developed nations. As you read this report, ask yourself, “When will we get this?”
Download here
McKinsey’s report on digital payments in emerging markets will change your perspective on developing nation’s payment systems. In fact, you’ll find many now have features you can only dream of in developed nations!
Payments are a great example of technological leapfrogging with some developing nations now having better payment than developed nations. They now show where developed markets will be going, not the other way around!
🔹Why is this?
Simple, payments in emerging markets are born of a digital age, and payments are mostly seen as a low or no-margin digital service:
“Margins for digital payments providers are already wafer thin and are likely to be eroded further by competitive intensity and declining fees. In many cases, payments are more a means to cross-sell other products than a profit center in their own right. Some services, such as peer-to-peer (P2P) payments, are usually offered to users for free in most markets.”
🔹Compare this with card payments:
Card payments, when first launched en-masse in the prehistoric 1960s, were a paid service for the wealthy with service charges based on human processing of credit card “slips.”
There is no argument that pre-Visa “BankAmericard” earned its fees with rows of people processing slips and, at one point, chartered 747s flying slips from the US to Ireland for processing!
The problem is that the ethos of payment as a paid service built on fees remains even though it long ago entered the digital world with near-free processing.
🔹 Why -ALL- emerging market payment systems want to be super-apps:
The fundamental difference in emerging markets, besides the obvious need for low payment margins due to low incomes, is that almost all of these new digital players see payment simply as a “loss leader” to other more valuable digital services. In developed nations, the payment -is- the revenue stream.
“Wallets that are not part of an ecosystem involving e-commerce, social media, or ride-hailing will find
it tougher to succeed, since capturing customer mindshare is difficult when use cases are limited.”
This also leads us to our final observation. Digital wallets are overtaking bank payments in most emerging markets! Only those where banks have regulatory protection can fend off the onslaught.
Takeaways:
Developing nations have “leapfrogged” developed nations in payment services.
For the most part, emerging market payment services are free and used as a loss leader to higher margin products.
Digital wallets must strive for super-app status, as the additional services are their primary revenue stream.
3. US-China chip wars: bans won’t work
The US-China chip war is big news. With the most recent ban on all chip-making gear with US IP and high-end chips, the US is essentially declaring war on China’s high-tech ambitions.
I’m proud of this long read and think it is one of my more important articles because of the high-level policy changes outlined within.
Read it in full: here on substack
The intent isn’t just strangling China’s access to chips but its ability to make them. What makes this such a significant move is that the US is putting its “containment” policies on public view with little expectation that US allies and the US chip industry will foot the bill.
Finish the article: here on substack
4. IoT payments will use CBDC not Visa.
When machines pay they’ll use CBDC not Visa and Mastercard and will trigger “The IoT Payment Revolution!”
Download here
Internet of things (IoT) payments are here and will be worth some $27.6 billion by 2023 according to Worldline but this is nothing compared to what will happen when IoT and CBDCs combine to disrupt commercial payments and usher in an era “when machines pay.”
The CBDC discussion is sadly limited by our ability to imagine the future. When most of us think of CBDCs, the use case we think of is buying a coffee, retail payments. CBDCs are designed to go far beyond retail payments, and we have to start thinking of a future with smart contracts and connected machines that do not requiring human intervention to make payments.
In this IoT future, “interoperability” will be king! Can you imagine an IoT device saying, "I only take Visa?" CBDCs are unique in their ability to standardize national payment infrastructure to unleash the full potential of IoT. IoT devices won’t just make payments but interact with CBDC smart contracts to decide who, when or how much to pay. This goes way beyond Visa and Mastercard!
China is already hinting at this future, with one bank already tying contract progress payments to IoT tags that transmit production data. The data triggers progress payments and even shipping costs. This shows how this isn’t 20 years away in some sci-fi future; it’s now.
For the record, this document never mentions CBDCs even once! An oversight? I don’t think so, but can’t blame Worldline, who, as a payments provider, stands to lose a lot of card revenue with the launch of CBDCs!
Let’s look at the four levels of IoT payment autonomy:
🔹Level 1 Informational: Permission to access data. Ex. “Hey, Alexa, what is my bank balance?”
