Fintech is disrupting the financial services industry by creating a digital alternative to traditional institutions. Fintech companies use innovative technologies and data analytics to facilitate access to banking and financial services, including payments, loans, and insurance. There is still a significant percentage of the world's population that is excluded from the financial ecosystem and does not have access to platforms that allow them to track their spending, save money, or use other banking services. The percentage of adults making digital payments increased globally from 26% to 51% between 2014 and 2021, but in Latin America and the Caribbean, this number increased from 5% to 20% over the same period. The increase in account ownership in LAC is largely due to greater access to mobile money accounts, which has made financial products more accessible to women, low-income groups, and other excluded sectors. Financial inclusion in Mexico In Mexico, in 2021, over 40% of the population was considered financially excluded, according to the ENIF survey. This means that they do not have access to formal financial services such as banking, saving, credit, and insurance. However, fintech has been playing a critical role in improving financial inclusion in the country by bringing financial services to the previously unbanked. This has forced large financial institutions to reevaluate their business practices, resulting in 16.8 million adults in Mexico having access to banking services through fintech platforms in 2020. According to the Mexican Banking and Securities Commission (CNBV), financial inclusion in Mexico has four fundamental components: Access: Infrastructure available to offer financial services and products. Use: Acquisition or contracting by the population of one or more financial products or services. Consumer protection: New or existing financial products and services are under a framework that guarantees transparency of information, fair treatment, and good practices. Financial education: Aptitudes, skills, and knowledge that the population acquires in order to be able to correctly manage and plan their personal finances.   The World Bank reports that financial inclusion in Mexico has advanced due to the National Financial Inclusion Strategy, whose main policy goal is to allow 77% of the Mexican population to hold at least one financial product by 2024, compared to 68% in 2018. More than $200 million in loans have been given out in the last five years, primarily to residents in rural and marginalized communities. However, there is still a significant percentage of the population that doesn’t have access to essential financial products and services like savings accounts, credit, insurance, and pensions. This leaves a large portion of the population vulnerable to financial shocks, such as job loss or illness, and unable to save for important life events like education or retirement. Fintech is playing an important role in transforming financial inclusion in Mexico and bridging this gap.  Fintech Solutions Fintech companies use specialized software and algorithms to bridge the gap between those with access to financial services and those without. As more people access the Internet through their mobile devices, fintech companies are able to reach a wider audience and offer their services through user-friendly mobile apps, making digital banking more accessible and affordable for people living in rural areas, low-income households, the elderly, or those working in the informal sector. In March 2018, Mexico published the Fintech Law after the number of financial technology companies grew by 50% in the previous two years. The Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público or SHCP), the Mexican Banking and Securities Commission (CNBV), and the Central Bank (BANXICO) are the main regulators of this sector. The law aims to foster financial inclusion, provide greater legal certainty for users of fintech services, and generate more competition in the market. Fintech regulation has placed Mexico at the forefront of regulatory issues and consolidated its position as a pioneer in the field. By 2021, there were around 512 fintech startups in Mexico, making it the second largest fintech ecosystem in Latin America after Brazil. Their competitive advantage is the specialization in some products to meet different sectors, segments, and market needs, such as payments and remittances, loans, corporate financial management, among others. As we can see in Figure 1, Business and Consumer Lending is the subsector with the highest market share, coinciding with credit cards, which are the products for which fintechs are best known today. [caption id="attachment_10139" align="aligncenter" width="473"]           Figure 1. Fintech Subsectors and Market Share 2021    Source: Fintech Radar Mexico 2021[/caption]   The sectors with the highest market share are Loans (21%) and Payments and Remittances (18%). A good example of those with a presence in Mexico are Nubank and Clip. Clip, as one of the leading companies, was the first terminal in the country (mobile and non-mobile) to accept all payment methods, pioneering innovation in business payment methods in Mexico. This helps SMEs increase their sales and have better control of their finances without paying high rates and commissions. Nubank, the largest neobank (which operates exclusively online) in Latin America, has a presence in Mexico, offering their first product: a credit card without annuities, acceptable in all businesses, and without long waiting times for approval. Nu Mexico is a company that has made a special effort to bridge the financial inclusion gap, as reported in 2022; 46% of its clients report a monthly income of less than 10,000 pesos; 1 in 3 customers over the age of 65 did not have a credit card before Nu card; its clients are located in 80% of the priority rural municipalities for the federal government. Future Prospects for Financial Inclusion with Fintech Financial inclusion has been a hot topic in Mexico, and fintech has played a key role in driving change. As more of the population gains access to internet connections and financial services, it is important to take a look at the future prospects of financial inclusion with fintech in Mexico. Offering individuals financial products like bank accounts and credit cards through their current smartphone service is one method of increasing financial inclusion. In Mexico, 67% of people over the age of 15 had smartphones in 2020, and that number is expected to rise to 74% by 2025. However, only 32% have made or received digital payments. This presents a significant opportunity to improve accessibility through digitized services. It is also important that both traditional financial institutions and fintechs continue to work together to re-educate people on the benefits of using electronic money; this not only expands access to financial services but also helps boost economic growth and reduce inequality. In conclusion, the outlook for fintech and financial inclusion in Mexico is positive. The industry has grown rapidly in recent years, driven by favorable regulatory policies, increasing smartphone penetration, growing demand for digital financial services, and a focus on reaching underserved populations. With continued innovation and expansion, the fintech industry is expected to play a key role in promoting financial inclusion and economic growth in Mexico in the years to come. Author: Meliza Rivas Sources: https://www.inegi.org.mx/programas/enif/2021/ https://www.inegi.org.mx/contenidos/saladeprensa/boletines/2021/EstSociodemo/ResultCenso2020_Nal.pdf https://microvestfund.com/fintech-a-bright-spot-in-mexicos-road-to-financial-inclusion/#:~:text=Despite%20medium%2Dterm%20liquidity%20issues,they%20have%20a%20bank%20account. https://www.afi-global.org/wp-content/uploads/2020/07/EN_Summary_National_Financial_Inclusion_Strategy.pdf https://mexicobusiness.news/entrepreneurs/news/role-fintech-financial-inclusion-mexico https://www.oecd-ilibrary.org/deliver/73e9341b-en.pdf?itemId=%2Fcontent%2Fpaper%2F73e9341b-en&mimeType=pdf https://www.gob.mx/cnbv/acciones-y-programas/inclusion-financiera-25319 https://www.gsma.com/mobileeconomy/wp-content/uploads/2021/11/GSMA_ME_LATAM_2021.pdf https://www.worldbank.org/en/results/2021/04/09/expanding-financial-access-for-mexico-s-poor-and-supporting-economic-sustainability#:~:text=Mexico%20lags%20in%20terms%20of,with%20similar%20levels%20of%20development. https://diafintech.com.mx/noticia/fintech-radar-mexico-2021-principales-hallazgos/ https://labsnews.com/en/news/business/the-13-latin-american-rockets-among-cb-insights-250-top-fintech-companies-of-2021/ https://interesante.com/2022/06/top-10-strongest-fintech-startups-in-mexico/ https://blog.clip.mx/clip-fortalece-la-economia-emergente https://www.endeavor.org.mx/clip_una_revolucion_a_la_inclusion_financiera.html https://blog.nu.com.mx/nu-pieza-clave-de-la-inclusion-financiera/ https://www.bbva.com/es/las-fintech-invaden-mexico/ https://es.statista.com/grafico/27329/paises-latinoamericanos-con-mas-empresas-fintech/#:~:text=Brasil%20es%20claramente%20el%20pa%C3%ADs,del%2030%25%20del%20total%20regional. https://financer.com/mx/wiki/ley-fintech/#:~:text=El%20principal%20prop%C3%B3sito%20de%20esta,Los%20pagos%20electr%C3%B3nicos. https://fintechradar.finnovista.com/mexico/2021/en/ https://www.caf.com/en/knowledge/views/2022/12/financial-inclusion-in-latin-america-how-far-we-have-come/    

Spending on virtual credit cards (VCCs) has surpassed corporate card expenditure for the first time in 2019, according to the Research and Markets business credit card report. Additionally, a new study by Juniper Research estimated that the global value of virtual card transactions will reach $6.8 trillion in 2026, representing a 370% increase from 2021. Businesses will account for 71% of total VCC transaction value, as preference for the convenience and security of virtual cards over costly and time-consuming methods grows over time. Is it necessary for your company to use virtual credit cards (VCCs)? What should you know to help your company avoid fraud and take advantage of VCC benefits? In this article, we’ll address those concerns by presenting the features of a VCC and explaining how it varies from a typical corporate credit card. What is a virtual card? Unlike a typical credit card, a virtual credit card is not a physical object. It’s a temporary and random set of 16 digits. It’s typically used to buy a single item using your smartphone or PC, and it’s generated online within seconds. Each time you use it, the disposable number changes, and it expires when it is no longer in use. A virtual credit card connects to but does not replace, your actual credit card account, so the charge you make on a VCC still pops up on your regular credit card statement.   What does it look like & how is it generated? The electronic image of a VCC resembles that of a regular credit card, but it contains a number string that looks like this: xxx xxx xxx xxx 1234. The “x’s” stand for a random collection of numbers that hide your actual credit card number from fraudsters. The cards also feature a three-digit card verification number and an expiration date. Users may be able to get a virtual card number through their online account management site, depending on their bank or card issuer. They can set spending limits on each virtual card number they get and set unique expiration dates (typically no more than 60 days) using their current account to protect themselves from abuse, fraud, and overspending. Virtual credit cards are offered by a variety of major financial institutions, including Visa, American Express, Citibank, Capital One, and MasterCard (which operates its own virtual credit card service). If you have a credit card, you may already have access to a virtual card number. To find out, simply log into your online bank or card account and search for “Virtual Card Number” or “Virtual Account Number.”   Can you get a virtual credit card with no deposit? As previously explained, a virtual credit card number is connected to an existing account with cash or a credit account with a line of credit. Users are given the option to create the virtual credit card as a single-use or multi-use card, with an expiration date of their choosing. They are also given the option to place a spending limit on the card, which allows them to access cash from their current account in a more structured and controlled manner.   