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Can virtual banks accelerate initiatives toward cashless and smart nations? | Elevate Ventures

In2014, Singapore launched its Smart City initiative, and one of the tenets was to establish a cashless nation — the ideal being that people and businesses can simply go about with their transactions without physical cash ever having to change hands.

Efforts toward “cashless nation” accelerated in 2018 when technologies like near-field communication, QR-code scanning, and tap-to-pay started to become popular.

Cashless transactions are not exactly a new technology — the precursor of course had been credit cards and debit cards. However, today, technology is enabling innovations in finance that go beyond banking — decentralized finance, peer to peer transactions, near instantaneous cross-border payments, and the like.

Innovations in finance

An offshoot of the digital nation initiatives are innovations in finance — particularly with fintech startups. These platforms are providing financial services that go beyond traditional banking.

Credit- and debit-card transactions have become a norm in developed economies, with high card penetration rates. The incumbent popularity of cards have made it inconvenient for users to switch paradigms when it comes to making digital payments.

However, users in emerging economies — such as those in Southeast Asia, Africa, and Latin America — offer an encouraging opportunity for fintech platforms. It is in these countries where mobile payments and other digital modes of transacting have become primarily popular. In China, for example, Alipay and WeChat are popular means of transacting. Such mobile services are providing a means to serve the underbanked and unbanked.

Another example is the concept of virtual banking, which are essentially banks that do not have the traditional branch infrastructure. Also known as a “direct bank”, these institutions offer services remotely through online banking and mobile transactions. By doing away with physical infrastructure, there is significant reduction in overhead costs. An offshoot of this is the potential to extend financial services beyond borders— something that will take time for traditional banks to establish.

Speaking about banking infrastructure, Amar Shah, Director at Namana Investments (HK) Ltd. and former Managing Director at Morgan Stanley HK, highlights the advantages: “Most of the traditional banks have clunky infrastructure. This is not just in tech, but also physical infrastructure — they have branches, and they require office space. With virtual banks, we should start to see more efficient lending models. Hopefully this leads to more micro-finance and micro-lending. This will be key in propelling the rest of the business community toward better efficiency.”

To illustrate a use case for virtual banking, we can point to the Greater Bay Area initiative, which brings together 11 cities across China, Hong Kong and Macau, into a hub for finance, business, culture, education, and industry in general. The region has a population of almost 70 million across approximately 55,000 square kilometers — significantly larger than other major tech hubs across the world, like Silicon Valley.

Integrating regulatory and compliance services

One challenge that needs to be addressed here is how to integrate regulatory and compliance services into virtual banking, given the differences in financial jurisdiction across the GBA’s different locations.

“One of the biggest concerns faced by banks is compliance.”

“One of the biggest concerns faced by banks is compliance,” says Shah. “Post 2007 financial crisis, there had been a lot of checks and regulations put in place, and big financial institutions had to beef up their compliance departments. As for the KYC process, there has been a lot of manual processes involved, and data stored in centralized servers.”

Integrating the Know-Your-Customer or KYC process into financial services is already an established need. But with such a big geographic area and diverse economic and financial systems, there is a need for efficiency in this matter. There is also the need to overcome another challenge, which is data privacy amidst the rise of privacy frameworks such as the European GDPR and California’s latest CCPA.

In China, the closest regulatory framework that protects privacy are the Cybersecurity Law and the Personal Information Security Specification, which regulates the collection, storage, use, sharing, transfer, and disclosure of personal information. In particular, it provides guidance on compliance with relation to processing such information.

“With e-KYC, verification is reduced to a few hours.”

Hans Lombardo, Co-Founder and Chief Marketing Officer at KYC-as-a-service company Blockpass, weighs in on how decentralized KYC can significantly make compliance easier for businesses that have operations that cross borders.

“With e-KYC, verification is reduced to a few hours. This means you can open a virtual bank account much faster, as compared to a traditional bank, in which KYC would take a week for individuals or up to a month for corporate accounts.”

Such a decentralized approach also provides for better data control ownership for users — no central institution actually owns or stores the identity data. Users only share their data to financial institutions on an as-need basis. This approach also addresses the question of data sovereignty — something that may be a concern for users, businesses, or regulators in certain jurisdiction.

