Thematic Report

Theorality – Fintech

by Shaun Cochran / Oct 11, 2019

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Interoperability unlocks blockchain’s value potential: A key development for the Blockchain industry is the increasing focus on interoperability when it comes to implementation, and this is critical to unlocking collaborative value.

IBM is leading this ‘co-petition’ model: IBM is capitalising on existing enterprise relationships to draw participants to its platform, crucially with a protocol-agnostic strategy. The trust these platforms enable is essential to branding in a digital world. For food supply, provenance is key to consumer confidence; IBM is helping early adaptors address this.

Blockchain is scaling in wholesale settlements, threatening SWIFT: In financial services, the opportunity is being realised by streamlining compliance, payments settlement, and even smart derivative contracts.

Digital currencies must transition from proprietary to industry-models: We have argued stablecoins are crucial for institutional uptake. With their growing application today, the next phase is to move from proprietary to industry models.

Facebook’s Libra, if it launches, will upend global payments: In parallel, the Facebook-led Libra initiative is proposing a fiat-backed token as a global payments platform to offer users digital payments services. If Libra materialises, this could allow consumers to bypass the global financial system and send Libra to almost anyone with a smartphone regardless of geographic location.

Other global entities could plausibly launch Libra-style solutions: Given the implicit reduction in central bank international monetary controls, the chorus of regulatory concern is unsurprising. These raise potential money laundering issues, but we suspect Libra can solve this by adopting self-sovereign identity models.

Alibaba and Tencent both harbour global fintech ambitions: Facebook is not the only entity with the appetite and capacity to launch globally scalable financial services; Amazon, Starbucks and Uber could also plausibly pursue similar ideas. But Asean digital payment solutions have leap-frogged under-penetrated banking systems, making rivals’ opportunities in these regions less clear.

Tokenisation could disrupt the financial services supply chain: The broadest applications of digitisation in finance bring us back full circle to cryptocurrencies. We see ubiquitous asset tokenisation as the ambitious end-game. We urge vigilance as this could collapse the financial services value chain, even threatening investment banking and exchanges longer-term.

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