white paper from Erlang Solutions
White paper from Erlang Solutions

Web 3.0 is an all-encompassing term that covers cryptocurrencies, smart contract computing, decentralised hardware, title loans, IoT, Non-Fungible Tokens, DeFi and maybe the most buzzwordy of them all — ‘the Metaverse’. Decentralisation is key to what Web 3.0 is about, along with open source transparency and distributed computing. The impact of this internet economy evolution is an unquestionable future reality. Just look at blockchain based NFTs, where a recent boom in sales has catapulted the nascent market value to $7 billion, according to JPMorgan.

Blockchain’s potential

The spotlight is growing on distributed ledger technology, or blockchain, along with artificial
intelligence (AI), as we look to the recovery phase of the pandemic.

Priya Guliani is the UK President for Government Blockchain Association (GBA): “The arrival of blockchain technology has brought unprecedented disruption to financial services.
I believe its application can account for far more than just transparent transactions. It can pave the way for a fully democratized financial landscape, providing a more seamless and effective alternative to banking, built around the ideas of fairness and decentralization,
making it possible for individuals to manage their wealth without the middlemen or major institutions themselves.”

We spoke with Lex Sokolin, Global Fintech Co-Head and Head Economist at ConsenSys the Ethereum software company: “Blockchain infrastructure is now being used for meaningful smart contract computation and value transfer and exchange across the economy.”

Of course, caution does remain, with questions around sustainability, regulation, scalability and interoperability, but overall the signs of forward momentum are encouraging.

Digital currency adoption

The rise of cryptocurrencies and blockchain technology has brought about new possibilities in the use of money as well as exciting new forms of digital assets and markets. Aside from cryptocurrency and stablecoins, central bank issued digital currencies or CBDCs are one of the most interesting innovations in this area. They are seen as expediting and increasing the security of payments between banks, institutions and individuals.

We spoke to Richard Truin, the best-selling fintech author of of “Cashless – China’s Digital Currency Revolution”, who is well placed to observe first hand how CBDCs will take off: “Digital payment is already part of Chinese people’s lives, and revised the status of banks to “dumb pipes” — simple conduits rather than ”revered institutional gatekeepers — a serious cause for concern in the industry.”

“Ready or not, CBDCs are coming. With China and India launching CBDCs a full 37% of the world’s population will have access to CBDCs in the next 3 years. This is a fundamental change of paradigm for which Western banks seem woefully unprepared.

Despite the growing calls for cashless societies, CBDCs aren’t necessarily going to be a replacement for cash just yet. Although the market is far too nascent to confidently predict outcomes, those involved in the payments ecosystem should take steps to position themselves for the inevitable changes on the horizon.

Artificial intelligence in fintech

Artificial Intelligence (AI) and machine learning have the potential to advance financial services more than any other emerging technology. With AI companies can better mitigate risk, optimise portfolios, combat financial crime, deliver personalised customer experiences and more. The key strength of AI is that it allows companies to analyse large blocks of data
and make genuinely informed decisions.

Jim Marous, global speaker, podcast host and co-publisher at The Financial Brand: “AI and applied analytics will facilitate customer access to financial tools, advice, and embedded solutions that can improve trust and differentiate a brand by empowering the customer to partner on their financial wellness journey. This level of sharing will also assist in protecting the customers’ privacy and security.”

Eran Stiller Lead Software Architect: “A crucial part of regulating AI will be ensuring that the data used to derive the algorithm is valid. Consequently, I predict that data quality and reliability will be a topic of growing concern with most, if not all, tech companies. Like we test our code, we should test and validate our data and ensure that it behaves as we expect it to”.

Embedded finance’s continued growth

It took a while, but banking without banks is becoming a reality through the phenomenon of embedded finance — also known as contextual finance or banking. Digital natives’ ability to embed financial services into their platforms has accelerated the drift of customers from
incumbents who no longer necessarily know their customers better than the competition.

We spoke with Dr. Efi Pylarinou, the influential global fintech commentator, on the shape of embedded finance: ”It has taken two forms in the market. One through existing financial services providers growing their stack of services via fintech Saas providers.

The other form is non-financial companies now offering financial services. For example, Apple in the US is offering its own credit card, Tesla is offering insurance, and Shopify is offering business banking.”

Bill Gates said in 1994 “Banking is necessary, banks are not.”

Paolo Sironi Banking at IBM Consulting and Bestselling Author: “Ultimately, it is the
opportunity to eliminate the friction in user interactions that makes banking contextualised
to become embedded and unlock ‘new’ value.”

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