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18 Jan

HSBC further expands cash access network in Singapore

HSBC Partners 7-Eleven to Expand Cash Access Network to 800 Touchpoints Island-wide

HSBC Singapore has announced its partnership with 7-Eleven to offer HSBC customers access to more than 300 of its stores for QuickCash withdrawals. HSBC’s partnership with 7-Eleven will expand its total cash access network by 30% to over cash 800 touchpoints island-wide.

This partnership with 7-Eleven further complements and expands HSBC’s existing fleet of ATMs including those from the ATM5 network and QuickCash participating outlets including Cold Storage, Guardian Health and Beauty and Market Place in Singapore.

Mr. Matthias Dekan, Head of Customer Value Management, HSBC Bank (Singapore) said: “Despite the push for digital payments and electronic fund transfers, cash access remains important for Singaporeans. Partnerships like this one with 7-Eleven, and other retail outlets, means cash access is available within minutes’ walk from wherever you are in Singapore.”

Credit: Hubbis.

 

18 Jan

Facebook, BlackRock, and the Case for Purpose-Driven Companies

Last week, Facebook CEO Mark Zuckerberg announced that his platform needs to change. Community feedback has shown that public content has been “crowding out the personal moments that lead us to connect more with each other,” according to Zuckerberg. As a result, the company says it will be focusing more on promoting posts from friends rather than from media outlets, thereby leading to more-meaningful social interactions.

While the long-term consequences for users, journalists, media, friendships, Facebook itself, and the future of democracy (see: fake news) are uncertain and hard to judge, there are some lessons we can draw from the announcement.

Corporate Purpose Requires a Credible Commitment

There is a lot of talk about purpose in business. Purpose-driven companies have been shown to outperform their peers over the long term. They can reap benefits because of higher employee productivity and customer loyalty and satisfaction. But purpose-driven companies are also hard to come by. Why is that? Because purpose is costly. At the very least, it requires a credible commitment to that purpose. And credible commitments are those that come at a cost; in the absence of a cost, all companies can claim that they are purpose-driven, and as a result the commitment stops being credible.

The stock market reacted negatively to the announcement Friday, costing Facebook almost 5% of its market capitalization, or about $27 billion. It personally cost Zuckerberg more than $2 billion — hence the credible commitment to Facebook’s purpose to “develop the social infrastructure to give people the power to build a global community that works for all of us.” The fact that Facebook would undertake such a commitment knowing full well the costs is one more data point suggesting that Facebook could well turn out to be a purpose-driven company, and another lesson for business leaders that building purpose-driven organizations requires more than cheesy statements and “goodwashing” efforts.

Investors Are Paying Attention

The announcement came because of increasing pressure on Facebook to understand and manage its impact on society. Critics argue that the rise of fake news and propaganda on social media is threatening democracy. This is another indication that developments in society represent financially material events for a company’s performance, thereby raising the need for high-quality investor-relevant data that assesses a company’s efforts to mitigate negative impacts and increase its positive impact.

An increasing number of investors are therefore integrating environmental, social, and governance (ESG) data when they make investment decisions. Research has already shown that firms improving their performance in material ESG dimensions subsequently outperform their peers.

Short-termism

Zuckerberg announced that this is a move that could well have short-term financial costs but long-term benefits for the business. The former seems to have outweighed the latter in the market’s reaction to the announcement, with the stock declining 5% same day.

Many business leaders have talked about the phenomenon of short-termism, and research has documented that short-termism holds back good corporate intentions. But the idea that business leaders are at the mercy of a market obsessed with short-term results is dubious. In most cases, business leaders themselves are at fault by failing to properly communicating the long-term benefits of such actions, which, if done well, build trust in leadership. Promising long-term benefits is not enough. Time-bound targets based on metrics and a clear strategic plan could do the trick, though. Unfortunately, most business leaders still do not walk the talk when it comes to being long-term-oriented.

That may change as more investors signal their commitment to long-termism and corporate purpose. If Facebook was last week’s indication that corporate leaders care about more than short-term profits, this week’s comes from BlackRock chair and CEO Larry Fink, who on Tuesday sent a letter to the companies his firm invests in demanding that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” In a recent article, I describe this role as a steward of the commons.

Mark Zuckerberg seems to agree, and seems willing to pay a price to demonstrate it.

