Why the GCC will become a leading financial hub for digital assets
HAYVN is the new global standard in institutional digital currencies. Its fully compliant platform provides secure OTC, custody, and research capabilities, delivering transparency, security and enhanced compliance. Chris Flinos, co-founder of HAYVN, shares with us his insight into why the GCC will become a leading financial hub for digital assets.
Over the last 18 months we have witnessed a boom, bust and recovery in cryptocurrencies and digital assets, from the roller-coaster ride in the Bitcoin price, through to the crash in ICO issuance, and then to the recent rally. Sceptics will argue that this volatility was inevitable, given the perceived lack of regulation and investor protection in this nascent asset class.
Is the so-called ‘crypto winter’ over? The recent rebound in bitcoin might suggest so but ultimately, I would argue that it doesn’t matter what particular cryptocurrency might be up or down. Bitcoin or Ethereum won’t necessarily win out in the battle to be preeminent digital currency. Nor will the crypto revolution happen overnight. But it is happening.
If you’re looking for analogies, I would compare this to 1994 when Netscape launched Navigator, the first web browser. Netscape never survived past 1999, but can you say the same about the internet?! The underlying point is that both the blockchain infrastructure and the digital currencies that it enables are both here to stay- and they are quietly revolutionising capital markets.
Part of the slow adoption of, and volatility in, cryptocurrencies has been down to the lack of regulation which had effectively created two parallel worlds struggling to make sense of each other- the traditional financial world and the upstart new digital currency world. This schism is starting to narrow, as tougher regulation is enacted globally and the digital currency space begins taking on characteristics of the traditional capital markets. Encouraged by regulation, institutional investment is helping to drive this transition into a regulated financial asset class.
In recent months we have seen some of the biggest names in finance dip their cautious toes into the sector. First JPMorgan announced they would launch their own cryptocurrency. More recently, media reported that Fidelity would soon be offering crypto trading to its clients. HNW and family office interest is gaining. A recent survey by financial advisor deVere Group showed that more than two thirds of HNWIs would be invested in crypto by 2022.
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The crypto industry must embrace tougher regulation if it is to continue transitioning into a financial asset class and attracting institutional interest. And those financial hubs that can move more swiftly to provide a tough but pragmatic regulatory framework will attract more crypto start-ups, more entrepreneurs and more investment.
That’s where the Gulf region comes into play.
Even today, we see GCC governments proactively driving the implementation of digital currencies forward well ahead of their global peers. We are encouraged by the Saudi Arabian and UAE governments’ move to pilot a shared digital currency for cross-border bank transactions. The UAE itself is reportedly aiming for half of all government transactions to be processed through the blockchain. Saudi Arabia is already one of the world’s biggest digital currency markets, driven by a young and dynamic population who tend to have a more ambitious investment profile and a higher tolerance for risk and return.
Tough, but sensible regional regulation is helping to attract global digital currency players, led by both Bahrain and Abu Dhabi. In June 2018, the Abu Dhabi Global Market (ADGM) quietly unveiled the world’s most advanced framework to regulate digital assets. The framework addresses the full range of risks associated with crypto asset activities- looking at consumer protection, custody, technology governance risks related to financial criminality and money laundering. This is an ongoing process, reflecting the dynamic nature of this asset class. For instance, only this month the ADGM provided further guidance on stable coins, digital currencies that are pegged to a fiat currency such as the dollar.
They have developed a robust, protective framework for businesses and investors, that will also attract bona fide digital currency actors who want to embrace regulation. They do this because they realise that strong and effective regulation will see this industry grow exponentially as it transitions into a key component of traditional capital markets. It is precisely for this reason that Hayvn, our global digital currency platform, was attracted to base itself in Abu Dhabi and has sought to be regulated within the Abu Dhabi Global Market.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.
About the author: Brandon Rembe is CPO at Envestnet Yodlee. He has over 18 years of experience building high-growth technology, software, and information service companies, Brandon has worked across a broad spectrum of enterprises from early-stage ventures to global businesses.