What’s the difference between digital wallets and virtual credit cards? A digital wallet works similarly to a virtual card, with a few noteworthy distinctions. Apple Pay and Google Pay, for example, store a digital version of your physical credit or debit card, including full card details. Digital wallets are considered a safe payment method since most digital wallets generate a temporary card number, similar to a virtual card, guaranteeing that your actual card number is never shown to a retailer. However, digital wallets are not accepted everywhere. Unlike virtual cards, which may be used for any online purchase that accepts credit cards, digital wallets can only be used at participating stores, whether online or in-store. VCC advantages Security: Global credit card fraud losses totaled $28.58 billion in 2020, with projections to reach $49.32 billion by 2030. Given the magnitude of these numbers, security should be a priority for all companies. Virtual credit cards help prevent fraudsters from stealing your company’s credit card information or hacking into your online transactions. Why? because VCC numbers are meaningless to fraudsters. The growth in corporate credit card fraud, as previously mentioned, is a driving reason for growth in the VCC industry. A JPMorgan survey of over 8,000 professionals found that VCCs were only targeted by scammers in 3% of the cases, while corporate credit cards were attacked in 34% of the cases. Low fees and costs: Most virtual card issuers don't charge customers anything more for the service, and it allows them to use a new asset without having to open a new account. Seamless Payment Method: There are various levels to the exceedingly complicated structure of domestic business payments. The sheer number of payments made and received by each company is the first layer of complication. According to Juniper Research, the average North American company makes 2,275 domestic payments in a single year. With so many small firms in North America, the average number of payments made by major corporations will exceed 100,000 every year, which works out to more than 270 payments every day. Given a large number of payments, the effort of handling these payments is massive, and the number of channels involved adds to the complexity. There’s also the issue of payment terms and deadlines, which differ from one vendor to the next. Other factors, such as invoice factoring or supply chain financing, may also further complicate the process. Fundamentally, this means that controlling payment flows is a difficult problem that demands a significant amount of resources. Virtual cards often allow additional transaction data, such as payee reference numbers, transaction category data, etc., to be linked to records, which is a crucial advantage for business operations. This speeds up payment reconciliation for both A/P and A/R procedures. Expense Management: Businesses can use VCCs to get more control over their employees’ expenditures. When an employee travels on business, they can estimate the cost of the trip and establish a VCC spending limit accordingly. For example, if the estimated amount is $1,000, the employee can request a $1,000 VCC from the corporation. By establishing spending limits on employees, a VCC reduces the financial risk to the company.   VCC adoption challenges Like other innovative technological applications, virtual credit cards present their own set of challenges: Vendor adaptation: The fact that not all vendors are ready to take payments via virtual methods is a significant barrier. This problem occurs most frequently when purchasing goods or services from businesses that demand a physical card as proof of identity to prevent fraud, such as hotels that require visitors to provide a physical card at check-in or fax a credit card authorization form to confirm their reservation. However, as the payment industry evolves, many suppliers are making greater efforts to handle virtual payments, and major credit card networks have begun to offer mobile wallets for corporate use, implying that virtual credit cards will combine with mobile wallets in the not-too-distant future. Returns & Refunds: This point is not particularly limited to companies, as individual consumers also face the same issue. With virtual credit cards, returning products ordered online to a real store might be difficult. This is because some retailers ask customers to swipe or enter the card used to make the transaction in order to process any refund. This certainly isn’t possible with a virtual credit card. In some situations, customers may have to accept store credit rather than a refund on their credit card. Recurring payments: recurring payments such as subscriptions may be affected by virtual credit cards with short expiration dates. To keep the subscription active, users have to update the virtual credit card information each time it expires. If they forget, the subscription may be suspended, requiring customers to repeat the process with a new virtual credit card number. However, some virtual credit cards could be easily set up with a specific spending limit and the preferred recurrence (for example, monthly or quarterly). Company migration: For some businesses, implementing virtual credit cards might be a difficult task. Companies that sign up directly with a payment partner will work with them to develop this payment mechanism on the technical side. Employee training following the rollout is another challenge for some organizations, especially those in industries that have long depended on more traditional payment methods. To sum up, virtual cards are gaining in popularity and are an excellent way to make safe payments. They are especially useful in business settings where a large number of employees require company cards, which are more expensive to operate with physical equipment and may be more vulnerable to manipulation and fraud. Virtual card numbers are one option for companies to manage finances and transactions with increased spending controls and reporting features while eliminating security concerns on both sides of a transaction as privacy becomes more essential. However, like any new technology, virtual credit cards have their own set of obstacles that might hinder some companies from using them based on their payment needs.   Author: Mariam Elmaghraby Sources https://www.juniperresearch.com/press/virtual-card-transaction-values-to-increase?ch=370% https://www.juniperresearch.com/researchstore/fintech-payments/virtual-cards-market-research-report https://www.paymentsdive.com/news/card-industry-faces-400b-in-fraud-losses-over-next-decade-nilson-says/611521/#:~:text=Fighting%20fraud&text=Global%20card%20fraud%20losses%20of,2019%2C%20per%20the%20Nilson%20report. https://cdn2.hubspot.net/hubfs/418036/WP_Sage_AP_Automation_virtualcreditcard-jul2017.pdf https://www.forbes.com/advisor/credit-cards/virtual-credit-card-numbers-guide/ https://www.axerve.com/en/learn/insights/virtual-credit-cards https://www.creditkarma.com/credit-cards/i/virtual-credit-card https://www.avidxchange.com/blog/virtual-credit-cards-what-they-are-why-theyre-so-popular/ https://www.cnet.com/personal-finance/credit-cards/what-is-a-virtual-card-and-how-do-you-use-it/

  After attracting mainstream attention when Beeple sold his NFT collection for a whopping $69 million at Christie’s (1), the non-fungible token marketplace registered an unprecedented boom by the end of 2021, with sales recording a 21,000% jump compared to 2020’s numbers, according to a report from NFT data company “Nonfungible.com”, partnered with BNP Paribas’s L’Atelier (2). While the future of this market remains open to speculation, we will explore three possible scenarios the NFT market might experience based on examples of real NFT projects.   Blockchain & Ethereum: Key enablers of NFTs To better speculate on the future scenarios of NFTs, we need to gain a better understanding of their foundation, specifically Blockchain, which serves as the backbone of NFTs. Blockchain was developed in the aftermath of the 2008 financial crisis, becoming a massive enabler for change in a broken system. Blockchain records all transactions in a way that makes it nearly impossible to hack, cheat, or change the system. The goal behind this technology was to create a new decentralized monetary system by transferring control and decision-making from centralized entities to a distributed network. The major blockchain innovations were cryptocurrencies (e.g., Bitcoin, Ethereum…) and NFTs. Ethereum is a cryptocurrency that can be obtained in the same manner that a national currency can be exchanged for a foreign currency. The only difference is that instead of going to banks, people can exchange their money on secure platforms such as Coinbase or Metamask (3). Although banks might be considered a more secure option given the fact that they are insured, crypto exchanges are far more secure since they are built on Blockchain technology, which ensures that every touchpoint is tracked, making it near impossible for any transaction to be hacked. Ethereum provides an additional versatile platform to other cryptos, which allows developers to implement Smart Contracts, improving traceability and verification (4).   1st Scenario: -The Good- NFTs Advantages and use cases as an enabler for a better future Historically, the economy works in such a way that the final consumer earns money, which he then spends on buying physical goods. However, with the advent of digital tools (social media, gaming, streaming…), consumption habits are changing. Transactions are shifting away from physical goods and more toward digital goods, which poses a problem: digital goods are harder to monetize. Consider the following example: an artist creates a physical painting that he attempts to sell, and someone attempts to produce replicas of his artwork. The buyer, in this case, would be able to tell the difference between the authentic and “fake” painting (brush strokes, signature, etc.). However, in the case of a digital artist, painting the same piece of art on his digital tool, he runs the risk of losing control over the asset the moment he puts it up for sale (as a JPEG image), given how easy it is to make copies, which would then look identical to the original art form, causing it to lose scarcity and thus value. This is what NFTs are trying to change. Based on Blockchain technology, NFTs can indisputably verify the original version of a digital product, which is attributed to a one-of-a-kind token of ownership that has a unique value. So, when people are trading NFTs, what they are really doing is buying and selling their virtual ownership of something. Based on this formula, we will present 3 future usages of NFTs that can potentially change how we perceive the digital world.   Community -Bored Ape Yacht Club- While the bar regarding customer relationship is currently set so low in many NFT projects (essentially no customer relationship after the transaction), there is one collection of NFTs called the “Bored Ape Yacht Club”, with 10,000 unique ape images (the cheapest one going for $200,000). The point is, we regularly find that superstars (Neymar, Post Malone, etc.) and people who own these NFTs are using these photos everywhere, as a symbol of pride that they’re part of this exclusive club. On top of that, the creators of this Bored Ape collection organize physical get-togethers for people who own a bored ape NFT (5). Although this remains the exception, for now, we can expect a brighter future for NFT projects following a similar, or inspired approach, giving more than ownership of an NFT. Gaming -Blankos Block Party- Many companies are betting that NFTs will enter the video game world in a big way, which, if successful, could introduce NFTs to a massive new audience and forever change the way we value digital objects. Think of this: gamers already spend money on buying and selling game keys, digital weapons, and rare skins (cosmetic gear). Although these operate on legally dicey ground, it’s the game developer that ultimately owns the traded goods, not the players. A good example that comes to mind is Counter Strike: Global Offensive, which has always had one of the most significant grey markets, with players allegedly spending $100,000 on a specific weapon skin (6). This is where Blankos comes into play. The game operates on the premises of accessibility, ownership, and scarcity. It is a free title where players can collect, customize, or sell NFTs of characters and objects created by developers and major brands. The results so far speak for themselves. Blankos entered early access in June 2021. One week later, it recorded 100,000 NFT purchases, with major brands and artists including Burberry, Quiccs, and Deadmau5 launching in-game items (7). Documentation -Blockcerts- It is possible to use NFTs to verify documentation, such as certifications, diplomas, medical histories, passports, etc. For example, when it comes to academic credentials, hiring managers can quickly verify the certifications and degrees of job candidates. This would be a huge breakthrough to prevent fraud and smooth the verification processes. Blockcerts is a blockchain-based service that already makes it possible to verify academic credentials (8). However, it doesn’t use NFT technology quite yet, which would make it even more useful in the future.   2nd Scenario: -The bad- NFTs, the next financial bubble The NFT market has lately been criticized for being a bubble. A report from “Nonfungible.com” presents the market as a buyers’ market. In fact, while the number of NFT sellers increased by a mind-blowing 3,669% compared to last year, the number of buyers increased by “only” 2,962%. The report also finds that NFTs are kept for only 48 days on average in 2021 before being sold, compared to 156 days the year before (9). This sparks concerns that the market might be saturated. Additionally, looking at NFT’s “Silent Crash”, which occurred in April 2021, the floor value of NFTs dropped significantly. Although prices had been slowly dropping since February 2021, as buyers weren’t investing or buying and sellers had to drop their prices because the market wasn’t moving, the NFT market took a hit. By June 2021, news headlined that the NFT market had officially crashed, falling nearly 90% from its peak (in May) (10). Eventually, the NFT market survived, mainly with NFT buyers showing an upward trend, helped by athletes and celebrities showing off their NFT collectibles. Fast forward to March 2022, where the average sale price of an NFT is now below $2,000, down from over $6,800 in January, according to Nonfungible (11). Even the Bored Ape Yacht Club, one of the best names in the NFT sphere, has seen its value slip. Not so long ago, the NFT market capitalization had reached $23 million. By April 21st, 2022, it was barely over $10 million, according to CoinMarketCap(12) . Although this drop may seem to be caused by a variety of factors, such as inflation, the Ukrainian/Russian war, as well as the increased scrutiny of NFTs by the Securities and Exchange Commission, skeptics are still warning of an NFT collapse, described as a “cataclysmic market crash” (13).   