17 Jan

Cryptocurrency Regulation Must Be Global, Says German Central Bank Official

A German central bank official said that the only way to effectively regulate bitcoin and other cryptocurrencies is to pursue a global framework with “the greatest possible international cooperation.”

Director of Germany’s Central Bank Calls for Global Cryptocurrency Regulation

Speaking an event in Frankfurt, Deutsche Bundesbank director Joachim Wuermeling said that “effective regulation” is only possible at the international level, according to a Reuters report.

“Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation states is obviously limited,” Wuermeling said.

To date, cryptocurrency regulation has largely been a piecemeal effort at the national level, reflecting the differing stances that governments have taken toward this new technology.

Many nations, such as the US and Japan, have thus far sought regulatory frameworks that protect retail investors without stifling innovation.

Others, though, have adopted hostile stances. China — once the world leader in both cryptocurrency trading and mining — forced the closure of all domestic bitcoin exchanges last September, and the People’s Bank of China (PBoC) is currently working to make the country less hospitable to miners, forcing them to move to other regions.

While naysayers predicted China’s hostile regulatory framework would spell doom for bitcoin, what actually happened served to confirm Wuermeling’s thesis. The void left by the closure of China’s cryptocurrency exchanges was quickly filled by other markets, allowing countries such as South Korea to emerge as a major market in the global crypto-economy.

South Korea’s domestic cryptocurrency trading market has become so heated that the government has recently implemented restrictions in a bid to curb speculative purchases made by retail investors and minors.

However, as in the case of China’s earlier regulations, it is likely that if South Korea’s new rules do make a serious dent in cryptocurrency trading, the decline in volume will lead to a corresponding increase in another nearby market, most likely Japan.

G20 Nations Call for Cryptocurrency Debate

Wuermeling is only the latest financial regulator from a G20 nation to express the need for an international framework for cryptocurrency regulations.

In December, France’s finance minister called for regulators to debate cryptocurrency regulations at this year’s G20 summit, a proposal for which both Italy and Germany expressed support.

Just last week, US Treasury Secretary Steven Mnuchin made similar comments, stating that while US regulators were equipped to combat the use of cryptocurrency in money laundering schemes, other G20 members are not so well-prepared.

AbnAsia.org

 

16 Jan

Researchers find that one person likely drove Bitcoin from $150 to $1,000

Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled “Price Manipulation in the Bitcoin Ecosystem” and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.

To many it’s been obvious that the Bitcoin markets are, at the very least, being manipulated by one or two big players. “This paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired,” the researchers wrote. “During both periods, the USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity. Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months.”

Researchers find that one person likely drove Bitcoin from $150 to $1,000

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Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled “Price Manipulation in the Bitcoin Ecosystem” and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.

To many it’s been obvious that the Bitcoin markets are, at the very least, being manipulated by one or two big players. “This paper identifies and analyzes the impact of suspicious trading activity on the Mt. Gox Bitcoin currency exchange, in which approximately 600,000 bitcoins (BTC) valued at $188 million were fraudulently acquired,” the researchers wrote. “During both periods, the USD-BTC exchange rate rose by an average of four percent on days when suspicious trades took place, compared to a slight decline on days without suspicious activity. Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months.”

The team found that many instances of price manipulation happened simply because the market was very thin for various cryptocurrencies including early Bitcoin. “Despite the huge increase in market capitalization, similar to the bitcoin market in 2013 (the period examined), markets for these other cryptocurrencies are very thin. The number of cryptocurrencies has increased from approximately 80 during the period examined to 843 today! Many of these markets are thin and subject to price manipulation.”

The manipulation happened primarily via two bots, Markus and Willy, that seemed to be performing valid trades but did not actually own the bitcoin they were using. During the Mt. Gox hack a number of these bots were able to create fake trades and make off with millions while manipulating the price of BTC.

 

The publicly reported trading volume at Mt. Gox included the fraudulent transactions, thereby signaling to the market that heavy trading activity was taking place. Indeed, the paper later shows that even if the fraudulent activity is set aside, average trading volume on all major exchanges trading bitcoins and USD was much higher on days the bots were active. The associated increase in “non-bot” trading was, of course, profitable for Mt. Gox, since it collected transaction fees.

