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Blockchain: The Global Search for Relevance, Broad Acceptance and Lasting Legitimacy

Notes and Quotes from IMTC World 2018 - Blockchain Series Seminar

{Author’s Note: I do not claim to be an expert in this field; to that point, I may have inadvertently misstated certain concepts and ideas. In fact, I may be completely wrong in some of my assertions. If so, please do not hesitate to correct me}

It was my privilege and pleasure to facilitate an all-day seminar on Blockchain at the recent IMTC World Conference in Miami. Among the 450+ attendees at the annual gathering of Money Transfer and Payments Services Business Industry executives was a cohort of Crypto-enthusiasts who participated in the Blockchain Series Seminar. The following day, a shorter session was held and the dialogue continued.

The mixed group contained at least 3 levels of experience:

  1. Practitioners who zealously and tirelessly promote the Holy Grail of DLT. These evangelists included:

    1. George Harrap, CEO, (Bit)Spark

    2. Faisal Khan, financial services guru whose blog “The Coin” holds court on all things Blockchain and is a walking quote machine

    3. Luis Buenaventura, CEO, Bloom 

  2. “Crypto-curious”—more or less novices who learn a bit more each time: if their grasp of the technology was liquid, it has moved from filling a thimble, then a small cup, perhaps now a sink basin, but a long way to go to catch up with the ocean of expertise purported by the panelists and presenters.

    … These novices expected an entry-level course, but the session quickly moved to the graduate level with the expert panel making their heads spin!

  3. And the “In-Betweeners” --those who have acquired more than a passing knowledge and look to implement some form of blockchain application into their business operations

In addition. Presenters included knowledgeable staff from Ripple, IBM Bitstop and Interstellar

In the opening remarks, the facilitator laid out challenges to the panelists:

  • Crypto-currencies appear to be hammered in value recently—what’s up with that?

  • Are there truly cost savings that accrue from implementing blockchain

  • Is there increased customer security?

  • Does blockchain usage guarantee full compliance with anti-money laundering and counter-terrorist regulations?

  • What are the paths to profitability for Crypto-firms using Distributed Ledger Technology?

  • Ultimately, what role do banks play—if any—in conjunction with crypto currency?

To the moderator’s statement that “Cryptocurrencies have been hammered in value recently” George refuted that claim by citing the Index that value has stabilized and holds it own vs. traditional securities. He cited the VIX Index, which tracks the volatility of Bitcoin and compared that to the Dow Stock Index, saying, as a measure of volatility, Bitcoin is still relatively less volatile than many stock markets.

Early in the discussion, Faisal pointed out there are approximately 1900 unique payments systems operating globally (e.g. Visa, Master Card, Amex, mPesa, Banks, etc.) and asked “Which horse are you going to ride” since most are not connected to each other.

Luis believe the Blockchain movement involves aficionados who are “both technologists and Ideologists”

One floated premise: Blockchain gains traction more rapidly in economies with problems like an inferior banking network but have telecom infrastructure and high mobile use aka Philippines (where Bloom operates). There could also be a correlation between the convergence of infrastructure challenges and a younger, tech-savvy population.

Enter Ripple with its suite of Crypto services, including XRP to tout its vision to create the “Internet of Value” with its techno-innovations the way the “internet of things” has given us messaging, photos, videos, etc. They believe traditional systems like Swift are limited in efficiency; sometimes smaller value transactions “…get stuck in the pipes” and take time to resolve. Using its ‘Bi-directional messaging” Ripple connects APIs with ledger technology to 150-170 FIs and growing, enabling payment transactions in real time.

Blockchain utility is not limited to smaller, lesser know entities: IBM has introduced ‘Worldwire” with its proprietary clearing facility (“CLS”). In conjunction with its recent acquisition of well-known Compliance firm Promontory, the combined resources enable IBM to be a leader in “Reg-tech” (regulatory technology) as they create new rails for cross-border payments using digital assets. Working with InterStellar architecture, Worldwire will empower the “digitization of cash” which Faisal claims to be “an IOU that cannot be denied!” 

There is no argument that current payment systems hold the following warts:

  • Slow

  • Expensive

  • Provide a poor user experience with lack of control over the process

According to IBM, Worldwire will accrue the following benefits:

  • More transparency

  • Cleaner settlement

  • Network growth

In response to the question of banking immortality and necessary in any blockchain transaction, Faisal pointed to a well-known Bill Gates quote: “Banking is necessary, banks are not”. Perhaps, but in today’s world a user who wants cash still needs to convert any type of crypto-currency to Fiat (e.g. USD, Euro, etc.); thus, a financial institution enters the picture as the necessary conduit—at least in the current economic structure. Unfortunately, the money center banks are still too risk averse to adopt DLT in any meaningful way. Hence, the early adoption will come from smaller regional FIs, community banks or progressive trust companies.

Pushing that argument further, George indicated not all banks are safe, pointing to a recent experience in a developing country in which 2 banks closed its doors, leaving only those holding crypto currency able to practice commerce.

In the end, it’s not clear the initial challenges laid out at the seminar’s opening were factually explained away--although they were passionately refuted. In defense of the proponents, 3 critical benefits were cited that can reward companies or the customer they are serving:

  • Prefunding Payout Agents: The costly need for money transmitters to prefund their payout agents—especially on weekends--goes away when using the blockchain protocol. This frees up significant cash that is normally locked in for beneficiary payouts.

