DLT, CBDC, and crypto highlights from Money 20/20

‘A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again’, Jeff Bezos 

Bitcoin prices are down, again. For the last month, there has been a crypto carnage in the markets, and if this phase continues, it risks undermining the longer-term promise blockchains and DLTs have to offer the broader payments system.

So far, the conversation about ‘crypto’ in financial services has focused mostly on risk, on supporting illegal activities and its lack of sustainability, not benefit; or it is so often about price, not about long-term value. As a result, there is a risk of business pulling back and the regulators and central banks trying to limit, rather than foster crypto’s potential. According to payment experts, if this happens, the investors in tomorrow’s crypto and blockchain technology could lose interest, risking innovation in the wider payments industry. Maybe it is time for a more balanced view.

Almost two weeks have passed since Money 20/20 happened, nevertheless conversations and ideas that Money20/20 Europe sparked remain with us for a long time. During the event, we heard a lot about cryptocurrencies, stablecoins, Bitcoin, CBDCs, digital euro, the metaverse, and web 3.0. In the current context of crypto companies getting ready for a crypto winter, we asked some of the Money 20/20 speakers and attendees to dig into what role crypto will play in the future of finance and commerce.

While the market looks tough right now, Peter Smith, CEO of Blockchain.com agrees that ‘there is not a better time than to be building. You have to zoom out and think about the progress of technology and innovation and where we will all be in 3-5 years.’ Thus, we need to adopt the builder’s mindset, not the investor’s, to seize the opportunities of the technological innovation behind blockchains and DLTs that they offer in terms of improving and democratising the payments industry.

Let’s remember why crypto appeared and later boomed in the first place:

• because it didn’t require users to hand over identifying information each time they use it – i.e., enabled data privacy;

• equalled universal money that doesn’t have to be exchanged at every border – i.e., faster and cheaper transactions;

• promised the fairness of a currency that even the poorest people in the world can keep in a digital account without paying hefty fees, rather than relying on cash – i.e., boosted cashless payments (so much in demand during and post COVID pandemic);

• enabled micropayments and programmable money.

These are all good reasons to continue pursuing some of Bitcoin’s initial goals.

Blockchain applications go far beyond cryptocurrency and Bitcoin. With its ability to create more transparency and fairness while also saving businesses time and money, the technology is impacting a variety of sectors from how contracts are enforced to making government work more efficiently. Mariana Gomez de la Villa, Centre Expertise Lead - Distributed Ledger Technology, ING, names some DLT with many opportunities for banks, such as asset composition traceability, plus boosted payments reconciliation and reporting. For instance, when you have a security, and you want to know what composes that security (what baskets) you can use distributed ledger for that. The same feature can be applied to fractional ownership.

For merchants, digital currency payments can reduce transaction fees and could improve fraud risk detection, as well as offer an additional source of data thanks to the use of the blockchain. This rich data can provide new and deeper insights into who their customers are and how they behave. If you connect these types of payments with the latest developments in the digital space, such as NFTs, many crypto and NFT experts (Cuy Sheffield, Visa, Antony Welfare from Ripple) recognise their potential in ecommerce, provenance/ensuring the authenticity of products, real estate, media & entertainment rights, as well as carbon credits.

‘The ultimate goal of blockchain’, according to Helen Hai, Head of fiat business, NFT, Fan Token and charity, Binance, ‘is the free transfer of value […] it is very important for all of us to understand decentralisation and what is the real distribution model of profit (for all participants in the digital economy), to avoid making the same mistake we’ve made in the last 30 years.’

Still, there is a need for clear regulation and a lot of market participants’ education and protection, to make blockchain-based payments a reality. ‘Crypto should be seen as an asset class and customers should be educated towards what it stands for – you have young people losing money’, according to Valentin Stalf, CEO, N26.

As ’crypto has been used by fraudsters’, Anne Boden, Founder and CEO, Starling Bank says that ‘in countries that you have payment schemes that are real-time, you find that customers are being scammed, with scammers sending the money to crypto wallets’. During an interview, she complained that the bank is spending ‘far more of our time protecting our customers from these scammers than we are promoting crypto’. But she is optimistic about it, as ‘this will move on, and in a couple of years I will be telling you about a much more Starling involved in this space’.

Whether you are a payment company or a tech company the main risk when processing crypto transactions is dealing with money launderers; that is why Charles Delingpole, Founder and CEO at ComplyAdvantage advises them to ‘always have to understand who you are dealing with. Lots of firms don’t have licences or are not allowed to operate in different jurisdictions because of the risks there’.

The longer-term potential for blockchain and digital currency-based payments remains. Marjan Delatinne, Managing Director - Payments at SETL helped us draw one of the event’s conclusions that the ‘tokenised economy is unstoppable’. The metaverse and web 3.0 are no longer niche topics, and with many institutions joining this trend, they create pressure on regulators to look beyond. For instance, banking giant Goldman Sachs released its annual insurance survey, where cryptocurrency was included for the first time.

Despite all the turmoil, no one can deny crypto’s potential to solve payment needs such as reconciliation, chargeback guarantees, risk management, fraud prevention, the cost of cross-border payments, and government regulation. There is a huge amount of ongoing payments technology innovation happening away from areas where crypto is seen as primarily a speculative digital asset.

About Mirela Ciobanu

Mirela Ciobanu is a Senior Editor at The Paypers and has been actively involved in drafting industry reports, carrying out interviews, and writing about innovation in payments and fintech. She is passionate about finding the latest news on AI, crypto, blockchain, DeFi and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor’s degree in English language and holds a master’s degree in Marketing. She can be reached at mirelac@thepaypers.com or via LinkedIn.