Metaverse banks are coming; The IMF is deluded; QR payments rule; Britcoin trial shows innovation; Can banks dance?
Banks dumping money into digital is like paying for dancing lessons. Can they dance?
1. Metaverse banks are coming
2. The IMF is deluded
3. QR payments will rule the world
4. Britcoin trial shows innovation
5. Can banks dance? Paying for the lessons isn’t enough
Today’s artwork: Our last day hiking in the Dolomites! We are leaving for Taipei and then Shanghai in a few days. A flurry of family dinners over the weekend caused the delay in this newsletter, as did this wonderful hike yesterday in the Dolomites. Hear near “Claut” in the Friulian Dolomites Natural Park and the FANTASTIC “Refugio Pradut.” The Refugio serves 5-star meals up in the mountains!
Please forgive any editing errors in this final “Italian Edition” newsletter.
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1. Metaverse banks are coming
Banks must prepare for the next big paradigm shift as the metaverse hits and Meta-banks become a reality.
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Bankers face a never-ending list of paradigm shifts, and Deloitte correctly identifies the metaverse as the next big wave to hit, and it's a tsunami. (Post dedicated to Dr. Martha Boeckenfeld)
Not a day goes by without bankers being bombarded by some combination of new “paradigm shifting” tech or business models like open-banking, cloud, neobanks, and generative AI, among others, which will all rock their world. The list grows longer by the day.
Who can blame bankers for becoming increasingly numb to the onslaught of technologies that all threaten to disrupt their business?
So here is the good news for bankers out there. The metaverse is the end game for every new technology and business model banks have crammed down their throats.
That’s good news because any new tech they put to work now will have applications in their metaverse activities. Whatever you think of the metaverse, know that all of your other tech endeavors will somehow be included or absorbed into your metaverse activities because the metaverse will need them all.
Now for the bad news. Metaverse banking is coming faster than you think. Apple's new “vision pro” VR/AR headset made that clear. The concept that the metaverse is something far away is a fatal error.
There’s one other bit of bad news, and it's very bad. Your metaverse activities will magnify every deficiency in your bank’s technology and innovation platforms.
From business models to tech, you can expect every failure to modernize over the last decade to come back and haunt your bank.
Sounds harsh? It isn’t.
What banks need to do now:
• Active learning: banks should understand its full scope before seeking opportunities in the Metaverse.
• Challenge the status quo: question the current strategy and business model.
• Treat the Metaverse as an advanced digital transformation: consider this part of their overall digital transformation an intelligent upgrading.
• Focus on business model innovation based on core competitiveness: to explore the Metaverse value chain find a link in that chain that fits existing capabilities.
• Build an ecosystem: build ecosystems around their core competitive advantages.
• Avoid risk: act according to national policies, protect data and secure networks to prevent threats.
Thoughts?
Takeaways:
—The metaverse is “end-game” in bank paradigm shifts as it incorporates all recent tech advances.
—Good news: banks will use all of their tech advances
—Bad news: meta-banking will magnify your bank's tech deficiencies!
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2. The IMF is deluded
The IMF is “a day late and a dollar short” on cross-border tokenized CBDC payments.
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The IMF’s proposal to create “XC,” a global centralized ledger for cross-border payments, isn’t bad but doesn’t propose anything new and suggests a more expansive role for the IMF.
The IMF, in its own words, doesn’t seek to create something new but instead to: “draws partly from existing experiments, such as project Ubin of the MAS, and projects mCBDC Bridge and Dunbar, by the BIS Innovation Hub.”
The IMF is not a leader
This doesn’t make the document bad but contributes to the sense that the IMF is following, not leading the pack.
XC is viewed as a platform with three layers: settlement, programming, and information management:
“XC platforms offer a trusted single ledger – a document representing property rights -- on which standardized digital representations of central bank reserves in any currency can be exchanged efficiently, and programmed to replicate basic financial contracts in a privacy preserving fashion, among selected public and private sector participants subject to strong governance, standards, and rules.”