3rd Scenario: -The ugly- NFTs, scam, cash grab, and environmental disaster The more people discover about how NFTs are currently being used, the more concerned they get about what is yet to come. In fact, while NFTs were created with the intention of respecting the artist, the majority of them now are being used as cash grabs by opportunistic business owners. As an example, we can take a look at the Lazy Lions, which have been described as mass-produced, computer-generated cash grabs that have been manipulating the market (14). Additionally, almost all NFT transactions use Ethereum, which is not environmentally friendly, to say the least. Ethereum uses a security mechanism called proof of work, which is what makes the NFTs fraud-proof. This security measure requires a significant number of computers around the world to be working simultaneously, resulting in high electricity consumption. While many do not see how NFTs could be the next big thing in the digital world, some see it as a digital breakthrough. NFTs are believed to be putting power and economic control back into the hands of digital creators and pushing forward the next internet revolution. This being said, NFTs have a long way to go to reach this potential. Sources: 1: The Wall Street Journal: Your NFT Sold for $69 Million. 2: The 2021 NFT Market Report: Presented by Non-fungible and L’Atelier 3: Forbes: How to Buy a Cryptocurrency? 4: Ethereum: What’s an NFT ? 5: CNET: Bored Ape Yacht Club NFTs: Everything you need to know 6: Ginx: Someone bought a CS:GO Skin for $100,000. 7: Engadget: Blankos Block Party is an NFT Trojan Horse for the video game industry 8: Blockcerts.org 9: The 2021 NFT Market Report: Presented by Non-fungible and L’Atelier 10: Kotaku The NFT Market Has Collapsed, Oh No 11: Nonfungible.com/Market-tracker 12: CoinMarketCap/Nft 13: Fortune: NFT Collector predicts the market is about to crash 14: NFT evening: Lazy lions market manipulation

Economic shockwaves have been felt across all industries as penalties from the European Union, the US, and many other countries ramp up on the Russian Federation. Energy prices are rising, stock prices are falling, supply chains are collapsing, and inflation has reached record levels. These recent events have demonstrated that countries can be completely cut off from the global financial system or have their assets become worthless overnight. However, how strong will the Russian war affect the financial sector, and most importantly, how long will this effect last? In order to assess the consequences of the war in Ukraine, it’s vital to list the main restrictions imposed on Russia recently: Restrictions on the Russian financial sector According to statistics from S&P Global Market Intelligence, the vast majority of Russia's commercial banking industry has been subject to international sanctions as a result of the country's invasion of Ukraine. Foreign governments have imposed a set of restrictions against Russian banks, including capital market bans, asset freezes, and withdrawal from the Swift messaging system that facilitates financial transactions globally. The value of assets held by Russian commercial banks that are subject to the new sanctions exceeds 91 trillion rubles, or approximately over 80% of the 114.55 trillion rubles in total assets held by the country's banking industry as of September 30, 2021. The majority of the lenders that have been impacted are Russia's systemically large financial institutions.   Swift withdrawal Several banks have been removed from Swift: PJSC Bank Otkritie Financial Corp., Joint-Stock Commercial Bank NOVIKOMBANK, PJSC Promsvyazbank, Bank Rossiya, PJSC Sovcombank, State Development Corp. VEB.RF, and VTB Bank PJSC. Sberbank of Russia and Gazprombank JSC, two of the country's biggest lenders, were exempted from the Swift cut-off so that energy payments to Russia could continue. The US, on the other hand, placed correspondent and payable-through account sanctions on Sberbank and its subsidiaries, effectively cutting them off from the US financial system and limiting their access to dollar transactions. Similar restrictions were also imposed in the United Kingdom.   Frozen assets Most of the banks that were withdrawn from Swift had their assets frozen by the EU and the UK, while the US imposed full blocking sanctions on them, shutting them off from the US financial system, freezing their assets, and forbidding US individuals and businesses from doing business with them. Individual sanctions have also been imposed on a number of bank executives and major shareholders. Some of the banks were already operating under restrictions imposed after Russia's 2014 annexation of Crimea. The US, EU, UK, and Canada also decided to freeze foreign assets of the Central Bank of Russia, reducing its ability to mitigate the impact of the sanctions and support the country's banks with their foreign exchange needs. As a result of the sanctions, Russia lost access to over half of its $640 billion in reserves, according to Reuters, citing Russian Finance Minister Anton Siluanov. It is important to note that the Russian subsidiaries of international lenders such as France's Société Générale Société anonyme, Italy's UniCredit SpA, Austria's Raiffeisen Bank International AG, and Hungary's OTP Bank Nyrt are not subject to these sanctions. Many international banks, however, have warned that the conflict may cause them to lose their investments in Russia, especially after the USA decided to prohibit all investments in the Russian Federation by U.S. citizens.   OFAC Blocking of Sberbank and Alfa-Bank The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on two major Russian banks – Sberbank and Alfa-Bank – and added them and 48 of their subsidiaries to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). Prior to this, both entities had been subjected to considerable but less severe restrictions. By implementing the blocking sanction, OFAC has effectively banned all transactions involving these two banks by U.S. individuals or in (or through) the United States. Furthermore, all entities directly or indirectly owned (50% or more) by one or more of these institutions, whether individually or collectively, and any other blocked Russian individual or organization, whether or not named on the SDN List, are subject to the same penalties.   Impact of the war and restrictions SWIFT alternative With the United States, the UK, Europe, and Canada suspending some Russian banks from SWIFT on February 26th – essentially attempting to deny Russia access to the financial markets – many have speculated on the impact this will have on the payments ecosystem. Concerns have been raised about how payments for Russian energy imports would be handled, whether international creditors would be reimbursed, and how much nesting would be encouraged. In reaction to its withdrawal, the Russian Central Bank has claimed its SWIFT alternative – the Financial Message Transfer System (FMTS), established in the wake of the 2014 invasion of Crimea – is primed. FMTS delivered two million messages in 2020, according to Reuters, which accounts for almost a fifth of Russia’s internal traffic. Institutional participation in the system, on the other hand, is nowhere near what it has to be to keep Russia afloat in the international money transfer sector. Currently, the majority of members are Russian and Belarusian banks. Regardless of FMTS’ short-term success, the bottom line here is that the west’s use of the SWIFT “financial nuclear weapon” – as French Finance Minister Bruno Le Maire called it – will, at the very least, be fragmenting the global payments landscape. Currency The Russian ruble has suffered a severe depreciation as a result of geopolitical tensions and the international response to the situation in Ukraine. The central bank boosted the benchmark interest rate to 20% from 9.5% in an effort to support the currency and urged exporters to convert 80% of their revenue into rubles. Bans on foreign-currency loans and transfers to non-residents have also been implemented by the government, among other restrictions. US dollar to Russian ruble exchange rate: Number of rubles against the dollar from Feb 1, 2022, to March 16, 2022. [caption id="attachment_8243" align="aligncenter" width="451"] Data compiled March 17,2022Source: S&P Global Market Intelligence[/caption]   Rise of Cryptocurrencies However, it should be noted that not all areas of the financial services industry are at a disadvantage during this crisis. "Cryptocurrency and related services will benefit," said Michael Clouser, co-founder of The Startup Race. “People are losing trust in central currencies due to political instability, and actors are seeking to circumvent sanctions and SWIFT shutdowns.” Rising oil prices might lead to even more inflation, according to Clouser, and central bank-controlled currencies will lose value as people lose confidence in them. “Alternative currencies – those besides Bitcoin – will rise in price, such as Monero and other cryptos with privacy by design.” Additionally, cryptocurrency is also operating as a safe haven for many ordinary Russian residents who are trying to keep their savings secure from a banking system that has several restrictions and vulnerabilities as the ruble's value falls.   Threat to global banks With over US$100 billion of Russian debt held by foreign banks, concerns have been raised about the risks to banks outside Russia and the potential for a default to trigger a liquidity crisis similar to the one that occurred in 2008. European banks, particularly those in Austria, France, and Italy, are the most vulnerable to Russia's latest sanctions. According to data from the Bank for International Settlements (BIS), French and Italian banks each have roughly US$25 billion in outstanding claims on Russian debt, while Austrian banks have US$17.5 billion. Banks will certainly be impacted in other ways as well. Switzerland, Cyprus, and the UK, for example, are the most popular locations for Russian billionaires looking to deposit their money abroad. Cyprus also attracts Russian wealth with golden passports and visas. Because of the sanctions, all of these nations' financial institutions are expected to lose business. For example, the stock values of UK banks, Lloyds and NatWest, have both fallen by more than 10% since the invasion started.   To sum up, the war's effects might be vast, and many more will almost certainly emerge in the coming weeks and months. The financial sector has responded to the Russia-Ukraine war in a way that has never been seen before. With the increasing speed with which banks and financial corporations announce their own embargoes against Russia, the country is becoming increasingly isolated from the rest of the world. Internationally, the markets have been highly unstable as the global economy continues to recover from the pandemic while also dealing with high inflation. Yet, the invasion of Ukraine has exacerbated the situation, and financial markets will be on high alert to observe how things unfold.   Author: Mariam ElMaghraby Sources: https://www.finextra.com/the-long-read/358/how-is-the-russia-ukraine-war-impacting-the-financial-and-tech-sectors https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/more-than-80-of-russia-s-banking-sector-subject-to-sanctions-over-ukraine-war-69434351 https://www.natlawreview.com/article/biden-administration-rolls-out-new-tranche-sanctions-russia-blocking-major-russian https://www.business-standard.com/article/international/could-the-russian-invasion-of-ukraine-spark-a-global-financial-crisis-122030600191_1.html https://www.worldbank.org/en/news/press-release/2022/04/10/russian-invasion-to-shrink-ukraine-economy-by-45-percent-this-year https://theconversation.com/how-the-russia-ukraine-conflict-has-put-cryptocurrencies-in-the-spotlight-180527