🔹Level 2 Permissioned: Connected device requires human intervention to pay. Ex. Alexa: “Your electric bill is $100.” You: “Alexa pay my electric bill.”
🔹Level 3 Conditional: Connected device automatically makes payment under pre-defined conditions! Ex. The factory produces 50 of 100 widgets, and a progress payment is triggered.
🔹Level 4: Fully autonomous: Not only does it make payments, but the device can adapt and learn from past behavior. Ex. I know the factory needed more widgets, so I bought them!
Only CBDCs can provide a true national payment platform for all IoT devices and provide the low-cost such widespread use demands.
Takeaways:
We are rapidly approaching a time “when machines pay” and they'll use CBDC, not Visa.
CBDCs offer national IoT interoperability so that all devices can participate.
IoT industrial robots tied to logistics and bank financing will revolutionize commercial payments perhaps even more than retail.
5. Crypto and banks must partner on KYC
Financial inclusion and KYC are two sides of the same coin, and to solve this critical problem TradFi and Crypto should partner on self-sovereign IDs.
Download here
Great report from LexisNexis on KYC’s role in financial inclusion. The results from bankers' surveys across the world are fascinating and show a newfound openness to solving KYC problems.
Let’s face it; even if you gave every unbanked person a smartphone or a CBDC card, they wouldn’t all be banked overnight. The requirement to know -who- is doing the banking is universal.
The shocking news is that banks are actually at a point of such great frustration that 80% are open to data sharing and using a global customer due diligence utility! Up 10% in 3 years!
Bankers are frustrated and losing business. They are not alone. The crypto world has the same problem, which sounds like an opportunity to me!
🔹 This is how shockingly bad it is:
50% of financial institutions reject significant numbers of potential customers due to current KYC processes. KYC challenges loom larger in Brazil, Mexico, India, Singapore, and the UK, where nearly half of the financial institutions reject this proportion of customers.
WOW! I lived in Singapore, and that was the toughest KYC I’ve ever done!
🔹 Now compare this with Indonesia with digital IDs:
Institutions in Indonesia do much better. Nearly two-thirds of institutions turn away fewer than 5% of customers due to KYC processes. Likely factors supporting Indonesia’s stronger showing include the country’s national identity card system.
🔹 And India with the Aadhaar digital ID system:
According to a Tier 1 (highly digital) Indian bank, “With the introduction of APIs to do verification and video KYC, onboarding is extremely simple now.”
🔹 So, what can we learn from this?
Simple, digital IDs are requisite for inclusion, and the best solution is digital and global, which takes us to Self Sovereign ID (SSID).
SSID is usually associated with crypto and blockchain enthusiasts and gives individuals control over the information used to prove who they are on the web and potentially at a bank or crypto exchange. While there’s far more to it, I see an opportunity for crypto and banks to cooperate and solve a shared problem.
If bankers are willing to share data and are serious about a solution, it’s time to pool resources. SSID is a solid idea that has advanced considerably in recent years. Moreover, many versions of SSID use banks as validators, so there are more shared interests than you may at first think.
Takeaways:
KYC and financial inclusion are linked both need to be solved
Banks are now so frustrated with KYC that they are willing to consider sharing data and global solutions
Bank's willingness to share should open the door for SSID, which would clean up banking and crypto! Two birds with one stone!
Subscribe to see how deep the rabbit hole goes!
My work is entirely supported by reader gratitude, so if you enjoyed this newsletter, please consider subscribing or sharing it, following me on Twitter, Linkedin, or YouTube. If you want to learn more about Innovation and China’s CBDC, you can buy my books or check out my website richturrin.com. The best way to make sure you see the stuff I publish is to subscribe to the mailing list here on Substack, which will get you an email notification for everything I post.
Everyone, including platforms that disagree with me, has my permission to republish, use or translate any part of this work (or anything else I’ve written outside of my books) with appropriate credit in any way they like, free of charge. For more info on who I am, what I do, and where I’m going, check out richturrin.com
Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
Please check out my books on Amazon:
Cashless: (https://amzn.to/3RcC6PB)
Innovation Lab Excellence: (https://amzn.to/3C35Mcr)