But the Willy Bot likely served another purpose as well. A theory, initially espoused in a Reddit post shortly after Mt. Gox’s collapse (Anonymous, 2014b), is that hackers stole a huge number (approximately 650,000) of bitcoins from Mt. Gox in June 2011 and that the exchange owner Mark Karpales took extraordinary steps to cover up the loss for several years.

The bottom line is simple: if Bitcoin wants to be taken seriously it probably shouldn’t be this easy or legal to manipulate the markets. While decentralization is supposed to replace regulation it’s clear that there is still a way to go before it can be truly taken seriously. “As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalizing bitcoin as a payment system (as Japan did in April 2017), it is important to understand how susceptible cryptocurrency markets are to manipulation. Our study provides a first examination,” write the researchers.

 

15 Jan

Seven key trends in corporate payments technology

TCS bags biggest-ever deal from Transamerica

TATA Consultancy Services (TCS) said it has bagged a deal worth more than USD 2 billion from the US insurance group Transamerica, marking its largest contract to date. The contract, which entails transforming Transamerica’s US insurance and annuity business lines, comes close on the heels of a mega deal TCS had clinched from television rating measurement firm Nielsen.

“The multi-year agreement (with Transamerica) is worth more than USD 2 billion in revenues, the largest contract signed by TCS to date,”TCS said in a statement. The partnership enables Transamerica to rapidly enhance its digital capabilities, simplify the service of more than 10 million policies into a single integrated modern platform, it added.

The announcement comes a day after TCS reported 3.6 per cent fall its its net profit to Rs 6,531 crore in the December 2017 quarter. “TCS will provide valuable administration and quality customer service, and Transamerica will continue to engage with our customers, clients and advisors in the most meaningful ways to them by utilising our digital engagement platforms and developing new solutions that help people save, protect, invest and retire,”Mark Mullin, Transamerica President and CEO, said. The agreement is expected to lead to annual run-rate savings of about USD 70 million initially –growing to USD 100 million over time –for Transamerica, the statement said.

TCS said it will make job offers to all of the applicable Transamerica employees currently supporting the life insurance, annuity, supplemental health insurance, and workplace voluntary benefits business lines. This, it said, will ensure “a consistently excellent experience for Transamerica customers and protecting approximately 2,200 American jobs”. It added that employees transitioning to TCS will be given the opportunity to remain in the same US cities where they are currently based.

Market Intel

Seven key trends in corporate payments technology – Corporate payments have evolved significantly over the past few years, enabled by modernised technology platforms. Key trends – Payment hubs, ERP integration, Supply chain financing, Local payment services, Blockchain, Open banking APIs, and Regulatory compliance. Read More

Open Banking and PSD2 are set to shake up the finance industry – Open Banking and PSD2 are coming into force over the weekend. Both sets of legislation will change the way the finance industry works across Europe and the UK, and ripples will be felt around the globe. Read More

Blockchain –unblocking payments – With its advantages of carrying out tamperproof, decentralised and transparent transactions in a decentralized manner, blockchain has applications across many industries, but its most popular use remains the one it was originally designed for –payments. Read More

Canadians ready for biometrics  – New forms of authentication, such as fingerprint, facial, and voice recognition, can make unlocking accounts and payments much easier and more convenient than traditional passwords or PINs – which are difficult to type onto tiny keyboards, easy to forget, and can be stolen says survey. Read More

Financial technology becomes fashionable – Last September marked the 10-year anniversary of the introduction of contactless technology in the UK. Since then, more than 㿨billion has been spent through contactless cards. Their usage is projected to rise by a further 317% by 2021. Read More

Exchanges call for global fintech standards – As new technologies such as AI and DLT transform the capital markets landscape, the World Federation of Exchanges (WFE) has called on regulators to hold new fintech entrants to the same standards as established players. Read More

Google puts its brand behind payments – Google is merging its disparate payment programmes, including Android Pay and Google Wallet, into a single brand dubbed Google Pay. Google says the initiative is intended to provide consumers with a consistent and simpler way to pay for purchases, whether online or on the high street. Read More

Client/Prospect Intel

CIBC Innovation Banking unit launched to help grow startups – CIBC introduced CIBC Innovation Banking, a full-service business that delivers strategic advice and funding to North American technology and innovation clients at each stage of their business cycle, from start up to IPO and beyond. Read More