In recent times, inflation has been a topic of discussion for economists, politicians, and citizens alike. The pandemic has brought an end to a period that was marked with low-to-moderate inflation rates with even deflation plaguing countries such Thailand, Qatar, and Malaysia before the COVID outbreak. There has been a noticeable spike in the number of advanced economies with an inflation rate of above 5%. The number of emerging markets seeing higher inflation has also increased with 78 out of 109 Emerging market & Developing countries having an inflation rate of 5% or more. This leap is the first of its kind in a 20-year period. [caption id="attachment_8040" align="aligncenter" width="541"] Source: Project-Syndicate[/caption] Pandemic-related factors brought the annual inflation rate in the US to 7% in the last month of 2021, a fresh high since June of 1982. The U.K. and Canada had a whopping 30-year high inflation rate reaching 5.4% and 4.8% respectively. [caption id="attachment_8042" align="aligncenter" width="459"] Source: oecd.org[/caption] One of the major problems with inflation is that the lower social classes are the ones hit the hardest. According to the IMF, inflation has particularly negative consequences for households in low-income countries, where about 40% of consumer spending is on food. The reason inflation does not affect higher-income individuals and households is because they can afford to spend more money on basic goods contrary to their lower-income counterparts. A study conducted by Ipsos of 20,000 people from 30 different countries found that over 50% of participants reported an increase in the prices of clothing and shoes, housing, healthcare, and entertainment. Over 40% expect these costs to keep rising for several months to come. The UN noted that the FAO, Food Price Index, a measure of the monthly change in international prices of a basket of food commodities, reached a 10-year high in 2021, despite a small December decline. [caption id="attachment_8043" align="aligncenter" width="457"] Source: FAO.org[/caption] Reasons for the increase       Many reasons contributed to prices rising at a substantial rate. Most of these reasons relate to the COVID-19 pandemic including supply constraints, economies reopening, fiscal stimulation, increased liquidity, higher energy prices, lower inflation in past years, higher unemployment, conflict between countries, and labor shortage.   Supply constraints The fast spread of the virus in 2020 caused the shutdown of many industries around the world and with that, consumer demand also dampened, which in turn reduced industrial activity. After vaccines became widely available and many countries deemed their vaccination campaigns successful, economies reopened and suddenly, supply chains were faced with tremendous pressure. The supply of goods, once systematic and free-flowing pre-pandemic, was forced to a halt post-pandemic which damaged all the systems that were in place originally. Supply chain systems are not easy to implement as it requires coordination between a multitude of different parties. The surge in demand necessitated these systems to switch on and be fully functional in a short period, which is not feasible. [caption id="attachment_8044" align="aligncenter" width="454"] Source: BEA, BLS[/caption] A major culprit in price increases coming from the supply constraints is the semiconductor industry. Chips are increasingly present in most of the products we use, ranging from cars to remote controls to smart lights and a variety of different items that are used today.   High Energy Prices [caption id="attachment_8045" align="aligncenter" width="443"] Source: U.S. Bureau of Labor Statistics[/caption] Oil prices have reached their highest level since 2008. Brent Crude, which represents the global oil benchmark, has increased to $130 per barrel. The spike has been driven primarily by fears of supply-side disruptions. The attack by Yemen’s Houthis on fuel trucks in Abu Dhabi, in which three people were killed played a part but the main reason has to do with the tensions between Russia, the world’s second-largest oil producer, and Ukraine. Energy prices in households are rising dramatically and their effects are directly being felt by consumers. Further, the key oil-producing countries have kept supply on a gradually increasing schedule despite the sharp increase in global crude prices. The OPEC countries decided to increase overall daily production by only 400,000 barrels in February, even though its own prediction is for demand to rise by 4.15 million barrels per day in 2022.   2022 Outlook According to the World Bank, Global inflation is expected to remain elevated throughout 2022. Supply bottlenecks and labor shortages are assumed to gradually dissipate through 2022, while inflation and commodity prices are assumed to gradually decline in the second half of the year. In the U.S. the central bank is under pressure to raise interest and tighten the economy further to combat inflation. However, the country is at a crossroads where raising rates might trigger a fresh global debt crisis, as its emerged poor-country repayments to creditors are already running at their highest level in two decades. The IMF warned that a quantitative tightening from the U.S. Federal Reserve could have a ripple effect on emerging markets by leading to capital outflows and currency depreciation. Emerging markets that borrowed most from the U.S. dollars are going to be hit the hardest by an increase in Interest Rates leading to potential country defaults. In the MENA region, the Economist Intelligence Unit has pointed out that the CPI is expected to remain high in 2021-2022 at an annual average of 14% due to the rise in international food and energy prices. Inflation will continue to be aggravated with Supply Chain bottlenecks and the post-pandemic increased demand in Middle Eastern countries. [caption id="attachment_8046" align="aligncenter" width="471"] Source: The Economist Intelligence Unit[/caption] There are also expectations that inflation will greatly impact low-income non-oil exporting countries within the MENA region such as North African countries. The effects of higher inflation will be less impactful in wealthier GCC and Asia-Pacific Economies. Regarding food, shortages might arise in low-income non-oil exporting countries due to dry spells and lower crop yields. Sharply depreciating currencies in countries such as Lebanon will further aggravate inflation in 2021/22, driving up the cost of imported goods. In a more distant future, inflation is expected to slow down toward the end of 2022 and the beginning of 2023, as Supply chain disruptions start to dissipate and the labor markets around the world are back to their healthy state.   Conclusion Inflation seems to be quite a persistent rather than a transitory threat. The escalation of the conflict between Russia and Ukraine will most definitely not help ease inflation but rather further aggravate the matter since Russia is one of the biggest producers of raw materials such as oil, wheat, and a variety of different metals. Gasoline prices will further increase with the cost for food and goods such as smartphones most likely to follow suit. However, with supply chains recovering to their original efficiency, inflation will eventually slow down to settle at a fair rate.   Author: Othmane Zidane   Sources https://www.project-syndicate.org/commentary/return-of-global-inflation-by-carmen-reinhart-and-clemens-graf-von-luckner-2022-02?a_la=english&a_d=62067728a72fe630c0cb5cc7&a_m=&a_a=click&a_s=&a_p=homepage&a_li=return-of-global-inflation-by-carmen-reinhart-and-clemens-graf-von-luckner-2022-02&a_pa=curated&a_ps=&a_ms=&a_r= https://data.oecd.org/price/inflation-cpi.htm https://www.weforum.org/agenda/2021/12/rising-prices-inflation-ipsos-survey/ https://www.eiu.com/n/threat-from-inflation-in-the-mena/ https://www.theguardian.com/business/2022/jan/23/fears-grow-that-us-action-on-inflation-will-trigger-debt-crisis https://globalnews.ca/news/8523037/inflation-canada-jan-2022-record/ https://www.naturalgasintel.com/oil-natural-gas-prices-drive-sustained-surge-in-inflation/ https://research.stlouisfed.org/publications/economic-synopses/2021/12/16/supply-chain-bottlenecks-and-inflation-the-role-of-semiconductors#:~:text=Along%20with%20unprecedented%20labor%20market,to%20shortages%20of%20key%20inputs. https://www.ecb.europa.eu/ecb/educational/explainers/tell-me-more/html/high_inflation.en.html https://www.imf.org/external/pubs/ft/fandd/basics/30-inflation.htm https://www.fao.org/worldfoodsituation/foodpricesindex/en/ https://blogs.worldbank.org/voices/global-economic-outlook-five-charts-1 https://www.morganstanley.com/ideas/global-macro-economy-outlook-2022#:~:text=The%20surge%20in%20global%20inflation,global%20GDP%20growth%20in%202022.

While virtual worlds have been around for quite a few years, it is only recently, following Facebook’s rebranding as Meta, that significant attention has been brought upon what have come to be called metaverses. Believed to be the next phase of the internet and possibly even a future complementary reality to our physical world, metaverse worlds are gaining momentum. With this rise in popularity, much attention has been focused on a particular aspect of these virtual worlds: real estate and virtual land ownership.   Metaverse Property as Land Parcels Metaverses are virtual worlds or spaces, where users can socialize and interact through avatars, with features that often gamify social interactions while simulating real-world environments. Some metaverses also allow for VR integration, providing a more immersive experience for their users. A distinctive feature of Metaverse ecosystems is their use of well-elaborated economies, backed by their own crypto-based currencies. This allows their users to purchase in-world items and assets that hold real monetary value. Chief among these assets is virtual real estate, represented by parcels of land parcels that constitute the respective metaverses, and can be freely traded among its users. These land parcels are NFT-based assets and are traded on decentralized platforms, such as Opensea or Nonfungible.com, that allow property exchange across metaverse worlds. A select number of metaverses have been frontrunners in this space, providing their users with the ability to buy virtual lands and construct houses or buildings on their proprietary parcels, with only their imagination as the limit. These parcels of land hold value, and are increasingly seen as investments, for two main reasons: First, despite being in virtual worlds, land parcels are limited in supply (the exact number and size of parcels vary widely by platform). Second, users can monetize their parcels, which allows them to generate revenue from their virtual land assets.   The Frontrunners Currently, the most prominent decentralized metaverses are Decentraland, Somnium Space, Sandbox, and CryptoVoxels. Decentraland Decentraland is a completely decentralized virtual world, built on the Ethereum blockchain, wherein users can socialize, play, or exchange virtual goods, using its cryptocurrency MANA. Users can even vote for changes they would like to see in the metaverse, through an open organization, the "Decentralized Autonomous Organization". Decentraland is currently divided into 90,601 land parcels, each of which measures 16x16 meters. Somnium Space Somnium Space is a more immersive metaverse, offering its users the opportunity to explore the world with their VR headsets, in the metaverse’s built-in VR mode. Its decentralized currency, CUBE, allows users to purchase one of the 5,026 purchasable land parcels available in the metaverse. These parcels come in sizes ranging from small, to extra-large, measuring 200sqm and 10 meters in build height at one extreme, and 1,500 sqm and 50 meters in build height, at the other. The Sandbox The Sandbox is another metaverse where players can own, build, and monetize their virtual assets. Users can shop for parcels of land using its currency SAND, and as of December 15, 2021, could choose from among the 74% of parcels still available for trade. CryptoVoxel This virtual world is distinguished by its pixelated Minecraft-like aesthetic, and as of November 4, 2021, its users could buy choose among a maximum supply of 5,919 parcels. This metaverse platform has so far carved out a unique space for itself by hosting several well-received art exhibitions and galleries. So far, these Metaverses have been the main playing field for large businesses as well as individual users. PwC recently acquired parcels in The Sandbox, while retailer Adidas now owns 144 parcels on the same platform. Governments are getting in on the act as well, with Barbados recently becoming the first to establish a virtual embassy, following its move into Decentraland.   A Booming Virtual Market In the past few years, virtual worlds have seen a surge in land prices, with some registering millions of dollars in record spending. In June 2021 Reuters reported that a patch of virtual lands in Decentraland was sold for more than $900,000 to the virtual real estate fund Republic Realm. More recently, in November 2021, Tokens.com set a record by buying 116 parcels in Decentraland valued at 618,000 MANA, equivalent to $2,400,000 at the time of acquisition. Tokens.com completed the acquisition through its subsidiary Metaverse Group, which bought the land parcels in the Fashion District of Decentraland, as a strategic acquisition aimed at hosting fashion projects and events, in partnership with players in the Fashion industry. Digital real estate trading is also extending into the realm of video games. The blockchain-based game Axie Infinity, for instance, recently sold an in-game land plot for 550 ETH, valued at $2.5 million at the time of acquisition. The rush of investors towards virtual land has seen the price of virtual parcels skyrocket. Based on exchange data from the platform ‘Nonfungible’, the average price of asset transactions across the major metaverses has seen a considerable increase over the past two years (Figure 1).      [caption id="attachment_7987" align="aligncenter" width="634"] Figure 1 - Average asset transaction values based on Nonfungible.com, data spanning from 2020/01/01 to 2021/12/31. Quarterly data based on monthly assets trade value across the main metaverses (The Sandbox, Decentraland, Somnium Space and Cryptovoxels) in USD.