Tag Archives: #fintech

Notes from Hong Kong

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My personal relationship with Hong Kong stretches back 30 years – to the time I moved there from London in 1994. I arrived on a 1-2 year contract, and ended up living in the city for 6 years. Since then, I have continued to visit at least once a year, and my latest trip earlier this month was the fifth since hotel quarantine was lifted in October 2022, following the global pandemic.

Despite the significant political, demographic, social and economic upheavals of recent years, in many ways Hong Kong remains the same. It still acts as a fulcrum between East and West, and an important trading entrepôt for mainland China and the rest of the world. There are still the evident paradoxes represented by Hong Kong’s ancient traditions and modern values, combining spiritual beliefs with materialistic tastes, and vertiginous high-rises set against mountainous backdrops and waterfront vistas.

From an economic standpoint, Hong Kong remains in something of a lull. People I spoke to commented that the SAR government needs to find new sources of income, especially as the property market (a cornerstone of the local stock exchange) remains patchy, and visitor numbers are only about 50% of pre-pandemic levels.

As I have mentioned in a previous blog, Hong Kong is usually resilient and adept at reinventing its financial fortunes.

For these reasons, the Hong Kong administration is pursuing a fairly aggressive policy of promoting itself as an attractive global venue for the digital asset industry in part to reinvigorate the local capital markets, in part to outpace its regional neighbour and rival, Singapore. (Plus, the SAR acts as something of a test bed for the rest of the PRC.) According to people I spoke with, there is some difference of opinion as to how many digital asset exchanges are actively pursuing a Virtual Asset Service Provider (VASP) license, given that only two licenses have been granted so far, while a number of applications have been withdrawn, refused or rejected for being incomplete.

During my visit, I was granted a 1:1 interview for Brave New Coin with Yat Siu, co-founder and Chairman of Animoca Brands, a leading player in web3.0, NFTs, the metaverse and, potentially, stablecoin issuance. A major advocate of digital property rights, Siu is a very influential figure within the fintech scene, and I expect to see many more announcements from his company leading up to, and during, major events such as Token2049 and Hong Kong Fintech Week. I also met with clients and contacts across crypto exchanges, hedge funds, VCs, brokers and tech providers. All remain suitably bullish on the digital asset sector, although some considered that there needs to be some industry consolidation, to soak up excess infrastructure and to stabilise the entry of institutional fund managers.

Finaly, I found time for some contemporary art exhibitions, confirming that Hong Kong continues to establish its profile in the arena of global culture. There was Bruce Nauman at the JC Contemporary in Tai Kwun, I.M.Pei and Henry Steiner at M+, and even Banksy and Damien Hirst at Sotheby’s Maison at Chater House. Of course, this being Hong Kong, the displays in Sotheby’s showrooms are not too dissimilar to the luxury goods on sale in the surrounding malls.

Next week: Postcript on Tarantino vs Ritchie

 

RWAs and the next phase of tokenisation

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In the blockchain and digital asset communities, there are currently three key topics that dominate the industry headlines. In the short term, the spot Ethereum ETFs are finally due to launch in the USA this week. Then there is the perennial long-term price prediction for Bitcoin. In between, much of the debate is about the future of asset tokenisation, specifically for real-world assets (RWAs). Add to the mix the cat and mouse game of regulatory oversight/overreach and the rapid growth of fiat-backed stablecoins, and there you have all the elements of the crypto narrative for the foreseeable future.

The general view is that tokenising traditional assets such as real estate, equities, bonds, commodities, stud fees, art and intellectual property, and issuing them as digital tokens on a blockchain has several benefits. Tokenisation should reduce origination and transaction costs (fewer intermediaries, cheaper technology); reduce settlement times (instant, compared to T+1, T+2, T+3 days in legacy markets); democratize access to assets (using fractionalisation) that were previously available only to wholesale investors; and give rise to further innovation. For example, imagine hybrid tokens that comprise equity ownership; a right to a share of revenue streams; and membership discounts. Think of a tokenised toll road, or a sports stadium, or an art work that gets hired out to galleries and is licensed for merchandising purposes.

There are still quite a few issues to iron out, such as: the technology standards and smart contract designs that will originate, issue, distribute, track, cryptographically secure and transfer the digital tokens, both on native blockchains and across multiple networks; the role of traditional players (brokers, underwriters, custodians, trustees, transfer agents, payment agents, and share registries), and whether they are needed at all once assets are secured on-chain; and verification, certification and chain of ownership (given that an asset expressed as a digital token is very similar to a bearer bond – my private keys, my asset).

Last week, Upside in Melbourne hosted a panel discussion entitled: “Tokenise This! Unlocking the Value of Real World Asset Tokenisation”. The speakers were:

Richard Schroder, Head of Digital Asset Services, ANZ Bank

Lisa Wade, CEO, DigitalX

Andrew Sallabanks, Head of Strategy and Operations, CloudTech Group

Alan Burt, Executive Chairman, Redbelly Network

Shane Verner, A/NZ Sales Director, Fireblocks

Each of these firms has been working on a number of tokenisation projects such as stablecoins, real estate, government bonds, credit portfolios, fund of funds, and even stud fees. The key message was “faster, cheaper” is not good enough – RWA tokenisation solutions must offer something that is much better than traditional processes, and does not add friction (if anything, it should reduce current friction).

There were frequent references to fiat-backed stablecoins. In some ways, the tokenisation of real estate, bonds and equities is an extension of the tokenisation of money (as illustrated by stablecoins). However, there was no specific mention for the role of stablecoins in RWA tokensiation, for example, as on/off ramps, and as settlement instruments for the pricing, transfer and valuation of RWAs.