“Instead of allowing companies in the US for example to store data on their users, a decentralized platform lets users keep their data on their devices and only share what they want to share on a case-to-case basis. With an on-chain verification procedure, a user can still remain anonymous, but can be verified using KYC,” Lombardo adds.

This goes beyond individual banking activities. KYC can also be an integral component of due diligence for businesses that are into investing and fundraising. Shah cites how decentralized crowdfunding can benefit from such an approach.

“At the height of the popularity of crowdfunding, we did not have control over who was raising money or the companies behind them. Now, you have another layer of filtering — someone to do the KYC on investors.”

Trends in virtual banking

One interesting trend in the virtual banking industry is in how some virtual banks have traditional banking institutions backing them. Of Hong Kong’s eight institutions granted virtual banking licenses in 2019, four are backed by traditional banks or non-bank financial institutions.

Essentially, banks that already have the infrastructure are applying for virtual banking licenses in order to more quickly expand their operations beyond their traditional scope and coverage. A diverse region such as the Greater Bay Area will be a good testbed that can determine the success of such a decentralized approach. This can then perhaps be duplicated in other diverse regions, such as Southeast Asia for instance.

There is still room for growth in the virtual banking sector. In Hong Kong, a survey by KPMG expects virtual banking customers to be in the tens of thousands by the end of 2020 — the first year after the HK Monetary Authority started granting virtual banking licenses in 2019. However, this will only account for 2–3 percent of deposits.

To conclude, what’s sure at this point is that virtual banks “will be a major driver of change and improve competition in the sector, forcing traditional banks to innovate and improve their service offering,” as KPMG’s The Future of Banking 2019 report puts it. “This will all be for the benefit of the customer, who stand to be the real winners.”

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Elevate interviews experts in technology to gain their insights, with the goal of sharing knowledge with the community. Please get in touch with us to contribute, engage our experts, or become part of our network.

Hans Lombardo is a successful entrepreneur and enthusiastic proponent of blockchain technologies. He is a co-founder of Blockpass, a self-sovereign identity system and KYC-as-a-service provider. He is also a co-founder of Chain of Things, a Hong Kong-based startup integrating blockchain & IoT devices. In 2012, he sold his previous company, a data collection and analytics research firm focused on mainland Chinese high-technology industries. He is an Internet industry veteran with regional management experience. During the Internet boom, Hans managed the internet.com Venture Capital Fund in Asia, investing in a number of Internet startups in Greater China. As a tech journalist in the late 1990s, he interviewed Jack Ma, Jerry Yang, Vinton Cerf and Richard Li Tzar Kai. Hans earned a Ph.D. degree from the University of Hong Kong in 1997 and a Sir Edward Youde Memorial Fellowship in 1995–1996. Elevate Ventures

Amar Shah is Director at Namana Investments (HK) Ltd. and former Managing Director at Morgan Stanley HK. A global business leader, consistently delivering results, he is an expert in building strong, resilient and engaged teams that repeatedly provide effective solutions to complex problems. Shah is a leader with a reputation for integrity who transforms business performance by building global strategies, operating models, culture and governance.

Learn more about Elevate Ventures and Advisory

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elevateventures · 2 years

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From Internet-of-Things to Internet-of-Everything

Computing technology is leading the convergence of technologies to change daily life as it is.

Editor’s Note: This article was originally published on Forbes China, and has been translated into English.

For modern technologies, convergence is the name of the game. We have reached the point wherein even common household implements or city infrastructures have some form of embedded computing and internet in them — including refrigerators, thermostats, household locks, cars, vacuum cleaners, traffic lights, and more.

Internet-of-everything is about convergence and resource sharingSmart cities will highlight the sharing economyThe future of connected things is all about value

Statista has predicted that by 2020, we will have 30 billion connected things online, growing to at least 74 billion by 2025.

“Our IoT data usage grows by almost 30 percent every year, and by 2025, we will be generating around 80 zettabytes of data from sources like video surveillance, computer vision, audio, video, data from sensors, and more,” says Kenny Au, Founder at Elevate Ventures and Advisory. “For machine learning and artificial intelligence to effectively use this metadata, sufficient processing power is required at a cost effective rate.”

“The future of the IoT industry will be supported by three key concepts: hybrid, convergence and machine-to-machine economy,” says Jean-Charles Cabelguen, PhD, Chief of Innovation and Adoption at iExec.