[/caption]     Although land parcels constitute the main items traded in Metaverses, virtual token transactions are becoming more diversified, and now encompass avatars, estates (sets of multiple land parcels), and all types of virtual equivalents to everyday items. As data from ‘Nonfungible’ shows, the average value of exchanged virtual assets had jumped to thousands of dollars in each of the main metaverses, by the end of 2021, compared to just a few hundred dollars in early 2020. Facebook’s recent announcement of its rebranding to Meta has given more visibility to existing Metaverses, further boosting both their asset prices and currencies. Decentraland has seen its average asset transaction price jump from as low as $200 in the first quarter of 2020 to more than $12,000 during the last quarter of 2021. Not only has the value of its land parcels risen exponentially, but so too has its cryptocurrency, surging 164% after Facebook’s announcement. Although the current crypto crash has devalued several metaverse currencies, the parcels market, and virtual tokens more generally have shown no signs of a slowdown in recent months.     Looking Forward Metaverse worlds and their applications are still in the early phases of their development, but the underlying virtual real estate market has, nevertheless, seen real development in recent years, experiencing a sustained boom in parcel prices. Whether investors are eagerly rushing in because they believe in the future value of these virtual assets, or out of simple fear of missing out, is a matter of ongoing debate. What is undeniable, however, is that a very real, albeit virtual real estate market, has rapidly matured over the past two years. Aside from parcel trading, companies like Metaverse properties or Republic Realm are now providing virtual real estate development to their clients along with virtual property management solutions. More broadly, the idea that the Metaverse is shaping up to be the internet’s next great frontier, is rapidly gaining traction, with several tech companies and governments taking concrete steps to develop Metaverse-related applications. In addition to Facebook’s rebranding, Microsoft recently announced plans to integrate a metaverse mode, ‘Mesh’, into its ‘Microsoft Teams’ productivity tool. Nike sent a clear statement on the company’s willingness to enter the virtual universe with its acquisition of virtual clothing brand RTFKT, in December of last year. The Korean government has gone a step further by announcing a digital metaverse vision 2026, aimed at making South Korea the 5th largest Metaverse market by 2026. The shift towards the Metaverse is still in its early stages. The technology and ecosystem will likely see further integration with software and hardware still in development – such as rapidly developing VR and AR technologies – and this, in turn, will likely trigger the integration of further verticals in the foreseeable future. What verticals these might be, however, and how they will compare with virtual real estate, remains to be seen. Khawla Jaidi Sources https://www.businesstimes.com.sg/real-estate/investors-snap-up-metaverse-real-estate-in-virtual-land-boom https://www.bloomberg.com/news/articles/2021-03-19/virtual-land-prices-are-booming-and-now-there-s-a-fund-for-that Metaverse properties Decentraland Metaverse properties Somnium space Metaverse properties the Sandbox Metaverse properties Cryptovoxels Somnium Space Economy paper https://nftplazas.com/somnium-space/somnium-space-map/ https://nftplazas.com/decentraland/decentraland-land/ https://stealthoptional.com/metaverse/the-sandbox-land-how-much-land-is-left/ https://www.cryptovoxels.com/about https://nftplazas.com/cryptovoxels/cryptovoxels-land/ https://www.bloomberg.com/news/articles/2021-12-14/barbados-tries-digital-diplomacy-with-planned-metaverse-embassy https://www.lifestyleasia.com/bk/gear/tech/what-is-decentraland-digital-real-estate/ https://futurism.com/virtual-real-estate https://www.nytimes.com/2021/11/30/business/metaverse-real-estate.html https://finance.yahoo.com/news/most-expensive-virtual-plot-land-185000712.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAKkSEoD2k62cSGIO_hYTdqF1-ArB7dGx5z1qsTRr4Z1GMSplzpTHZjSo98q8kUTnLaycu5MleC9XUFDFU2BStONpwajzJywNX3f1Rrnh5wzWirckl7Q-7B05LAPBidn7fMsXjz4FP91Vzrz02eE0N4jOLpHGCD3doa1qcNI7KnUm https://blog.bitnovo.com/en/what-is-cryptovoxels-the-minecraft-of-nft/ https://www.vox.com/recode/2021/12/2/22812608/metaverse-real-estate-meta https://www.consultancy.uk/news/30011/pwc-buys-virtual-land-nft-in-the-sandboxs-metaverse https://www.republicrealm.com/digital-real-estate https://www.theblockcrypto.com/linked/125497/axie-infinity-plot-of-virtual-land-sells-for-record-2-4-million https://currency.com/adidas-dives-in-the-metaverse-buying-lands-on-the-sandbox https://nypost.com/2021/10/31/decentralands-mana-virtual-reality-cryptocurrency-soars-following-facebooks-rebrand/ https://markets.businessinsider.com/news/currencies/metaverse-1-trillion-opportunity-grayscale-virual-land-sales-decentraland-2021-11 https://www.korea.kr/news/policyNewsView.do?newsId=148898285 https://www.forbes.com/sites/jackkelly/2022/01/23/the-metaverse-is-the-web3-wave-that-democratizes-buying-and-building-real-estate-hosting-fashion-shows-and-monetizing-video-gaming/?sh=2a11a176751f https://techxplore.com/news/2021-10-facebook-hire-eu-metaverse.html

    Modern crypto assets offer fast and simple payments, innovative financial services, and access to untapped markets and un-banked parts of the world. All these innovations are made possible on account of the fast-evolving crypto ecosystem. However, the rapid growth and adoption of crypto assets have led to new risks and challenges.   The Growth of Crypto Assets The market capitalization of crypto assets has registered substantial growth in recent years, albeit it amid large bouts of price volatility. In 2021, it increased three-fold compared to October 2020 reaching a record high of $2.5 trillion in early May. Concern from institutional holders on the influence of crypto assets on the environment, along with heightened global regulatory scrutiny led to a 40% decrease at the end of May, but the market value of crypto assets has since increased again, reaching more than $2 trillion by October 2021 — a 170 percent increase year to date. Numerous factors have played a role in the recovery of the crypto-assets market, most notably increasing interest from investors and consumers in decentralized finance (DeFi), Stablecoins, and “Smart Contract” blockchains.   [caption id="attachment_7778" align="aligncenter" width="604"] Figure 1 - Market Capitalization for Crypto Assets (Billions of US dollars)- Source: IMF[/caption] Decentralized Finance (DeFi) Decentralized Finance is a blockchain-based open alternative to the current financial system that does not rely on financial entities such as banks, brokerages, or exchanges to provide traditional financial instruments, relying instead on smart contracts on blockchains such as Ethereum. The DeFi market size reached $110 billion in September 2021, up from just 15 billion at the end of 2020, due largely to the growth of decentralized exchanges that allow users to trade cryptos without resorting to an intermediary, and credit platforms that allow lenders to access borrowers without the need to undergo a credit risk evaluation. Stablecoins Most DeFi services are built on the Ethereum blockchain and use Ethereum-based tokens, including stable coins. Stablecoins are a form of cryptocurrency that is designed to provide price stability, by anchoring their value to a specific asset. While this is typically the US dollar, it can also include commodities such as gold or oil, or simply other fiat currencies. In 2021, the market capitalization of stable coins grew to more than $120 billion, a four-fold increase over 2020. The largest of these, “Tether”, saw its market share gradually decline as leading crypto exchanges such as USD coin by Coinbase and USD Binance introduced their own versions to the market. According to the IMF, the trading flows of Stablecoins outstrip all crypto assets, primarily because they are so usable for settlement of derivates and spot trades on exchanges. Moreover, their price stability continues to improve, protecting users from the volatility of other crypto-assets and in so doing encouraging them to keep their funds inside the crypto ecosystem. “Smart Contract” blockchains Smart contracts are computer programs or transaction protocols that are executed automatically when a set of conditions are met. They are used to automate the execution of a contract so all parties involved can be confident of the outcome without time loss or the need to rely on an intermediary. While Bitcoin remains the leading crypto asset in 2021, it has seen its market share decrease from 70 percent to less than 45 percent. The main reason behind this decrease is the shifting market interest towards more recent blockchains that operate smart contracts offering features that ensure sustainability, interoperability, and scalability. Ether, for instance, saw its trading volumes surpass those of Bitcoin earlier this year.   Challenges Posed by the Crypto-Ecosystem The crypto ecosystem’s rapid growth has encouraged the entrance of new players and entities, many of which have poor cyber risk management, operational and governance frameworks. Cyber risks These include cases of hacking thefts of customer funds and the most common target centralized elements of the ecosystem, such as exchanges and wallets, though they have also been carried out against the consensus algorithms underpinning all crypto operations. Operational Risks These include failures and disruptions that prevent the use of services, leading to significant downtime and losses of customer funds. Such failures typically occur during periods of high transaction activity and are usually attributable to inadequate system and control design. Governance risks These encompass the lack of transparency regarding the issuance and distribution of crypto assets and have resulted in significant investor losses. Noteworthy examples of such risks include the hacking thefts of Coincheck in 2018, and KuCoin in 2019 — in Japan and Singapore respectively — and the sudden price collapse and rapid outflows from Bitmex in 2020. More recent examples include the temporary shutdown of the Philippines Digital Asset Exchange and the collapse of Turkish exchanges Vebitcoin and Thodex, all of which took place this year. Cryptoization In emerging markets, the advent of crypto assets brings with it heightened macro-financial risk, primarily in the form of asset and currency substitution, or ‘cryptoization’. Cryptoization can negatively impact such economies in several ways, with perhaps the biggest risk coming from its tendency to reinforce dollarization forces, impeding the ability of central banks to implement effective monetary policy.   Looking Forward While the above-mentioned crises did not have a substantial impact on global and domestic financial stability, the macroeconomic impact of such risks will only increase as the crypto ecosystem continues to expand. According to the IMF, regulators can mitigate these risks by enhancing their monitoring of crypto-assets through targeting data gaps in the market, while policymakers can do the same by implementing global standards for crypto assets. As Stablecoins continue to gain prominence, regulations will have to increase in accordance with the economic functions they perform and the risks they present. This will be especially important in emerging and developing markets — where the macro-criticality of Stablecoins can be considerably higher. Finally, emerging markets threatened by cryptoization should reinforce their macroeconomic policies and consider the benefits of issuing central bank digital currencies. Author: Yassine Falk Sources: https://www.pwc.com/us/en/industries/financial-services/library/cryptocurrency-evolutiohtml https://www.firstposcom/business/imf-warns-rapid-growth-and-increasing-adoption-of-crypto- assets-pose-financial-stability-challenges-1001865html https://www.imf.org/-/media/Files/Publications/GFSR/2021/October/English/ch2.ashx https://economictimes.indiatimes.com/markets/cryptocurrency/emerging-market-cryptoization-threatens-financial-stability-imf/articleshow/86688539.cms?from=mdr https://www.reuters.com/business/finance/el-salvador-leads-world-into-cryptocurrency-bitcoin-legal-tender-2021-09-07/