Yes Bank to offer ATM withdrawals using Aadhaar ID and biometric authentication – Nearby Technologies has partnered with YES BANK, India’s 5th largest private sector bank and worked closely with National Payments Corporation of India (NPCI) to launch a card less and PIN-less Aadhaar ATM service. Read More

ICICI strikes digital mobility deal with transportation app Ola – The Bank has struck a deal to provide co-branded cards as well as digital loans, ride booking and payments to transportation utility Ola via the bank’s mobile apps.  Ccustomers will be able to book cab and pay through the bank’s mobile banking applications, ‘iMobile’and ‘Pockets’. Read More

TD and CIBC wrap up acquisitions as Canadian innovation race intensifies – CIBC signed a deal to snap up Wellington Financial, a firm which provides growth capital to early and mid-stage technology companies. It’s set to become part of CIBC’s Innovation Banking unit, focused on giving advice and funding to clients in the technology sector. Read More

Competition Intel

NLB pioneers Temenos’T24 R17 core banking tech – Slovenian bank NLB has become one of the first live sites of the R17 version of Temenos’T24 core banking system. The bank states it’s keen to attract top talent as part of its digital transformation strategy. NLB moved from R12 to R17 of UniversalSuite which took almost six months to complete. Read More

Conister Bank in core banking tech revamp with TCS – Conister Bank, a community bank in the Isle of Man, is modernising its core banking platform. The bank is replacing its legacy Bankmaster system, supplied by Finastra (formerly Misys). It is understood the new system is TCS Bancs from India-based TCS Financial Solutions. Read More

Janata Bank moves merged and acquired banks to Oracle FFS Flexcube – Nepal’s Janata Bank has moved new data from merged and acquired entities to the Oracle FSS Flexcube core banking system with the help of JMR Infotech. The data from the merged Triveni Bikas Bank and the  Siddhartha Development Bank were moved to Flexcube. Read More

Avaloq expands global leadership team – Chris Beukers has been appointed Regional Manager Asia Pacific, Tobias Unger has been appointed Regional Manager Switzerland and Liechtenstein, and Brian Hurdis has been appointed Chief Service Delivery Officer. Read More

TCS bags biggest-ever deal from Transamerica – TCS said it has bagged a deal worth more than USD 2 billion from the US insurance group Transamerica, marking its largest contract to date. The agreement is expected to lead to annual run-rate savings of about USD 70 million initially –growing to USD 100 million over time –for Transamerica. Read More

Eight US credit unions to move to FLEX core banking tech in 2018 – The credit unions that moved to FLEX in 2017 are: Members First, Caprock Federal, Honolulu Federal, Lubrizol Employees’,  Wellspring Federal, Coloramo Federal, Kings Peak, Parks Heritage Federal. Read More

Kreditech picks Mambu for expansion into India – Mambu has announced a deal with German company Kreditech, AI-based digital consumer lender, to support the lender’s entry into the Indian market in the first quarter this year 2018. Kreditech already has operations in Europe and Latin America. Read More

Lombard Risk agrees to Vermeg takeover offer – The board of UK-based banking and compliance software firm Lombard Risk has accepted a cash for shares offer from Dutch software firm Vermeg. Lombard Risk’s board has described the deal as “fair and reasonable”, recommending its shareholder to vote in favour of the takeover. Read More

Thomson Reuters goes live with MiFID II – The new services are part of Thomson Reuters commitment to providing a comprehensive suite of solutions to assist the financial services industry with ensuring ongoing compliance with MiFID II requirements. Read More

15 Jan

You may soon be able to bid with Bitcoin on eBay

Along with Bitcoin’s well-documented, meteoric rise from less than $1,000 at the start of the year to more than $16,000 today, the digital currency is making a surprising entrance into the mainstream financial world as well. Last weekend, Cboe Group launched its much-lauded futures contracts, and CME Group will follow them this weekend. These products have attracted a lot of attention, and it’s likely that they are just the beginning of speculative financial offerings related to cryptocurrencies.

Of course, Bitcoin’s founder Satoshi Nakamoto originally intended for Bitcoin to be a decentralised, P2P payment system that is impervious to national borders and is unassociated with large corporations. In short, Nakamoto envisioned a currency that, surprisingly enough, would allow people to buy stuff.

Ebay is harkening Nakamoto’s original intention as it considers accepting Bitcoin as payment on its online auctioning platform. According to various news sources, the conversation has extended to the highest levels of company management. In an interview with Yahoo Finance, eBay’s senior vice-president said they are “seriously considering” accepting Bitcoin as a payment medium.