He stresses on how cloud computing would need to evolve in order to support all this innovation: “The cloud computing industry has reached a good level of maturity on the technical side as well on the acceptance side. Today companies have tested the benefit and flexibility offered by the cloud.”

On the need to overcome technical challenges, Dr. Cabelguen says: “Indeed to address issues like low latency or preprocessing, IT infrastructures will need to mix solutions. Computing technology based solutions might be an efficient answer to combine edge computing and cloud computing. And when we think about resource sharing, we will need layers of technologies recording how the providers behave and how the resources are used.”

Thus, computing technology can add a layer of trust into converged clouds, including tracking who provides, what is provided, how it is used and how valuable the results are. This can leverage technologies like Trusted Execution Environment (TEE) and the Intel Software Guard Extensions (SGX), which provide a secure and exclusive environment for executing code within a device.

“Decentralized technologies allow computing resources deployed by different entities to be composed into a single logical cloud,” says Michael Reed, Computing Technology Program Director at Intel.

The most obvious benefit of computing technology is that it provides a convergence layer across different clouds and cloud computing platforms. However, on a deeper level, it also enables cost and benefit sharing across these users and infrastructures.

“Computing technology can help make a sharing economy of computing resources. Computing technology can be used to create a marketplace of available resources, and digital assets can be used to compensate compute resources upon use,” adds Reed.

This will be particularly effective when businesses and IoT data providers do not necessarily have a well-defined relationship. For instance, a city’s traffic management system might learn from transportation data derived from a logistics provider — the data might be shared and monetized even without the two ever directly dealing with each other.

Dr. Cabelguen cites the smart city, for example: “In smart cities of the future, we will have millions of connected devices, built and owned by thousands of different companies. But, for both hardware and software, there will not exist just one single standard. So we will need solutions to allow those fragmented infrastructures to work together. And here again computing technology based cloud platforms might be the ideal bridge to allow IoT systems deployed by different companies to collaborate.”

Computing technology will be the glue that holds it all together

Intel’s Reed provides a parallel comparison, which is in how businesses have learned to outsource their infrastructure to the cloud — something that was unthinkable in the decades past. In future, even these converged clouds will no longer be something businesses need to directly engage. “IoT use cases often involve multiple entities without established business relationships. In such an environment, the edge-IoT solution can be thought of as a multiparty shared cloud that can benefit from computing technology in much the same way as traditional cloud computing environments.”

He adds that computing technology essentially empowers participants to derive value from data without the complexities of formal relationships. “Cloud computing technology will help democratize the IoT industry by enabling participants to deliver services without requiring a formal agreement with an established edge infrastructure provider.”

There is still much work to be done, however. Dr. Cabelguen concludes that the key here is to establish value, so that people and companies will be incentivized to participate in the data-sharing economy. “We will need interoperability layers to coordinate edge to cloud processing and also to rank the connected devices in the chain of value. As for people and companies today, the idea is to incentivize connected devices to behave well and to provide valuable services. This is the first step into the machine to machine economy.”

Image Credit: Pixabay

Featured in the story

Dr. Jean-Charles Cabelguen (iExec)

Jean-Charles Cabelguen is Chief of Innovation & Marketing at iExec and Chair at the Enterprise Ethereum Alliance. Dr. Cabelguen has a PhD in Science from ENSAM ParisTech and 12 years of experience working on international business development interacting with big players like EDF, Areva, and Cegelec. As a digital entrepreneur, he also worked on go-to-market strategies and marketing campaigns with more than 80 companies.

Michael Reed (Intel Corporation)

Michael Reed is Blockchain Program Director at Intel Corporation. He is a corporate intrapreneur/incubation executive with experience funding and driving technology ventures related to blockchain, cryptocurrency, online payments, RFID, Internet of Things, cloud computing and consumer electronics. With 20+ years of success creating new technology businesses that command market-segment leadership and $100M+ revenue, Reed is an agile leader, proven successful in venture-funded startups and Fortune 100 divisions. He is an outstanding people manager recognized for assembling talented teams and leading them to unprecedented results.

Kenny Au (Elevate Ventures) Kenny Au is the founder of Elevate Ventures. Elevate Ventures is a Technology Ventures and Advisory firm.. The team at Elevate Ventures has extensive experience in fintech and blockchain sectors focused in South East Asia and China.

#blockchain #crypto #cryptocurrency #technology

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