  Covid-19 has increased the number of poor people in the world The COVID-19 pandemic has revealed stark inequities that are simultaneously acute and chronic. Even more so, it triggered a global humanitarian crisis, putting both lives and livelihoods at risk. According to the World Bank, global extreme poverty rose in 2020 for the first time in over 20 years as the disruption of the COVID-19 pandemic compounds the forces of conflict and climate change, which were already slowing poverty reduction progress. The estimated increase in global poverty in 2020 was truly unprecedented, with COVID-19-induced new poor estimated to be between 119 and 124 million. NGOs and governments have been particularly active and have stepped up to provide relief. These relief packages will continue to be important as the pandemic stretches out, with recovery likely to be a long-drawn process. Official development assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose to an all-time high of USD 161.2 billion in 2020, up 3.5% in real terms from 2019, boosted by additional spending mobilized to help developing countries grappling with the COVID-19 crisis. Bilateral ODA to Africa and least-developed countries rose by 4.1% and 1.8% respectively. Humanitarian aid rose by 6%.    The world is off-track to ending poverty in 2030 Poverty eradication, especially in developing countries, is one of the greatest challenges facing the world today, and an indispensable requirement for sustainable development. This explains why in 2015, the international community enshrined the aim of ending extreme poverty by 2030 in the Sustainable Development Goals. According to the most recent estimates, in 2019, 8.2 percent of the world’s population lived on less than $1.90 a day. Even before COVID-19, baseline projections suggested that 6 percent of the global population would still be living in extreme poverty in 2030, missing the target of ending poverty. [caption id="attachment_7649" align="aligncenter" width="545"] Source: Lakner et al. (2020) (updated), PovcalNet, World Bank (2020)[/caption] According to UN data, the share of the world’s population living on less than $1.90 per day was between 9.1% and 9.4% in 2020. These estimates are close to the global poverty rate of 9.2% in 2017, implying a three-year setback in the poverty reduction goals. Projected estimates for 2030 incorporating the COVID-19 pandemic suggest a 6-to-7-year setback in the poverty reduction goal relative to the projections without the pandemic. Accounting for COVID-19 suggests a global extreme poverty rate between 6.7% and 7.0% in 2030, which translates to between 573 and 597 million poor people. This suggests that the COVID-19 pandemic is likely to set back progress towards the World Bank’s poverty goal by 6 to 7 years.   Aid and economic growth are not enough to end extreme poverty Historically, the quest to reduce poverty has relied on two levers: economic growth and the intentional redistribution of resources to the poor, either by the domestic state or foreign aid. Lucy Page and Rohini Pande (“Ending Global Poverty: Why Money Isn’t Enough, 2018” published by Journal of Economic Perspectives) argue that growth and aid, at least as currently constituted, are unlikely to suffice to end extreme poverty by 2030. They added that the total volume of aid has increased substantially over time, rising nearly fivefold between 1960 and 2016, from about $32 billion to $158 billion in 2016—both in constant 2016 US dollars (OECD 2018). Indeed, if the cost of ending poverty were simply the dollar value of the shortfall between the poor’s daily consumption and $1.90, then the problem would appear to have been solved because official development assistance has exceeded this value since 2006. Economic growth may not help reduce poverty because growth often discriminates. But poverty can have a long half-life in the presence of inequality. In India, which in 2013 contained the largest share of the world’s extremely poor, over 100 billionaires lived alongside 210.4 million people in extreme poverty. This imbalance arises from unequal growth. These trends in inequality suggest that growth does not reduce poverty as quickly as the equitable distribution of resources might permit.    Results-Based Financing (RBF) vs traditional funding mechanisms The complexity and interconnectedness of the variables that drive poverty reduction and inclusion outcomes call for the use of different approaches other than the traditional approaches that have yielded very few results. To end extreme poverty sustainably and as quickly as possible, the states governing the world’s poor need to maximize finance for poverty eradication by leveraging innovative financing models that are both accountable to the needs of the poor and have the capacity to meet those needs. Traditional development funding approaches, where payments are made based on inputs and activities have perpetuated unsatisfactory results. This is because traditional funding rewards implementers for delivering the activities of development programs according to pre-established plans and timelines and not based on the results or impact made by the intervention. Results-based financing responds to these limitations through a simple but fundamental change in the way poverty reduction programs are funded: Shifting from paying for inputs and activities to paying based on measurable results being achieved and verified. RBF thus provides an additional guarantee of value for money compared to traditional funding. With RBF, payments are closely linked to the intended development results and hence bridge the gap between good intentions and results. By tying payments to results, RBF ensures that funding supports outputs or outcomes.    Results based financing is the way to go In 2014, UNCTAD estimates that achieving the Sustainable Development Goals (SDGs) by 2030 will require $3.9 trillion to be invested in developing countries each year. It also notes that with an annual investment of only $1.4 trillion, the annual investment gap is $2.5 trillion. To fill this gap, countries have increasingly adopted results-based financing, or RBF, as an innovative and effective approach to funding poverty alleviation projects.  This approach (RBF approach) has risen to the challenge. In the last decade alone, at least $25 billion of development spending has been tied to results, an increase from just a few billion the decade before. This growth has largely been led by the World Bank with its Program-for-Results Financing (PforR) instrument involving $19 billion tied to results. The World Bank’s Global Partnership for Results-Based Approaches (GPRBA) has tested RBF approaches in Africa, South Asia, and other developing regions which has benefited around 11 million people in 30 countries, improving services for low-income communities in a range of sectors.  RBF is defined as a financing arrangement in which payment is contingent upon the achievement of predefined and subsequently verified results. To help eradicate poverty and ensure that no one is left behind, governments and donor groups can use results-based financing (RBF) approaches which can catalyze social impact for long-term structural change.  RBF ensures that development funding is linked to pre-agreed and verified results, and that funding is provided when the results are achieved. Through a range of mechanisms, RBF drives both innovation and efficiency by aligning incentives to the welfare of program beneficiaries, providing flexibility to maximize results, and enhancing the accountability of the incentivized agent to the beneficiaries. By putting a portion of the funding at risk, or providing a bonus payment, RBF promotes alignment between the interest of the funder, the incentivized agent, and the welfare of the beneficiaries. It does so by rewarding the incentivized agents financially for delivering results, thus compelling them to implement activities that meet the beneficiaries’ needs.   Evidence of the effectiveness of RBF Whilst the practice of RBF remains nascent, there is overwhelming evidence of its impact. In Burkina Faso, Trickle Up partnered with community-based organizations to deliver its program under a results-based financing model. The program is based on the graduation program, which combines seed capital, savings, skills training, coaching, confidence-building, and social support. Since 2007 Trickle Up has implemented the Graduation approach with approximately 5,450 households, effectively impacting over 27,000 beneficiaries. Results show that the Trickle Up program has contributed to increasing households’ income and daily spending on foods other than grains by 3 times, increasing participation in savings to up to 99%, up from only 34% at baseline, supporting the creation of livelihoods with 65% of participants in Burkina Faso reporting having two or more businesses, increasing the resilience of participant households to environmental shocks and market trends.    As the number of poor people increases due to the COVID-19 pandemic with its resultant effect of more funds needed to eradicate poverty. Now more than ever is the time to use innovative financing models such as RBF to finance poverty alleviation projects to make sure that the desired results are achieved with limited resources deployed. Much progress has been made but much more is still required. Author: Jonathan Sumbobo   Sources https://blogs.worldbank.org/opendata/updated-estimates-impact-covid-19-global-poverty-looking-back-2020-and-outlook-2021 https://documents1.worldbank.org/curated/en/765601591733806023/pdf/How-Much-Does-Reducing-Inequality-Matter-for-Global-Poverty.pdf https://sustainabledevelopment.un.org/content/documents/3770chapeau_clean.pdf https://mappingignorance.org/2018/12/19/when-money-is-not-enough-to-help-the-poorest/ https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.32.4.173 https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/official-development-assistance.htm https://sdgs.un.org/goals/goal1 https://blogs.worldbank.org/opendata/projecting-global-extreme-poverty-2030-how-close-are-we-world-banks-3-goal https://www.worldbank.org/en/news/feature/2019/06/28/banking-on-impact-what-you-need-to-know-about-results-based-financing http://gpoba.org/sites/gpoba.org/files/publication/downloads/2018-11/Guide_for_Effective_RBF_Strategies.pd https://www.instiglio.org/impact/trickle-up-performance-based-contract-design-in-burkina-faso/ https://trickleup.org/wp-content/uploads/2020/03/OurWorkBurkinaFaso_2016_10.pdf

US bank branches could become extinct by 2034 if current branch closure plans don’t change, according to a study published by Self Financial. This past decade has seen the progressive closure of physical banks and the global pandemic seems to have accelerated this trend worldwide. In the UK, over 4,300 branches closed since 2015, representing a 44% decrease. Northern European and Baltic countries recorded some of the biggest declines in the number of bank branches per 100,000 adults in the last few years. A well-known example for this is Danske bank which decided to close down all banking activities in Estonia, Latvia, Lithuania, and Russia; in addition to closing 50 branches in Northern Ireland. The United States had 83,060 branches in 2012, but just 77,647 in 2018 – a loss of 5,413 branches, or 6.5%, according to Self's figures.  Are these closures really significant, and who would get hit the hardest if physical banking were to become extinct?    Branch closures worldwide If major banks like Citigroup Inc. and Bank of America Corp. were greatly affected during the 2008 crisis and closed/sold more than 1,500 branches since 2009, regional banks have only seen an impact on their physical footprint more recently with the rise of internet banking and fewer people visiting branches. Examples of regional banks include Capital One Financial Corp. slashing 32% of its branches between mid-2012 and mid-2017, SunTrust Banks Inc. 22% and Regions Financial Corp. 12%. On the other hand, major banks reported similar numbers such as Citigroup closing 32% and BOA 17% during the same period even though they’ve had a head start over regional banks for several years. During the pandemic, Banco Sabadell was the first to act in Spain, announcing the loss of 1,800 jobs on the same day that its merger discussions with BBVA failed in November 2020. Later, Santander announced the loss of 3,572 employees and the closure of 1,033 branches in Spain by December 2020. Also, BBVA reportedly planned 3,798 layoffs and the closure of 530 locations. A one-day strike by employees in June caused them to amend their decision to only 2,935 layoffs and 480 branch closures. In April, CaixaBank planned 8,291 job layoffs and 1,534 branch closures; however, after discussions with unions, the bank agreed to 6,452 job layoffs and the closure of 1,500 branches. Commerzbank, Germany's second-biggest bank by assets, will exit Hong Kong, Luxembourg, and Hungary, as well as close branches in Bratislava, Slovakia, Barcelona, and Brussels. According to Bloomberg, the number of global correspondent banks would be reduced from 1,600 to around 1,300 with more than 80% of headcount reductions set to be completed by the end of 2023. Deutsche Bank will close 150 branches this year, with a further 50 Postbank branches going in 2022, costing more than 1,200 jobs. Deutsche Bank’s branch closures are part of a plan announced in 2019 to cut 18,000 positions, or one-fifth of the company's worldwide staff, and spend €13 billion on new technologies over the following four years.   Reasons behind branch closures . Banks are shutting branches to save costs Opening a new branch costs a bank millions of dollars, on average $2-4 million. Then they pay $200,000-400,000 each year to run it, especially in high-cost cities. Therefore, it might take years for a branch to achieve its potential profit. In the UK for example, each client visiting a branch on a regular basis may cost banks up to £118,000 per year in some branches. Also, according to a report published by Bain & Co. in 2016, a mobile banking transaction costs around 10 cents, whereas connecting with a bank teller costs about $4. Bain also stated that the 25 largest U.S. banks could save more than $11 billion a year if they decreased their branch count per capita. Commerzbank is planning on saving €1.4 billion by 2024 with the closure of 340 branches and the elimination of about 10,000 jobs, according to their "Strategy 2024”. . Customers’ increasing reliance on online banking As reported by the American Bankers Association (ABA), 71% of Americans prefer online or mobile banking business to brick and mortar. Also, 39% of customers now report using mobile apps as the primary source for banking, a 3% increase from pre-COVID levels. BBVA reported a 48% drop in in-person transactions and a 115% increase in the use of its digital channels in the first half of 2021. Also, according to YouGov, most bank customers (up to 84%) use internet banking monthly in the UK, while only 25% still visit branches once a month.    