Ebay boasts a market cap of more than $39 billion, and it enjoys name recognition as one of the most prolific online marketplaces in the world. It reaches more than 100 million shoppers each month, and Bitcoin’s integration into the platform would be a significant step toward mainstream integration of Bitcoin as a payment system.

If it can incorporate Bitcoin, eBay would join a short list of other companies that allow such payments at checkout. Online retailer Overstock and virtual travel agency Expedia are two of the most prominent companies to accept it as payment. Interestingly, for Overstock, this is, in part, an investment strategy. In an August earnings call, Overstock CEO Patrick Byrne acknowledged that the company’s board approved a plan to hold 50% of their received Bitcoin in an investment account.

Because its value is surging so quickly, it allows Overstock to achieve additional earnings from its appreciation. For Overstock, this is an opportunity, but for those wanting to use Bitcoin to buy things, it’s a hindrance.

Nobody wants to purchase a depreciating asset with a currency that’s appreciated more than 1,500% this year. In fact,  enthusiasts have an annual celebration for a poor Bitcoin investor who made this mistake.

On 22 May 2010, a now infamous developer, Laszlo Hanyecz, embarked on a mission to test Bitcoin’s usability. The man posted a request for two pizzas on a Bitcoin forum. He agreed to pay 10,000 Bitcoins for the pizzas and delivery. It worked, and his pizzas were delivered a short time later.

Hopefully, the pizzas were really good because those Bitcoins are now worth about $20 million. 22 May, now known as Bitcoin Pizza Day, is an annual recollection of the man’s plight, and it serves as a hilarious and unfortunate reminder that holders should act wisely when spending their digital tokens. It’s difficult to imagine many people risking a similar fate by purchasing a garage sale item on an eBay auction.

In a 2013 interview with The New York Times, Hanyecz did not express any regret for his purchase, noting that he sold the rest of his Bitcoin when it reached the then-impressive price of $1. “That was enough to get a new computer and a couple of new video cards…so I’d say I ended up on top,” Hanyecz told the NYT. As it surges toward $20,000 and some are predicting that it could hit $40,000 by the end of 2018, the reality is that Hanyecz could have attained a lot more.

Still, if mainstream retailers like eBay can successfully integrate Bitcoin and other cryptocurrencies into their payment systems, we might see an entirely digital currency that can serve as an investment asset, a speculative asset, and a usable currency. More developments are still needed, but the conversations are happening, and that’s pretty exciting.

Reuben Jackson, editorial contributor in New York

11 Jan

Bitcoin falls as one of the world’s biggest cryptocurrency markets readies a bill to ban trading

  • South Korea’s justice minister said that the country is preparing a bill that will ban all cryptocurrency trading
  • Park Sang-ki told reporters that there are “great concerns” regarding virtual currencies
  • Bitcoin tumbled more than 12 percent following Park’s remarks

 

South Korea’s justice minister said on Thursday that a bill is being prepared to ban all cryptocurrency trading in the country.

That news is a major development for the cryptocurrency space, as South Korea is one of the biggest markets for major coins like bitcoinand ethereum.

According to industry website CryptoCompare, more than 10 percent of ethereum is traded against the South Korean won — the second largest concentration in terms of fiat currencies behind the dollar. Meanwhile, 5 percent of all bitcoin are traded against the won.

 

“There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” Park Sang-ki said at a press conference, according to the ministry’s press office.

Bitcoin tumbled more than 12 percent following Park’s remarks, according to CoinDesk’s bitcoin price index that tracks prices from four exchanges. At 1:26 p.m. HK/SIN, the cryptocurrency price retraced some of its losses to trade at $13,547.7.

Park added that he couldn’t disclose more specific details about proposed shutdown of cryptocurrency trading exchanges in the country, adding that various government agencies would work together to implement several measures.

Reuters further reported that a press official said the proposed ban on cryptocurrency trading was announced after “enough discussion” with other government agencies including the nation’s finance ministry and financial regulators.

The news wire later added that once a bill is drafted, legislation for an outright ban of virtual coin trading will require a majority vote of the total 297 members of the National Assembly, a process that could take months — or even years.