So far, so good, right? Yes, but on governance, the IMF says, in essence “we’re good at this you should use our rules.”
“To establish clear governance arrangements, agreeing on high-level principles first may be useful. These might include ensuring that relevant international standards are adopted by all participating countries and firms.”
🔥Whose international governance standards?🔥
🔥Why the IMF’s of course! 🔥
“With its broad membership, an institution like the IMF would be well positioned to help countries establish effective governance of international payment and contracting platforms."
The Global South won’t buy in
This document is essentially a marketing tool for the IMF, saying that their governance standards would be best! Do you think China, who is often at loggerheads with IMF policy, and others in the global south would agree?
Contrast this with the original BIS documentation for mCBDC and Dunbard, both of which strive to create a governance-agnostic platform on which central banks impose their own standards.
The IMF is well-positioned to maintain the status quo in payments, but the status quo isn't good enough.
Thoughts?
Takeaways:
—The IMF’s XC contributes little to cross-border transfers but is a marketing piece for IMF governance standards.
—Should the IMF be the arbiter of cross-border transfer platform standards and rules?
—I prefer the BIS’s vision of agnostic platforms where participants make the rules.
—I give the IMF credit for recognizing the problem but less credit for proposing a solution.
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3. QR payments will rule the world
QR code payments are better than cards and Apple/Google Pay!
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Deloitte takes on QR code payments and declares that they are "faster, safer, and more accessible" than cards and NFC-based Apple and Google Pay.
Surprised?
I’m not, and this is why QR codes used in global payment transactions are set to grow 16% annually over the next five years.
I use QR codes to pay daily in Shanghai, and now for the past few months in Italy, I have gone back to cards and Apple Pay and can say that QR codes are a better way to pay!
No queue at the POS device
Why? It’s the point of sale (POS) terminal! The reason why QR is better is that with QR codes, you don’t need to be tied to touching a payment terminal! QR codes can be scanned at a distance!
When I go to a coffee shop, the barista using a POS device can scan the QR code on my phone from more than a meter away. I don't have to contact the POS.
When scanning the shop’s QR code to pay even greater distances are possible depending on the size of the printed QR code. 3-4 meters is the norm, but with colossal QR codes, any distance is possible.
In practical terms, people using QR don’t need to bunch up or queue to wait for their turn to touch the POS device. QR codes are simply more comfortable for everyone.
QR by the numbers
So don't be surprised that when looking at QR codes by the numbers they are big and getting bigger:
· 4% Of consumer transactions globally use QR codes.
· 1.5 bn Total number of QR code payment users in 2020.
· $2.4 tn Global spend using QR code payments in 2022
· 16.1% Expected global CAGR for QR code payments from 2021 to 2030.
· 2.2 bn Total number of QR code payment users by 2025, 29% of all smartphone users globally.
· $3 tn Projected global spend using QR code payments by 2025.
Advantages of QR codes to customers and merchants
• Contactless payment experience: eliminates the need for cards or money to change hands, a safety precaution that helps reduce the spread of germs.
• Faster payment, service, and settlements: immediate payment, convenience, accurate records, and prompt settlement between financial institutions.
• Affordable and accessible functionality: Lower setup and transaction costs help merchants pass savings along to consumers. QR code payment options are readily available to consumers through their mobile devices.
Thoughts?
Takeaways:
—I use Apple Pay, cards, and QR codes to pay and QR wins!
—QR codes allow paying at a distance!
—QR codes help eliminate customers bunching up to tap the POS system.
—Expect to see more QR codes near you soon
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4. Britcoin trial shows innovation
“Britcoin” is one step closer as the BOE tests APIs showing tremendous CBDC-based fintech innovation.
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The Bank of England (BOE) and BIS just published their test results of a CBDC API with truly stunning results. This is a first in the literature and a critical component for CBDC adoption globally!