Disadvantages of branch closures However, banks should also consider that they will alienate some customers when they shut down physical locations, especially since many customers face difficulties using technologies like mobile and online banking.  . Disabled and elderly customers suffering Statistics show that physical bank branches are mostly visited by older, retired people. Almost a third (32%) are over the age of 65, and 33% are retired. Their seeming inability to use digital banking is not due to a lack of access as nearly all (93%) own a smartphone, and 75% own a laptop. It appears to be due to either a lack of understanding or a lack of faith in the technology. Additionally, a survey conducted by consumer group “Which?” stated that 41% of disabled consumers said the closures had a negative impact on their ability to access bank services, with more than half (54%) of NatWest customers and nearly 58% of Barclays customers agreeing. Additionally, one in five also struggled with the security measures needed which is a serious issue for those with memory problems, as 30% of them indicated security measures were a difficulty for them. According to the same study, even branches that remain open lack complete accessibility for customers with disabilities, specifically, 34% mentioned they found it difficult to use branch services in the UK.  . Cost of closures Branch closures are likely to lose customers for banks, not only employees. According to the Bain & Co. report, the likelihood of a U.S. consumer switching banks rises 14% when that consumer is affected by a branch closure. When a branch closes, the nearest alternative branches are typically much farther away. Hence, customers who can't or don't want to drive must rely on local transport services in rural areas. Also, when banks decide on the closure of a branch they also decide for the reduction of the workforce, which isn’t as cheap as it sounds. Studies show that Commerzbank’s 10,000 job cuts which are caused by branch closures will cost the bank around 160,000 euros each in severance. In conclusion, branch closures might be a very suitable solution for banks to reduce costs and impress shareholders. However, they should keep in mind that some customers (even if just a minority) still rely on physical branches and will end up with no access to banking services if banks did not put their vulnerable state into consideration.   Mariam Elmaghraby – Research Analyst Sources: https://www.self.inc/info/the-death-of-the-banks/#historical-banking-trends https://www.thebanker.com/Editor-s-Blog/Is-this-the-beginning-of-the-end-for-bank-branches https://danskebank.com/news-and-insights/news-archive/company-announcements/2019/ca19022019 https://www.irishnews.com/business/2021/07/10/news/danske-bank-set-to-close-50th-branch-since-2010-this-year-2382147/ https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/spanish-banks-look-to-leaner-future-as-cost-cutting-plans-survive-union-pushback-66008050 https://www.macaubusiness.com/spanish-bank-sabadell-to-cut-1800-jobs-union/?__cf_chl_managed_tk__=pmd_GW9QU41YJKTOMT9fAedi9eb6duXtDmztKulhCy8AQH8-1633335135-0-gqNtZGzNAyWjcnBszRS9 https://inews.co.uk/inews-lifestyle/money/saving-and-banking/banks-failing-disabled-customers-amid-branch-closures-1121783 https://citymonitor.ai/economy/bank-branches-are-closing-and-theyre-leaving-the-most-disadvantaged-areas-behind https://www.thetimes.co.uk/article/why-banks-are-closing-their-high-street-branches-zzkh2hdc0 https://yougov.co.uk/topics/finance/articles-reports/2019/02/04/how-much-will-closure-bank-branches-affect-custome https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/commerzbank-to-trim-global-ops-shutter-branches-8211-bloomberg-62916382 https://thefinancialbrand.com/71090/branch-networks-retail-experience-mobile-first-banking/ https://www.finextra.com/newsarticle/37958/deutsche-bank-to-close-branches-move-to-hybrid-working-model https://www.bankingdive.com/news/challenger-branches-extinct-by-2034/596885/ https://www.wsj.com/articles/banks-double-down-on-branch-cutbacks-1517826601 https://www.which.co.uk/money/banking/switching-your-bank/bank-branch-closures-is-your-local-bank-closing-a28n44c8z0h5 https://arca.com/resources/blog/cutting-branches-to-cut-costs-does-it-work https://www.newsobserver.com/news/business/article119764788.html https://thefinancialbrand.com/107582/garret-online-mobile-banking-adoption-rates-covid/ https://www.yourmoney.com/saving-banking/disabled-customers-suffer-as-bank-branches-close/ https://www.bloombergquint.com/onweb/deutsche-bank-targets-450-jobs-in-first-round-of-branch-closures https://ncrc.org/research-brief-bank-branch-closure-update-2017-2020/

Non-fungible tokens, or NFTs, have been making headlines during the past few months as they went from something very few people had heard of, to the latest crypto trend. NFT advocates say that they can fix a significant problem within art and entertainment, while critics only see it as another crypto bubble soon to pop.   What are NFTs? Non-fungible tokens are individually unique digital assets — which include songs, images, videos, and even tweets. The metadata that an NFT is composed of makes it unique through various attributes, including size, rarity, the artist’s name, etc. [1] NFTs determine an item’s ownership by storing the details in a digital ledger known as a blockchain. [2]  In the context of NFTs, there is some debate over this concept of ownership. Indeed, in various transactions involving NFTs, they do not represent the asset itself, but rather only the record of its ownership. But the inherent characteristics that are commonly mentioned when defining these tokens as a “new form of ownership” include scarcity and uniqueness, trade and interoperability, and immutability. [3]   A brief history of NFTs What could be called the ancestor of NFTs dates back to 2012 when “colored coins” were first mentioned in an article titled “bitcoin 2.X (aka Colored Bitcoin) — initial specs”, by Yoni Assia, which describes coins that are made of small denominations of a bitcoin and can be as small as a single satoshi, the smallest unit of a bitcoin. Another article, published by Meni Rosenfeld titled “Overview of Colored Coins”, discussed the potential of these new assets.  Further iterations followed over the years, such as the trading cards on Counterparty, a peer-to-peer financial platform and distributed, open-source Internet protocol built on top of the Bitcoin blockchain, as well as Cryptopunks, which are unique characters generated on the Ethereum blockchain, and CryptoKitties, a blockchain-based virtual game that allows players to adopt, raise, and trade virtual cats. These experiments collectively laid the groundwork for the growth the market would witness until NFTs finally reached the mainstream. [2, 3] In fact, monthly sales on OpenSea, an NFT marketplace, reached $95.2 million in February 2021, up from $8 million in January of the same year. [4, 5] [caption id="attachment_7255" align="aligncenter" width="690"] Monthly sales volume on OpenSea, in U.S. dollars. Source: Reuters, 2021[/caption] How much are NFTs worth? Everyone is able to tokenize digital assets and sell them as NFTs, but interest in these past few months has been fueled by headlines of multi-million-dollar sales. In March, Mike Winkelman, a conceptual 3D artist who goes by Beeple, became the third wealthiest living artist after renowned auction house Christie’s sold his digital work, a piece titled “Everydays: The First 5000 Days” for $69.3 million (€58.9 million), breaking all previous NFT sales records.  [caption id="attachment_7253" align="aligncenter" width="404"] Beeple, Everydays: The First 5000 Days, 2021. Source: Christie's auction house[/caption] In the same month, Kings of Leon, a music group, released one of the first major records to also be released as a collection of NFTs and generated between $1.45 and $2 million in sales in its first five days, and electronic musician Grimes sold digital artwork for around $6 million (€5.1 million). [6, 7, 8] The National Basketball Association (NBA) and its players union (NBPA) partnered with Vancouver-based blockchain company Dapper Labs to develop NBA Top Shot, a new digital platform where fans can buy, sell and trade NBA moments, which are packaged highlight clips that operate like digital trading cards. To date, the platform has generated around $500 million in sales. The most valuable NFT was that of LeBron James dunking against the Houston Rockets, which sold for a reported $387,600. [9] Jack Dorsey, the CEO of Twitter, offered his first tweet, which was published on March 21, 2006, for sale as an NFT. It was sold in late March 2021 for 1,630.58 ether, a cryptocurrency that was equivalent to about $2.9 million. [10] How can artists benefit from NFTs? According to a report published by Citi GPS, the potential revenue of the music business in 2017 was $43 billion, only 12% of that amount flowed to artists. Indeed, the aggregate revenue of the industry is shrunk by various costs including retailer mark-up for music sales (digital or physical), the cost to put on a concert, the costs of running various distribution platforms (e.g. Spotify), and EBITDA, etc... Fees from royalty collection entities, costs for the artist’s manager, record producer, concert promoter, concert agents, and record labels must also be subtracted. The remaining balance is then the only revenue for the artist. [11] In this context, NFTs could become an important and independent revenue stream for musicians by cutting out the middlemen in an industry rife with them. [caption id="attachment_7252" align="aligncenter" width="554"] 2017 Allocation of Music Revenues ($ billions). Source: Citi GPS, 2018[/caption] Digital artists face a major challenge, which lies in the very definition of their work. Digital art is by nature infinitely reproducible. NFTs, which work as public ledgers, offer a technological solution. Collectors can now buy an NFT that essentially acts as a tamper-proof digital receipt, which allows the artist to retain a percentage of the revenue each time their work is sold. NFTs can thus benefit established and emerging digital artists alike by providing additional revenue streams. [12] A double-edged sword It is important to note that the NFT boom also has its drawbacks. Many artists around the world have been reporting the theft and sale of their work on NFT sites without their knowledge or permission. Automated technology, such as a tweet-mining bot which is at the center of many reports of theft, can “tokenize” a tweet or an image in an instant. [13] Another major concern surrounding NFTs is the negative impact they have on the environment. Indeed, they are built on the same blockchain technology used by cryptocurrencies which are yet to solve the issue of their high energy consumption. For instance, a single NFT transaction on the Ethereum network consumes as much as the daily energy used by two American households. [14] [caption id="attachment_7254" align="aligncenter" width="629"] Ethereum energy consumption. Source: Digiconomist, Ethereum Energy Consumption Index[/caption] Most of today’s blockchain networks function on security systems based on special computers called “miners”, which compete to solve complex math puzzles. Mining requires a significant amount of computational power, which in turn causes high electricity consumption. Ethereum’s technology is said to be moving towards a design that would be less computationally intensive to try to compete with more efficient blockchains. The speed of this transformation into an eco-friendlier version of blockchain technology may decide the future of the NFT market in the short term, as some artists feel strongly about climate change trends and are opposed to NFTs because of their environmental impact. [14] With these drawbacks in mind, and considering the recent plunges of Bitcoin and Ether [16] which may scare away potential investors not familiar with the market, it remains an open question whether NFTs can truly become the next form of art and entertainment monetization, or become the next financial bubble to burst. Sources: [1] NonFungible, Non-Fungible Tokens Yearly Report, 2020 [2] Euronews, What are NFTs and why are they suddenly so popular?, 2021 [3] CB Insights, NFTs: Is The Spotlight-Stealing Blockchain Tech A Cash Grab Or The Next Big Thing?, 2021 [4] Digital Trends, A brief history of NFTs, 2021 [5] Medium, The History of Non-Fungible Tokens (NFTs), 2019 [6] Reuters, Explainer: NFTs are hot. So what are they, 2021 [7] NME, Kings Of Leon have generated $2million from NFT sales of their new album, 2021 [8] Cointelegraph, ’Breaking new ground is never easy’ — Kings of Leon's NFT release takes in $2M, 2021 [9] SportsPro, What is NBA Top Shot? Dapper Labs’ Caty Tedman explains the NFT platform everyone is talking about, 2021 [10] CNBC, Twitter CEO Jack Dorsey’s first tweet NFT sells for $2.9 million, 2021 [11] Citi GPS, Putting the Band Back Together - Remastering the World of Music, 2018 [12] UCLA, For digital artists, NFTs are promising – and problematic, 2021 [13] ABC News, Artists report discovering their work is being stolen and sold as NFTs, 2021 [14] The Conversation, How nonfungible tokens work and where they get their value – a cryptocurrency expert explains NFTs, 2021 [15] Digiconomist, Ethereum Energy Consumption Index [16] CNBC, Bitcoin’s wild price moves stem from its design, 2021 [17] Christie’s, EVERYDAYS: THE FIRST 5000 DAYS, 2021