Cryptocurrency trading in South Korea is very speculative and similar to gambling. Major cryptocurrencies like bitcoin and ethereum are priced significantly higher in the country’s exchanges than elsewhere in the world. For example, bitcoin traded at $17,169.65 per token at local exchange Bithumb, which was a 31 percent premium to the CoinDesk average price.

That difference in price is called a “kimchi premium” by many traders.

In fact, earlier this week, industry data provider CoinMarketCap tweeted that it would exclude some South Korean exchanges in price calculations due to the “extreme divergence in prices from the rest of the world” and for “limited arbitrage opportunity.” The exchanges that were removed from the price calculation included Bithumb, Korbit and Coinone.

Last month, the South Korean Financial Services Commission said it was prohibiting cryptocurrency exchanges from issuing new trading accounts. If an exchange does allow new accounts, the government has the ability to take action to either stop trading or shut the exchange down, the commission said in a statement.

The commission added that, since much of the cryptocurrency trading was being done anonymously, users must use their real names.

The government also indicated it would closely monitor banks and would “swiftly” step in to limit fund flows into cryptocurrencies if necessary.

Bitcoin exposed stocks in South Korea took a major hit after the announcement. Shares of Omnitel, which has a bitcoin remittance business, crashed 30 percent, Vidente shares tumbled 29.96 percent, Digital Optics fell 13.7 percent and KPM Tech was down 5.48 percent.

That news from the justice minister comes after the country’s largest cryptocurrency exchanges were raided by police and tax agencies this week for alleged tax evasion, people familiar with the investigation told Reuters.

 

 

09 Jan

Market Intel 8.Jan.2018

Market Intel

2017 was a record year for London and UK fintech investment – The UK is Europe’s leading country for global tech investors, with British tech firms attracting more funding than any other European country last year. London’s tech sector brought in the lion’s share of investment, with the capital’s tech firms raising a record ٠.45 billion. Read More

Banking sector continues to see robust growth in Oman – The banking sector in Oman continued to witness reasonable growth in both credit and deposits. The combined balance sheet of conventional and Islamic banks (other depository corporations), taken together, provides a complete overview of the financial intermediation. Read More

UAE serves as financial hub for the Middle East, says Dubai International Financial centre (DIFC) official – Raja Al Mazrouei, chief executive of the DIFC Fintech hive, says the UAE is taking a lead in the whole region by having the regulation, the funding, and the incubators for fintech. Read More

Largest fintech hub to open in Bahrain – According to consortium’s chairman , the hub would utilise its global network and integrated digital platform to help create an ecosystem where innovators and entrepreneurs can connect and collaborate with corporates, investors, regulators and other stakeholders. Read More

Sri Lanka’s central bank mulls rules for cloud computing, fintech – Sri Lanka’s central bank plans to introduce guidelines for the financial sector covering emerging technologies like cloud computing and ‘fintech’or financial technology, Central Bank Governor Indrajit Coomaraswamy said. Read More

EBL launches Bangladesh’s first AI-based banking chatbot – Eastern Bank Ltd (EBL) has become the first bank in Bangladesh to launch an artificial intelligence (AI) based chatbot. EBL’s Digital Interactive Agent (DIA) will communicate with customers via Facebook Messenger. Read More

Jordan Ahli Bank has become the first bank in Jordan to introduce a chatbot service – Rami Al-Karmi, chief innovation officer at the bank and CEO of Ahli FinTech (and also “Master Jedi”, according to his LinkedIn profile), is inviting users to test the bot and provide feedback. Read More

Client/Prospect Intel

Mashreq Bank Receives Nine Awards From Global Finance in London – Mashreq Bank, the UAE’s leading financial institution was presented with nine awards at the Digital Bank Conference and Awards dinner hosted by Global Finance magazine in London, England. Read More

UK challenger banks: who’s who (and what’s their tech) (Updated) – With so many new entrants trying to muscle into the UK banking sector, there is a comprehensive list of the known challengers to date and the technology they are using. Read More

Wall Street Systems takes European Central Bank (ECB) to court over tech deal with rival Openlink – Wall Street Systems, a long-standing supplier of its Wallstreet Suite treasury management software (TMS) to the ECB, filed a lawsuit in response to the bank’s decision to sign a new deal with another TMS provider, Openlink. Read More

