Keynote

The Intersection of Crypto and Open Banking

A sweet spot of opportunity to build Scotland's FinTech sector is the intersection of Open Banking with Cryptocurrencies.

A headline theme for building Scotland into a world leading digital nation is the development of it’s ‘cryptocurrency ecosystem’.

This refers not only to the adoption of cryptocurrencies like Bitcoin, but also the development of the new ventures and products that build upon it to achieve innovative new business models.

The basic concept is eloquently explained by Anthony Pompliano.

In this discussion, from 9m:50s, he describes a tiered financial system that builds upon gold as the foundation asset at level one, the issuing of cash money based on its value at level two, and then an increasing sophistication of electronic use of money at levels three and above.

He states that the cryptocurrency world is in the process of creating an equivalent system, where Bitcoin functions as the level one asset, aka “digital gold”, and we’ll see a comparable services ecosystem build upon it through layers two and above.

Vendor technologies like Hiro demonstrate a great example of this effect, providing the tools to build upon this layer with new applications, with major market innovations like Mastercard planning to build upon CBDCs, like launching like a crypto rewards card, a great example of a level three service.

In China they are already active and the competitive repercussions are becoming evident. As the Cointelegraph reports the banks are promoting the CBDC, the ‘digital yuan’, over the incumbent payment providers like Alipay and WeChat Pay. JD.com has started paying staff in the digital yuan.

Open Banking

As we consider the dynamics of building a Scottish crypto ecosystem a key industry trend to factor in is Open Banking. This centres around the integration of banking services via open APIs and the building of a marketplace of value add services that leverage this interface.

Matthew Enubuje provides a helpful overview of where the two sectors overlap, and the potential for their synergy.

He makes the key point that reflects the insights described by Anthony Pompliano, that where the Blockchain industry has excelled at the level one core digital asset infrastructure, they haven’t been as progressive in terms of developing the higher layer of interconnecting, value adding apps. Open Banking has.

The advantages of crypto over Open Banking are mainly those to do with circumventing the banking system and the technological features of the Blockchain – The decentralized control of assets by users themselves not banks, and the transparent integrity of the transactions.

He describes the opportunity for the crypto industry being to basically expand to the higher levels of the ecosystem introduced in this article, citing examples such as Nexo, a crypto lending platform with no credit checks and instant credit lines, and where their revenue comes from their 5.9% interest on loans.

This adds equity to their crypto as it can be used to get a loan and by users holding it for long periods, they receive 30% dividends and this offsets the demand to supply ratio.

Matthew suggests a few other examples of this ecosystem, such as Helium, a crypto company distributing hotspot devices and people earn their crypto when they use it, and the mobile app Emma — it lets you connect to your bank accounts and crypto exchanges.

The killer innovation central to both trends is interoperability. Open Banking is achieved through API-based data flow between banks and apps, and for crypto cross-chain integration is the holy grail of its next major phase of evolution. The CoinTelegraph explores this in detail here, with major innovations setting out to address the challenge including Cosmos.

Zumo – Modules for an Embedded Finance Super App

Scotland’s startups making possible this type of service are thus the essential foundation, highlighting ventures like Zumo, who have launched innovations like a virtual payment card. To the point of this article what’s really key is their Developers SDK.

Accepting payments is just the building block, as highlighted above the real secret sauce for what will be of great value to SMEs is the increasingly sophisticated functionality that builds upon this, in a way that truly supports and enables the growth of their business, such as a loyalty rewards scheme for example. Zumo’s SDK would enable other digital entrepreneurs to create these types of solutions.

Speaking at FinTech Week London Eddie Robb, Zumo’s Commercial Director, explains that all the modules they have developed for their successful direct to consumer crypto trading app are available via the developer kit, meaning that other financial organizations could integrate their crypto services into their own offering, such as remittances and cross-border payments among others.

This would mean Zumo is ideal for being a component part of a strategy to build a mobile ‘super app’ for Embedded Finance.

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