  • Consumer Currency: For consumers, Crypto acts as an effective backup e.g. when you are out of cash (foreign currency) and no ATM exists, or it eats your card. Holding Bitcoin allows you to quickly sell your holdings and you’re back in business.

  • Credit Scoring: DLT can be used as an enhancement to a firm’s credit scoring model

Conclusion of the Blockchain Series Seminar: The jury is still out on the true benefits of Blockchain and its Crypto-currency components in terms of global application. However, there is enough potential adoption in the broader economy, especially with mainstream players like Ripple and IBM, to begin legitimizing the activity. These and other case studies will enhance that march to acceptance and respectability, although evidence of profitability remains elusive at least according to this author.

Rob AyersIMTC WORLD 2018
Regulatory Climate Change: Comparing the US vs. UK and Europe

A summary of the recent panel on compliance protocols at GMTS




Winging my way home across the Atlantic after a successful and informative session is the perfect time to share some thoughts on the recent payments and remittance conference I attended.

The International Association of Money Transfer Networks (IAMTN) held its annual Global Money Transfer Summit (GMTS) in London last week. Among the many topics presented and discussed in front of an audience of international company executives was the touchy topic of regulatory compliance.

I had the privilege of moderating a session on regulations in the UK, Europe and the US. On the stage were representatives from the US Treasury, the Financial Conduct Authority (FCA)—the UK governing regulatory body—and a knowledgeable expert on compliance issues in the UK and the Eurozone. Between the opening comments/presentations from these impressive individuals and their responses to the questions that followed, the panel imparted valuable insight about the current and future picture of regulatory compliance impacting our industry

We know that all industries have their acronyms and shorthand descriptions; the global payments business is no exception. At times any conversation about our industry feels like diving into a bowl of alphabet soup: EU, EEA, MTL, MTO, FCA, PSD, OCC, CPPA, and on and on. I’ll take a moment to tackle the most relevant items pertinent to this topic.

PSD: The original Payment Services Directive established an EU-wide legal framework for payment services. Its main objective has been to increase competition and facilitate market entry for non-bank providers of financial services

PSD2: As an offspring to the original, the objective of this regulation (and its most controversial section) forces banks to openly share their customer data with fintechs and other non-bank service providers. It remains to be seen the level of cooperation that will accrue from this groundbreaking law.

GDPR: The General Data Protection Regimen is a set of broad requirements about the handling of individuals’ personal data in the EU. It affects any entity that offers goods or services to any person residing in the EU. Not only are EU-based companies impacted, but also any US company whose business deals with EU citizens.

CCPA: The US does not have any such privacy law, but we have one state—California—that has passed legislation similar to GDPR and takes effect January 1, 2020. It is unclear if other states will follow.

OCC: The Office of the Comptroller of the Currency is a Federal agency that plans to begin accepting applications from non-fintech firms that would allow them a charter to operate nationally, thus pre-empting the current state by state licensing regimen that has been operating for years.

DLT: Distributed Ledger Technology or Blockchain as its commonly known. For purposes of this paper we’ll talk about its most common manifestation: Crypto currency. For deeper knowledge of DLT, you will need to consult other sources—I am not an expert!

Sandboxes: Obviously, this term is not a jumble of letters, but still quite relevant to the regulatory discussion. Regulators throughout the world, including the UK/Eurozone--but sadly not the US—have established low-risk opportunities for fintech firms to market their offerings on a small scale, in effect to test the customer demand without the large expenditure of time, effort and money required to enter the marketplace. The US is particularly daunting for startup fintechs; although eight nations currently offer programs and several more are under consideration, the US lags behind.

In summary, I left the conference with four key observations comparing the regulatory environment in the US vs. the UK/Eurozone:

1.      GDPR does not exist currently in the US, except for the California law effective in a little more than a year, but US payment firms who operate in Europe are very much affected. They must comply or be cited for violations resulting in fines or censure. We’ll see if the US follows suit via more state legislation.

2.      Passporting is a beautiful concept which has greatly benefited UK and European firms, but still does not exist in the US, with 50 unique jurisdictions. An initiative exists to harmonize state by state regulations (so called “Vision 2020”), but it is unclear if the goal will be attained.

3.      Crypto currency firms operate mostly unregulated in the UK and Europe, whereas approximately 50% of the states require licensure depending on the Digital currency model. No doubt, the EU and UK continue to examine potential controls; likewise, various state legislatures will tackle this in their 2019 sessions

4.      Sandboxes exist in Europe, but sadly only 1 US jurisdiction (Arizona) has enacted this progressive and promising policy. Globally, 7-8 countries have national support with several more under consideration. The US is missing an opportunity to encourage fintech innovation by not moving aggressively.

Each of these items deserve and will receive more analysis from all sides of the discussion. What remains to be seen is to what degree the US might mirror some of the regulatory changes and challenges that exist in the UK and Eurozone over the next 2-3 years. Stay tuned….

{Many thanks to my panelists for their professional insight and to the law firm of Dykema Gossett PLLC for use of presentation segments describing the various terms used in this paper. Further appreciation goes to Mohit Davar, IAMTN Chair and Veronica Studsgaard, IAMTN Founder and CEO for providing the opportunity to moderate}.


Rob Ayers