Competition Intel

LuLu Exchange tackles AML with Fiserv tech stack – Fiserv announced that LuLu Exchange, which provides cross-border remittance, currency exchange and other financial services for consumers and businesses, has selected Fiserv to enhance its financial crime prevention capabilities and enable its expansion into new markets. Read More

Sopra Steria Plans to Acquire German Firm BLUECARAT – Sopra Steria plans to acquire 100% of the share capital of BLUECARAT, a German firm providing strategic IT Consulting, Agility, Cyber/IT Security and API Management. This proposed acquisition would strengthen Sopra Steria’s position in the German market. Read More

Natixis Chooses Guidewire Core and Digital Products – Natixis Assurances has selected Guidewire ClaimCenter®as its platform for claims management. The insurer has also chosen the Guidewire Digital application, CustomerEngage Account Management, to boost the digital experience of its customers. Read More

Symitar, Member Driven Technologies Expand Core Processing Partnership – Jack Henry & Associates’ Symitar®division announced the expansion of its partnership with Member Driven Technologies (MDT), a credit union service organization (CUSO). MDT provides credit unions with a private cloud alternative for core processing and IT needs. Read More

Motor City Community Credit Union in core banking tech revamp with Fiserv and Celero – Canada-based Motor City Community Credit Union (MCCCU) has signed to implement the DNA core banking platform from Fiserv. Fiserv’s local partner, Celero, will coordinate the migration to the new system. Read More

State Bank of Pakistan completes major core banking tech upgrade – State Bank of Pakistan (SBP), the country’s central bank and regulator, has completed a major upgrade of its core banking software. The bank moved its currency and banking systems from Temenos’legacy platform Globus G11 to T24 R15. Read More

 

07 Jan

Banks don’t trust anyone, and it’s expensive. Blockchain and DLT can change that

Banks don’t trust anyone, and it’s expensive. Blockchain and DLT can change that

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IT security guy turned entrepreneur. Passionate about seamless integration of technology into everyday life. Love travel and meeting new people. Found Powerdata2go in 2016. Twitter @Antony_PD2G You can create a community post just like Antony here.

Antony is a star contributor for Tech in Asia and publishes exclusive, high-value content that serves the Asian tech community. Read more from star contributors here.

While most people think banks are stable and trusted, they actually operate based on a zero-trust assumption (or simply trust no one). Every employee is constantly under check and control (there have been too many stories of insider hacks, misuse of customer money, and money laundering).

Regulators like MAS or HKMA enforce multi-layer risk control mechanisms, generally known as the three lines of defense. The first line is the process owner or the department manager who executes each transaction and follows bank policies. The second is a centralized or independent risk management department. Risk managers do not execute daily operations but oversee the overall operating environment and set risk parameters, operating procedures, and advise first-line managers on risk mitigation strategies.

The third line is what I was doing—risk assurance. Auditors verify high-risk transactions and give their independent opinion to the board.

All three parties and numerous checks and control build a strong risk management mechanism internal to the bank. There are two other layers external to the bank that ensure critical risk controls are not circumvented: third-party independent auditors (PWC, EY, etc.) and financial regulators.

So, one customer transaction at a bank branch could have five different teams reviewing it (line managers, risk managers, internal auditors, external auditors, and regulators). This explains why there are so many transaction records, signatures, approvals, and a huge paper trail when you simply deposit US$100 in your personal account.

Running a zero-trust organization is costly and inefficient, and internet banking doesn’t solve this crucial and fundamental problem (in some cases, it even amplifies distrust). But blockchain, when taken together with distributed ledger technology (DLT), can. This sets the backdrop for my second post on why blockchain matters.

Trusted system

The problem blockchain is trying to solve is how to run a trusted system with trustless people. (Note: I’m not implying that people are trustless or that we live in a trustless world, but a rotten apple spoils the bunch.)

To be more precise, a trusted system refers to a transactional system that produces results according to a rule book. It’s not always legal (i.e. in compliance with the law), but it has to be resilient and stable/predictable. A trusted system gives a consistent truth that can be verified without relying on another system.

Transactions in a trusted system can’t be repudiated—which depends on record immutability—and are irrevocable. However, immutability in software before DLT was vulnerable because of the human factor (e.g. system administrator misconducts). System administrators had all-access rights and were able to alter system parameters.