From an Australian perspective, the prospect of regulation (particularly for custody, crypto exchanges and brokers, and payment platforms that use stable coins) looms large. Generally, this was welcomed, to provide clarity and certainty. But without some specific provisions for crypto platforms and digital assets, if everything is brought under the existing ASIC/AFSL regime it will exclude many startups and smaller providers due to exorbitant capital adequacy and insurances etc.

Finally, despite the nature of the organisations they work for, all of the panelists agreed that “cryptographic trust is better than institutional trust”.

The potential for tokenising traditional assets has been around for several years. And while it is still relatively early in its evolution, the few listing and trading platforms for tokenised assets that have already launched have struggled to gain traction. They have few listings, limited liquidity, and minimal secondary trading – so, lack market depth. It feels that while the market opportunity may be huge (and the enabling technology is already here), there needs to be a more compelling reason to adopt tokenisation. Hopefully, that will emerge soon.

Next week: Album Celebrations

 

Banking Blues (pt. 481)

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Last week, I attended a networking evening for Intersekt, Australia’s largest annual fintech conference. Billed as the “flagship event of the Digital Innovation Futures Victoria Festival”, the 2-day event is supposed to take the pulse of Australian fintech – by highlighting current industry trends, showcasing local success stories and identifying areas for future growth and collaboration. I wasn’t able to attend the 2-day conference itself, but based on the networking audience, and the program agenda, it feels like there is very little “innovation” these days, and certainly not among the major banks.

The fintech product focus is still very much on payment solutions and open data – even though we’ve had the NPP and Open Banking for several years – plus SME lending (since the major banks have largely abandoned cashflow lending, just as they have exited wealth management and financial planning). There was barely an hour of the conference given over to crypto currencies and digital assets, and from what I could see, no sessions dedicated to Blockchain technology.

Challenger or neo-banks have not managed to gain traction in Australia, mainly due to the dominance of the incumbent banks, especially the so-called Big 4, which continue to enjoy an entrenched oligopoly protected by regulation. Despite Financial Services (banks, diversified financials and insurance) forming the largest sector (27%) of the ASX 200, it is highly concentrated and appears structurally designed to keep out competition (and hence, stifle innovation).

Indeed, I cannot think of a single new product that my bank has introduced in the 20 years I have been a customer. Over that time, I have held both personal and business accounts with this bank – mortgages, investment loans, credit cards, transaction accounts and savings products. They no longer offer wealth management services under their own name, and the share trading account I hold with them is actually operated by a foreign financial institution. At the same time, the bank has been shuttering branches, and disbanding services, often without any notice or customer communication.

My frustration with this bank goes unheeded – if anything, the customer service has worsened, often under the guise of “the Royal Commission”. The latter has no doubt given rise to staff cuts to pay for greater compliance costs, and is used to justify over-bureaucratic customer processes. Meanwhile, every time I raise a complaint, I’m told it’s the bank’s “systems” that are to blame, or their third-party service providers – it’s never the bank’s own fault, and they never take responsibility or demonstrate accountability.

These are just the latest incidents in a litany of poor customer experience:

1. A simple title transfer involved me visiting three different branches (thanks to branch closures and rotating staff), plus e-mailing and phoning an interstate office (at least the settlement was probably executed on Pexa’s blockchain-enabled platform…)

2. A glitch in setting up a replacement bank-issued credit card in my digital wallet was blamed on the card provider’s technology (even though I had just successfully linked this same card to my smart watch). I hope the bank has robust SLAs with this third party…

3. Some unsolicited (and highly misleading) e-mail marketing sent out under the bank’s name was blamed on another third-party provider (surely the bank must authorise what communications are issued in its name?)

4. I spent over 2 hours in a branch to open some basic term deposits in the name of existing businesses that already have client profiles and accounts with this same bank – a combination of bureaucracy, slow technology and cumbersome processes which still involve wet signatures on hard copy documents.

5. In the process of setting up one of these business accounts, it turns out the bank had the wrong company details on their core records, even though the statements are sent to the correct address. I advised the bank of the change of address several years ago, but despite the findings of the Royal Commission, the bank has not bothered to run a check on the ABN register, which is free to use, to check the company details.

The really depressing thought is that even if I switch banks, I will probably run into similar problems elsewhere!

Next week: Non-binary Politics?

Digital Identity – Wallets are the key?

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A few months ago, I wrote about trust and digital identity – the issue of who “owns” our identity, and why the concept of “self-sovereign digital identity” can help resolve problems of data security and data privacy.

The topic was aired at a recent presentation made by FinTech advisor, David Birch (hosted at Novatti) to an audience of Australian FinTech, Blockchain and identity experts.

David’s main thesis is that digital wallets will sit at the centre of the metaverse – linking web3 with digital assets and their owners. Wallets will not only be the “key” to transacting with digital assets (tokens), but proving “identity” will confirm “ownership” (or “control”) of wallets and their holdings.

The audience felt that in Australia, we face several challenges to the adoption of digital identity (and by extension, digital wallets):

1. Lack of common technical standards and lack of interoperability

2. Poor experience of government services (the nightmare that is myGov…)

3. Private sector complacency and the protected incumbency of oligopolies

4. Absence of incentives and overwhelming inertia (i.e., why move ahead of any government mandate?)

The example was given of a local company that has built digital identity solutions for consumer applications – but apparently, can’t attract any interest from local banks.

A logical conclusion from the discussion is that we will maintain multiple digital identities (profiles) and numerous digital wallets (applications), for different purposes. I don’t see a problem with this as long as individuals get to decide who, where, when and for how long third parties get to access our personal data, and for what specific purposes.

Next week: Defunct apps and tech projects