Can Stablecoins hold the answer to one of the biggest challenges – and at the same time opportunities – in #financialservices today? Let’s take a look.

According to IFC 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending!

One of the main reasons that this huge #financing gap still exists, even though everyone acknowledges the untapped potential and opportunity has to do with the structure of the modern financial system:

Funding is mainly funneled via banks and a very large portion of small businesses do not meet their risk criteria due to:

1. The inherent complexity of SMEs

2. A lack of understanding of their needs from formal lenders, which is a direct result of limited credit modeling sophistication (i.e. granular segmentation) that makes it very costly to service them

3. Unavailability of formal data points based on which banks build their credit models

Supply chain financing (SCF) has long been heralded as a solution for covering part of the gap, however it has not managed to address suppliers across the entire value chain and particularly those at its lower end.

An ambitious project called #surebanqa(#qikqik+ #xenn, #loop,...) is trying to turn the problem on its core by using #blockchain, #ai, combined to other cutting edge technologies to address the main challenge of the traditional SFC flow: trust. Lack of trust is the main reason why all these intermediaries (basically banks) exist in the flow in the first place. They make sure that payment is made only when all conditions are met.

Here’s is the new approach:

— Digital Trade Tokens (DTTs) - basically stablecoins like #x€nn minted on native Blockchain or Ethereum public blockchain - become the means of payment.

— Funds behind the DTTs are ringfenced in the sense that they are only converted to cash when conditions are met (i.e. delivery of goods).

— Conditions are coded on smart contracts on blockchain and #payments are automatically executed once the pre-set conditions are fulfilled.

— The buyer sends the DTTs to the supplier, but until proof of delivery is there the supplier doesn’t have access to real money but has a number of options 1) keep DTTs and wait until proof of delivery 2) Use DTTs (i.e. sell them) as a means to get funding (factoring mechanism).

— The process works exactly the same if suppliers further down the value chain end up with the tokens. They have the same (sell or hold) options and DTTs are converted to cash once the set conditions are met.

— Given that each shipment is unique, DTTs are non-fungible, meaning that they are non-interchangeable and can't be replaced.

Although the project involved several drawbacks (i.e. regulation, privacy, integration costs, fluctuating gas fees) that need to be addressed, the idea of connecting programmable payments with trade finance is very promising.

Source: Panagiotis Kriaris’ LinkedIn Post, my opinion, Graphics and source: BIS Innovation Hub

Although APIs are a rather old #technology, they have played such an instrumental role in financial services’ transitioning from a structure of vertical silos to an open ecosystem that today no #innovation is conceivable without them. Let’s take a look.

APIs are a software intermediary that allows two applications to talk to each other, the same way as a translator would help two people who don’t speak each other’s language to communicate. They have existed almost as long as computing, but modern web APIs appeared in the early 2000s.

Financial services are not even the first business model that APIs have disrupted. Think of Netflix vs Blockbuster, Amazon Web Services vs Dell and HP, Expedia vs Thomas Cook, Salesforce vs Siebel or Uber.

As a result of the increased involvement of APIs in every aspect of our financial lives, we are talking today about the APIsation of financial services or the APIsed #economy, to indicate exactly their being indispensable in this new reality.

To understand how APIs have gradually but steadily come to dominate the entire #finance infrastructure, we don’t have to look beyond how offerings of any kind and not just finance, are being delivered today. The consuming of services has become synonymous with one particular term: applications (or better apps). We have an app almost for everything: from staying in touch with our friends online to dating to reading the news to calling a taxi, and of course when it comes to our financial lives, to accessing our bank accounts and to making payments.

As apps have therefore become the dominant way of accessing all kinds of services, APIs have become the indispensable tool that serves two main purposes:

— Enabling connectivity among the thousands of applications that we are using in our day-to-day. The interconnectedness that we take for granted would not have been possible without the fast and easy set-up of modern APIs

— Being the rails that carry probably the most important element of all: data in the form of bank transactions, account balances, payments or investments

APIs are the core facilitator behind some of the most powerful innovation triggers, driving the next wave of the #fintech revolution:

— APIs are behind Open Banking allowing product features and functionalities to be easily pulled out from a variety of applications and to be combined into processes that users with the right authorization can access from anywhere

— In turn, the power to integrate these products and services into different commercial environments is the concept of embedded finance behind the Banking-as-a-Service concept

We have long been transitioning into a reality where banking or payments apps will have a number of third-party APIs and developer services running in the background enabling what we call the platform economy. APIs are everywhere, forming the backbone of the modern economy.

Source: Panagiotis Kriaris LinkedIn's Post, Graphic sources: Cagmenini, Mulesoft

INTELLIGENCE ARTIFICIELLE |
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Avoir plusieurs partenaires ne définit pas votre masculinité, tout comme avoir beaucoup d'admirateurs ne détermine pas votre beauté.
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Les cinq jours épagomènes avant le nouvel en Kamite ( le nouvel an selon le calendrier africain, le tout premier de tous les calendriers existants). ✊