But a system can only be as good as the people running them in terms of their trustworthiness, diligence, and capabilities. A few malicious or careless human actors can circumvent all advanced security controls. They are the Achilles heel of a secure system.

Immutability alone does not produce a trusted system; it has to decouple from the operating team. Humans, with souls and feelings, are just too erratic to produce consistent and predictable results.

Blockchain and DLT

Blockchain and DLT together eliminate the vulnerability of human interference, as a system built with both technologies can operate without having to trust system administrators.

DLT solves this administrator problem with a decentralized and consensus approach. A DLT network or infrastructure is still run by people but not by one person or team (like employees receiving paychecks from the same boss). “Distributed” means the software is running on multiple independent operating systems by total strangers without any filtering or selection. Anyone with a computer and a network connection can join and contribute to the DLT—no registration, financial deposit, or ID verification needed.

There is also no hierarchy of users in a DLT system, no super-administrators or privileged accounts that can delete transactions in the system. Each transaction must be endorsed by other users. The system follows self-governance according to the rules defined by the software developers.

But how can hundreds of trustless people achieve self-governance and build a trusted system together?

Game theory

Let us simplify the above question by using a story.

A group of students were on a weekend camping trip. They returned late and missed a midterm exam. The students told the professor that they couldn’t come back on time because they had a flat tire. So, the professor said she would give them an extension if they could give the same answer (without consultation) to one question: Which tire?

In this situation, the students have a common goal to answer the question correctly and share the same benefit. Each of them plays the same role—there are no leaders or people with a privilege to answer twice. If all students cooperate and give the same answer, everyone gets a second chance to take the midterm exam (the reward). 

Without a central body and coordination, the students do not need any external enforcement, as it is in their self-interest to work together. In game theory, this is a self-enforcing agreement.

In his talk at the Taipei Ethereum Meetup, Ethereum co-founder Vitalik Buterin said that economic incentives “encourage desired properties to hold into the future.” This means that economic incentives entice each user to behave in a predictable way. Users in a DLT network share the same economic incentive if the DLT is secure and trusted, making each of them act independently and rationally to protect their own benefits.

This economic incentive can exist in many forms: monetary, reputation, etc. In bitcoin, for example, the incentive is generating new coins. Users of the bitcoin DLT are rewarded with a new coin when they fulfill their duty by validating that bitcoin transactions are executed following the bitcoin protocol. The reason new bitcoins are rewarded to users is to encourage them to follow this protocol. (Note: More on this at the bottom of the article.)

Mathematical formulas and cryptography ensure that what happens cannot be altered (immutability), and rewards via the “proof of work” protocol (in bitcoin) ensures the same behavior will be followed by users in the future. Once the system starts, there is no need for central administration.

Drawbacks and risks

Now, we have a system that is traceable and predictable, governed by each user in the system with equal responsibility. Since it is not dependent on human intervention, employing a third party to do independent reviews does not provide additional assurance.

When bank transactions run a blockchain and DLT system, the three lines of defense described at the beginning of this article are no longer necessary. Users trust that the transactions are executed securely, and not because of bank employees, auditors, or even regulators like HKMA or MAS.

But there are also risks in using blockchain and DLT.

Consider the flat tire example again. What happens if there were only two students riding on a motorcycle? There are only four possible permutations and a 50 percent chance that both students will guess the same answer and get another chance to take the exam.

The four possible answers are:

  1. Student A answers front wheel, student B answers front wheel. (Pass)
  2. Student A answers front wheel, student B answers rear wheel. (Fail)
  3. Student A answers rear wheel, student B answers front wheel. (Fail)
  4. Student A answers rear wheel, student B answers rear wheel.  (Pass)

It’s not wise for the professor to use the same test. In the case of bitcoin, what happens if only two computers are running the bitcoin protocol? Even though they are independent, it is possible that they make the same error.

One crucial property of DLT is decentralization, which becomes vulnerable if there are only a few independent participants. The risks associated with blockchain and DLT are totally different from the traditional risks of confidentiality, integrity, and availability.

***

Blockchain creates record immutability (past records are safe) and DLT protects immutability from human interference. Game theory enforces the DLT rules by appealing to the self-interest of each individual user (future records are highly likely to be safe).

With these together, we can build a trusted system with decentralized cryptography without relying on third-party auditing. Trust is moved from the auditors to the software infrastructures (one reason why I’m not an auditor anymore).

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