Ripple’s 2020 predictions for the financial services industry
International payments will...
Marcus Treacher, SVP of Customer Success at Ripple, shares with FinTech his predictions for the finance industry this year.
International payments will continue to get faster and smaller. Payment providers and banks will continue to offer ever faster cross-border payment services to their customers, enabling them to send and receive low-value payments in real-time. The cost overhead of these payments will also continue to shrink. This trend will accelerate in 2020 as customer demand for frictionless on-demand payments grows - enabling solutions like Interledger and distributed ledger technologies to gain traction and scale up.
More banks will use banking-as-a-service tech platforms to revolutionise their cost-to-serve and cost-to-change. As technology costs associated with running and development continue to climb, we can expect banks will turn to cloud providers of banking technology to help radically reduce these costs.
Pioneers of such cloud services - like 10X and Thought Machine - will be the ones to watch in 2020. Because cloud-hosted banking technology providers have developed new platforms with modern methods, they are ideally placed to easily and cheaply plug into emerging blockchain networks, AI engines and other categories of fintech. This means the competitive advantage of innovative banks over slower-moving rivals will be intensified. The long-awaited tipping point from on-premise “museum” banking technology to agile, cheap cloud-hosted bank technology is getting closer. 2020 perhaps is the year?
2020 will see new consumer purchase solutions emerge for tourists/travellers that don’t require cards or card rails. Technology like Ripple’s will be key in achieving this. For example, imagine if a Japanese tourist visiting Thailand could buy goods using a mobile app or QR code, triggering an immediate cross-border payment from their Japanese yen account to a Thai baht merchant’s account. If more consumer purchase solutions start leveraging blockchain technology in the same way, the payoff will - quite literally - be huge!
The global economy will see continued growth of micro and wallet payments to support immediate, low-value payment flows. The use case for micropayments has traditionally been confined to messaging apps like Telegram and Line. But with big tech companies introducing payment services of their own, we can expect a surge of developers flocking to digital assets as the solution to keep up with in-app, real-time payment processing demand.
The shift from traditional, large-value batch flows to low-value, high-volume payments will help SMEs break into new markets much faster. SMEs are often young and fast growing which exposes them to cash flow crises through late payments from their larger, foreign buyers.
Cross-border payment services today are not set up to help them: they are slow, uncertain, prone to errors and accrue extremely high costs. In some parts of the world, cross-border services aren’t even readily available - all of which puts enormous pressures on small organisations’ small balance sheets and lifeline cash flows.
New blockchain payment technologies like Ripple’s enable SMEs to invoice and receive international payments immediately, in small amounts, and with certainty.
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This will be a game-changer, decreasing costs-of-business and enabling SMEs to free up precious capital for reinvestment. This will, in turn, increase the access to new markets for SMEs. 2020 will see a rise in international payment services like Ripple for SMEs across emerging markets, helping them to expand and process immediate payments around the world.
Outpacing of OECD economies by Asian economies in payments innovation will continue through 2020. With 80 percent of the volume in digital asset trading coming from Asia, the region has an appetite for innovation - and perhaps the greatest need for a better payments infrastructure. Blockchain has played a key role in this innovation, with its ability to make micro-transactions such as loans, payments, remittances - much more efficient and transparent. In a region primed for advances in both consumer and enterprise remittances, there is enormous opportunity for the use of blockchain technology like Ripple’s to address issues of liquidity, speed of implementation, and the cost of capital.
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Robinhood faces $35mn fine from New York DFS
The company’s crypto division was issued with a wrist slap in 2020, following the red flagging of several “matters requiring attention”. Robinhood revealed it had reached a settlement with the New York State Department of Financial Services regarding the issues, which related to “alleged violations” of cybersecurity and anti-money laundering rules.
The news follows on from the announcement earlier this week that the trading platform favoured by armchair investors, which almost broke Wall Street earlier this year, has an expected valuation of $35bn following its IPO.
Critics of the platform say Robinhood encourages “risky behaviour” among inexperienced (armchair) investors. The app has also been criticised for not informing customers that much of its profits are generated by routing their trades to Wall Street firms taking the other side, or so-called "payment for order flow."
Robinhood said last month they expected the DFS fine to be at the $15mn mark, adding it would be “the bottom of the range for our probable loss in this matter”. The $35mn penalty is on top of the record $70mn Robinhood incurred from US financial regulator FINRA in June, for “lax vetting and outages.”
However, the settlement indicates the company’s IPO will go ahead as planned, despite initial concerns the investigation could see the float delayed until later this year.
Robinhood floats imminent
Despite the regulatory hiccups, Robinhood priced its IPO between US$38-US$42 per share, giving the platform the US$35bn valuation and analysts predict the firm’s debut on the Nasdaq could occur as early as next week.
Robinhood democratising investment
Launched in 2013 by Tenev and Bhatt, who were Stanford University roommates, Robinhood’s founders will retain most of the voting rights after the IPO. Bhatt reportedly holds 39% of the voting power of outstanding stock, while Tenev holds 26.2%.
The online brokerage, which came under fire for its handling of the GameStop trading debacle, which saw the platform limit stocks to investors, states its mission is to “democratise” investing and is one of the most highly anticipated IPOs of the year.
Robinhood was valued at $11.7bn in autumn 2020 following a private equity funding drive. The new valuation will mean represent a three-fold increase in the company’s market value in less than 12 months.