The BOE shows true vision: “One of the key features of the two-tier [CBDC] model is the need for a clearly defined and well-functioning public-private partnership.” The BOE went the extra mile to show how the API can support innovation with 33 privately developed use cases divided into 6 categories!
This is another first, and the BOE is doing a great job of attacking CBDC naysayers (House of Lords) by showing exactly the kind of innovations CBDC will bring!
CBDC spurs fintech
Kudos to the BOE and BIS teams who wisely showed the UK and the world what's at stake with CBDC and why they will spur fintech innovation, the likes of which you've never seen!
Some 30 digital pound use cases were trialed on the blockchain-based account and token-based trial CBDC systems. Note that this doesn’t mean Britcoin will use blockchain.
The use cases ranged from basic merchant payments to a prototype of parent and child wallets. Conditional payments and programmability were used, showing off what CBDCs can do in the future! Other experiments included decentralized identity, inclusive offline use, and verificable credentials for privacy.
Key findings:
• A well-designed API layer could facilitate retail payments in CBDC.
• A set of simple and standardized API functionalities could support a diverse range of use cases. It also has the potential to support innovation in products and services based on CBDC that could help meet the future needs of users in a more digital economy.
• The API layer could work with different central bank ledger designs to facilitate payments.
• The design of the API layer must be consistent with, and implement the requirements of, the wider privacy model for a CBDC. This was fundamental to the design and build of the Rosalind APIs.
• APIs can support offline payments in CBDC, but there are a range of challenges involved in delivering offline functionality.
Thoughts?
Takeaways:
—Kudos to the BOE and BIS!
—The BOE took a big step forward with its digital pound and for all CBDCs by developing these APIs!
—The BOE’s focus on innovation will give CBDC naysayers much to consider!
—CBDCs will provide a platform for fintech innovation that goes far beyond what we have now, and the BOE shows this future.
—Let's get offline payments working!
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5. Can banks dance? Paying for the lessons isn’t enough.
Can banks’ dance? Banks are in a digital death dance with technology as they increase spending.
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“The dance of death,” also called ”danse macabre,” is a medieval allegorical concept of the all-conquering and equalizing power of death inspired by the plague or “Black Death.”
Banks rightly have the same sense of the all-conquering and equalizing power of digital and are now locked in a “digital dance of death” with tech.
“Can banks’ dance?”
The ABA and Arizent survey of 200 US bank digital managers hasn’t answered this fundamental question.
The report confirms that banks are spending vast amounts on tech, despite high rates and bank crashes, but like spending on dancing lessons, it doesn’t mean you can dance.
Even more importantly, the report hasn’t answered whether Apple, Amazon, and big tech can dance better than banks.
Here are the findings:
• The array of banking services made possible or easier thanks to digital innovations keeps expanding, and banks and credit unions are racing to take advantage of the technologies that best serve their customers. Leaders are BNPL; real-time payments; fraud mitigation software; and real-time data and analytics.
•More financial institutions than ever before are also setting down their swords to partner with financial technology companies, often a faster and more cost-efficient way of adopting new technologies.
• The hurdles to implement and analyze digital improvements are still weighing on these financial institutions, from small community banks to the biggest names on Wall Street. Banks with national and global presences report issues with outdated core systems.
• These financial institutions now recognize the importance of focusing on customer experience and more than half of professionals surveyed use mobile to transform customers’ interactions with the bank.
• Ensuring that adequate cybersecurity measures are in place has become an even more important priority for large and small financial institutions alike.
• Leaders at financial institutions have come to see their digital transformation as more of a journey without an endpoint; it’s never finished.
Thoughts?
Takeaways:
—Banking is in a digital death dance with tech that will never end as innovation pushes the finishing line ever further.
—“Can banks’ dance the digital death dance?” The report doesn’t answer, but only shows that they are spending vast amount.
—The real question is whether banks can learn to dance as fast as big tech as Apple and Amazon encroach on their territory.
—I don’t think they can!
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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.
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