This week, we'd like to share some recent developments from our end. We recently added two venture partners as part of our efforts to strengthen our expertise, skills, and network.
We are thrilled to welcome Jessica Liu, co-founder of Hong Kong based Fintech company Planto and board member of the Fintech Association of Hong Kong (“FTAHK”), as a Venture Partner. In addition, we would like to introduce you to another Venture Partner, Yihan Wang.
Jessica Liu
In both the B2C and B2B spaces, Jessica has spearheaded Fintech developments. As an entrepreneur and a startup mentor, she is actively engaged in various startup and Fintech ecosystems, including Cyberport, the Fintech Association of Hong Kong and SheLovesTech. Having built up a business from zero to one, the Planto team is a profitable startup that is growing more than 50% annually. Our portfolio companies will benefit from Jessica's expertise, including business idea validation, product-market fit, and go-to-market strategies. With her network and experience, Jessica will work with QIDS Venture Partners in bringing more insights into how technology can accelerate the evolution of the Asian financial services industry, as well as their impact on businesses and individuals.
Yihan Wang
Yihan has been for many years working in the development of Fintech products, including applications utilising Artificial Intelligence in both traditional and web3 finance. Yihan is proficient at using machine learning techniques to build Fintech applications, such as investment portfolio risk monitoring system and recommendation engine with curated financial news tailored to individual’s needs and preference. Working with multiple startups, she has hands-on experience in product development, i.e. the entire process from product planning, design, testing, deployment to maintenance. Yihan’s expertise and experience will provide us with a a technical perspective on the adoption of emerging technologies by financial institutions.
QIDS Venture Partners is dedicated to supporting and catalysing the developments in Fintech by sharing with our audience Fintech trends and interesting Fintech business ideas. You may forward this article to other investors who are interested in Fintech as well. If you need more information or would like to arrange a meeting with us, please feel free to contact our Managing Partner Edward Shen via LinkedIn or email.
We hope you enjoyed last week's article on the future of payments, part one of a two-part series.
Following our discussion last week about ISO 20022 adoption and non-cash transactions, we will discuss this week:
Real-time payments,
Distributed ledger technology, and
Digital identity and cybersecurity.
You may view the full article on QIDS Venture Partners’ blog.
Real-Time Payments
The processing of payments used to be slow and inefficient, and banks took it for granted. The growth of Fintech and merchant demands for faster settlements have resulted in tremendous growth for Real-Time Payments ("RTP"), with the global market valued at US$13.5 billion in 2021, according to Grand View Research. Furthermore, with a CAGR of 34.9%, revenues are predicted to reach US$193 billion in 2030.
The retail & e-commerce segment is driving the adoption of RTP solutions and accounted for 34.5% of transaction volume in 2021. RTP becomes a strategic imperative for payments market players as it will allow retailers, embracing RTP solutions, to have a competitive edge. Banking, Financial Services and Insurance (“BFSI”) is the second largest segment in the global RTP payments market. Furthermore, cutting-edge technology like blockchain will significantly expand RTP's use cases, including insurance disbursements and cross-border transactions.
RTP payments are most popular in Asia Pacific, accounting for 40% of global transaction volume. This region will also grow at the fastest CAGR in the coming years with the further digitization of business operations by large-scale businesses and small and medium businesses.
Distributed Ledger Technology
Although blockchains and distributed ledgers are often used interchangeably, they differ in subtle ways. A distributed ledger is a record of consensus with a cryptographic audit trail that is maintained and validated by several different nodes. It can be centralized or decentralized. A blockchain is a means of implementing a distributed ledger, but not every distributed ledger uses a blockchain.
There is no doubt that distributed ledger technology ("DLT") will have a significant impact on payments. Using encrypted distributed ledgers, DLT can facilitate fast, secure, and low-cost international payment processing. It will result in many advantages, such as transparency, safe and fast cross-border payments, automation with smart contracts, and the elimination of intermediaries. DLT could emerge as banks’ back-end automation alternative with its features and advantages. Furthermore, DLT has multiple use cases in payments, such as peer-to-peer and cross-border transfers, digital identity verification, trade finance, and central bank digital currencies.
Boosted by the pandemic, digital payments are being adopted at a rapid rate, including DLT-based payment systems. Businesses are under increasing pressure to offer a number of new payment methods, including cryptocurrency. Furthermore, major card networks are planning to offer crypto payment options to customers, merchants, and businesses, and some banks have already launched their own crypto-based peer-to-peer (“P2P”) networks.
The global business-to-business (“B2B”) cross-border payments market is expected to reach US$35 trillion in 2022. It's highly fragmented with low transparency and many intermediaries, and B2B payments are known for their slow, paper-based processes. Its ability to automate via smart contracts, as well as its features like speed, transparency, and efficiency, make DLT technology a pivotal innovation.
The volatility in crypto prices has led to the emergence of stable coins pegged to a dominant fiat currency. Stable coins have gained popularity, especially in the B2B segment, where blockchain-based payments and instant settlement can be delivered efficiently while managing volatility. There are several major players trying to develop stable coin-based closed loop ecosystems - examples include Diem by Facebook and USDC and Tether.
The unregulated growth of digital currencies and stable coins prompted central banks across the globe to conceptualize and design central bank digital currencies ("CBDCs") that provide resilience, safety, and lower costs than private forms of digital money. According to the central banks, CBDC can combine the best of both worlds, i.e. improve the current fiat-based monetary system and provide a safer and more stable environment than the current crypto-based systems.
The People's Bank of China ("PBOC") is a fast mover and has announced it will expand its CBDC trial into Guangdong, Jiangsu, Hebei, and Sichuan. The adoption of China’s CDBC, also known as e-CNY, is considered the key initiative to internationalize Renminbi. In Europe, the European Central Bank ("ECB") is actively developing the digital euro. It plans to have an initial prototype ready in Q1 2023 to test various functionalities, the role of intermediaries, and the settlement model.
Digital Identity and Cybersecurity
Payments markets are experiencing a paradigm shift toward digitization that makes digital identity essential for facilitating digital payments. In order to authenticate transactions, human-centric digital identity technology is required to manage risk and build trust. To prevent misuse and fraud, a major challenge is to protect biometric data like fingerprints, eye scans, 3D face maps, etc., and personal information, such as date of birth.
In light of the growing use of personal data and the need for stricter data privacy regulations, cybersecurity is critical for building customer trust and preventing potential disruptions in business operations. Further, the adoption of cloud-based solutions and blockchain technology has made cybersecurity the highest priority. The safety of internet-based banking and new digital payments has become the foremost priority for banks and payments service providers.
Conclusion
While financial institutions, businesses, and customers continue to innovate, regulators must keep pace with the market to protect consumers and businesses. It is very important, that innovation and regulation are evolving at the same speed. As a business is being built, standardization and clarity are required regarding everything from accessibility to interoperability. There are often regulatory challenges associated with digital payments, not only locally, but also globally, as many transactions involve cross-border activities. However, those challenges drive innovation and will continue to drive the growth of the Payments Industry for years to come.
QIDS Venture Partners is dedicated to supporting and catalysing the developments in Fintech by sharing with our audience Fintech trends and interesting Fintech business ideas. You may forward this article to other investors who are interested in Fintech as well. If you need more information or would like to arrange a meeting with us, please feel free to contact our Managing Partner Edward Shen via LinkedIn or email.
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