The global neo and challenger bank market is expected to reach $578 billion by 2027, at a compounded annual growth rate (CAGR) of about 46.5% from 2019 to 2027. However, these fintech firms are still flying under the radar, triggering the attention and interest of millions of customers worldwide. So, what are Neo-Banks, and what does the future hold for them? In the wake of the severe 2008 financial crisis, conventional banks, especially in western markets, witnessed a tremendous shock in customer trust, and are now in a constant process of change. This shift in trust has pushed customers to look for other alternatives that can substitute the traditional banks. Taking advantage of the increased internet and smartphone penetration, a new wave of alternative challenger banks emerged. These are what we call today ‘Neo-banks’. As the term suggests, this new form of banking is disrupting the financial services industry in various ways. Neo Banks are alternative challenger banks that offer banking services exclusively online. In other words, these fintech firms do not have a physical presence in brick branches. This means that all neo-bank business is conducted through digital means, such as mobile apps and online platforms. The concept of Neo-bank is new and originated about 5 years ago in the UK, however, they have shown tremendous potential for growth. Some leading banks are already on the right track to scale up. Nubank, the Brazilian digital bank is valued at $10 billion. The company has already raised $820 million throughout its 7 funding rounds and has already attracted 22 million customers in its home country alone. In Europe, the Berlin-based N26 raised $170 million in 2019, at the time it was valued at $3.5 billion. What is the driving force behind the neo-banking wave? The world we live in today creates a perfect environment for these firms to thrive. The following trends are driving their growth. Cashless Payments Trend: Although cash continues to play an important role in payments, emerging innovations are integrating with changing consumer preferences to drive a cashless trend. A prevailing shift toward technology and automation, mobility, and digitization has not ignored the financial services industry. Blockchain Technology Blockchain is being used continuously to decrease the overhead costs associated with authenticity validation. In addition, in areas such as financial reporting, compliance, centralized, and business processes, it will help financial institutions reduce expenses by more than 30 percent. Artificial Intelligence: With about 41 percent of financial companies planning to introduce it in the near future and 20 percent already using its strength, Artificial Intelligence remains a rising FinTech trend that paves the road for more advanced offerings Customers' preference for Mobile banking: For 60 percent of banking clients in the United States, mobile connectivity is one of the most significant features. 88 percent of all banking transactions will be via smartphone by 2022. Neo-Banks customer base keeps widening Neo-Banks have been attracting new customers at a mesmerizing rate. In the UK only, they have almost tripled the number of customers in 2019, going from 7.7 million in 2018 to nearly 20 million in 2019 according to Accenture, recording a growth rate of 150% that outpaces that of traditional banks. According to a report by AT Kearney, Neo-Banks in Europe attracted more than 15 million new customers in the period 2011-2019. Their customer base is expected to reach 85 Million by 2023. Pitchbook, the PE/VC data provider, believes that challenger and neo-banks are major players in the fintech space and have gained millions of customers in recent years. Pitchbook estimates that in 2020, the customer base will reach 60 Million in North America and Europe. They also expect this growth to continue at a CAGR of 25% through 2024, surpassing 145 million customers. Neo-Banks keep attracting VC/PE capital In Q3 2019, Neo banks have recorded an all-time high in Funding. A total of 21 Venture Capital and Private equity financing deals brought these banks around $1.74 billion of capital. In fact, they have raised more than $4 Billion in 2019 only, taking the total capital raised since 2018 to more than $5.5 Billion. As it is the case with most industries in 2020, the capital poured into these companies decreased to just above $1.3 Billion due to the uncertainty brought about by The Coronavirus pandemic. This came as a response to the remarkable business growth of Neo Banks being suddenly halted. Various reasons explain the sudden end to the growth of the market of neo banks. Because of the global lockdown, consumer spending decreased dramatically, as neo banks are mostly used as secondary accounts for unique purposes, they were especially hard hit. In addition, while neo banks are well prepared for a lockdown (being digital and operating remotely), they suffer from conventional banks' problems. However, Neo banks are far from being excluded from the financial sector despite the uphill struggle they are facing due to the crisis. Even conventional banks have gone down the road of digitalization, following the revolution initiated by fintech. In addition, the COVID-19 pandemic has underlined the need for digital banking. It is a likely scenario that the current crisis will push the financially weaker neo-banks to merge or leave, giving stronger banks their place to drive further growth. Challenges facing Neo-Banks It might seem that neo-banks as sailing smoothly towards becoming the new normal. However, they are facing fierce challenges that limit their potential. The following trends are among these challenges. Differentiators are becoming more and more blurred: Neo-Banks when they first appeared, they were selling themselves as the digital alternative to traditional banks, meaning that they are the best at Mobile and App-based banking. However, traditional banks today offer equally good online banking services on top of their physical presence, eating into what once differentiated neo-banks. Big well-established banks are offering Neo-Banking alternatives: Traditional banks have been witnessing the speed at which neo-banks have been scaling up lately, so they decided to lunch their own, making the market more crowded and competition even fiercer for the startups. Their service offerings are limited when compared to their traditional rivals: They do not offer all the services of a traditional bank and are still unable to measure up, not only because of service delivery or regulatory problems but also for lack of capital. Sacrificing profitability to build a large customer base: In their quest to attract more customers, many banks found themselves sacrificing profitability. Attracting customers with market-leading rates, small to no ATM fees, and above-average interest on savings certainly comes at a cost.  This is certainly the case with shared economy giant Lyft that has been losing money since its inception. Lyft operates in a 2-sided marketplace, and it is a difficult place to be in, as the company must ensure that both demand (riders) and supply (drivers) are secure. The methods that Lyft uses to balance its marketplace (discounts, deals, and incentives) can be accounted for in two ways: revenue decreases, or increase in sales and marketing costs, and both of these severely impact the bottom line. Neo-Banks still have a tremendous potential to explore in the coming years, the rise in mobile and internet penetrations is to create the right infrastructure for their thriving. The increased use and trust in AI and blockchain will take advantage of that infrastructure to drive the growth of neo banks, and protentional lead to a radical shift to the way we do banking.  However, pressure from competition and the well-established banking sector represent serious challenges that need to be navigated cautiously. Othmane Moustahsine - Research Analyst Sources: https://www.finsmes.com/2020/03/what-are-neo-banks-and-how-will-they-shape-the-future-of-finance.html https://thepaypers.com/expert-opinion/the-inevitable-neobank-spring-and-its-drawbacks--780575 https://gomedici.com/neobanks-global-deep-dive https://www.businessinsider.com/revolut-triples-valuation-after-latest-funding-raise-2020-2?r=DE&IR=T https://newsroom.accenture.com/news/uk-neobanks-near-20-million-customers-in-2019-but-customer-and-deposit-growth-rates-slow-according-to-research-from-accenture.htm#:~:text=Accenture's%20Digital%20Banking%20Tracker%20found,banks%20and%201%25%20for%20incumbents. https://gomedici.com/neobanking-2-0-global-deep-dive-2020-report-by-medici https://www.wpp.com/wpp-iq/from-bricks-to-clicks---the-rise-of-the-neobanks https://wup.digital/blog/neobank-threat/ https://blog.prototypr.io/10-ways-neobanks-set-themselves-up-for-success-7c1f8f7118c3 https://www.crowdfundinsider.com/2020/03/158428-global-neobank-and-challenger-bank-market-is-projected-to-surpass-578-billion-by-2027/ https://techcrunch.com/2020/10/02/which-neobanks-will-rise-or-fall/ https://techcrunch.com/2020/03/03/valued-at-10b-nubank-launches-its-nu-credit-card-in-mexico/ https://techcrunch.com/2020/05/05/n26-raises-another-100-million-in-series-d-extension/ https://bfsi.economictimes.indiatimes.com/news/fintech/what-are-neobanks/76128857 https://fincog.nl/blog/18/performance-of-neo-banks-in-times-of-covid-19 https://www.acuitykp.com/blog/can-neobanks-survive-the-covid-19-crisis/

Eight months after Nigeria recorded its first Covid-19 case on February 27, the country has so far escaped the dire public health predictions made at the onset of the pandemic. As of October 26, 2020, there have been 62,111 confirmed cases and 1,132 deaths in Nigeria. (1,295,541 confirmed cases and 29,191 deaths in all of Africa). Back in March, health policy experts expressed serious concerns on whether African countries could limit the spread of the highly infectious coronavirus. One of the epidemiological models developed in March projected that by the end 2020, there would be an estimated 123 million infections and over 300,000 deaths on the African continent, in a best-case scenario. (1.2 billion infections and 3.3 million deaths in a worst-case scenario). “A mix of socio-ecological factors such as low population density and mobility, hot and humid climate, lower age group, interacting to accentuate their individual effects”, have so far contributed to the relatively low level of infections and deaths recorded in Africa, according to the World Health Organization (WHO). Yet, as countries across the continent have eased lockdown restrictions which were crucial in limiting the spread of the coronavirus, experts have warned that African countries are not completely out of the woods, and must be vigilant to make sure that a second wave of infections does not overwhelm the continent’s weak healthcare systems. So far, while Nigeria has avoided a public health crisis, on the economic front, the pandemic has disrupted lives and caused economic insecurity and hardship for households, affected business activities, and severely impacted the government’s finances. The five charts below illustrate the economic impact of the pandemic. Impact on Livelihoods As the country resorted to a lockdown to curb the spread of the coronavirus, the resulting slowdown in economic activities has taken a hard toll on Nigerian households. Earlier this year, due to restrictions on movement and travel, many of the country’s mostly informal 41.5 million Micro Enterprises (96% of all businesses in the country) which account for more than 80% of total employment, had to either close or scale back operations. The charts below show the impact of the pandemic on employment and income. [caption id="attachment_5400" align="aligncenter" width="589"] Households reporting shocks of job losses[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 3: July 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2010/2011, 2012/3013, 2015/2016 and 2018/2019. Note: Round 3 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted between July 2 and July 16, 2020. 1,950 households from the baseline survey (Round 1) were contacted and 1,820 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. [caption id="attachment_5401" align="aligncenter" width="583"] Change in income by source, compared to August 2019 (% of households and source of income)1[/caption] Numbers do not add up to 100% Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 4: August 2020. Note: Round 4 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted in August 2020. 1,881 households from the baseline (Round 1) were contacted and 1,789 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. Food Insecurity Since the pandemic began, the rates of moderate or severe food insecurity among Nigerian households have increased significantly. For most households, reduced incomes due to business closures and job losses, has coincided with an increase in food prices. The Food and Agriculture Organization (FAO) defines food insecurity as a situation that exists when people lack regular access to enough safe and nutritious food for normal growth and development and active and healthy life. This may be due to the unavailability of food and/or lack of resources to obtain food. Severe food insecurity is akin to hunger and defined as when people have run out of food and gone an entire day without eating at times during the year. According to the National Bureau of Statistics (NBS) August 2020 Covid-19 impact monitoring report, 68% of Nigerian households experienced moderate or severe food insecurity in August, down from 76.8% in June and almost double the rate of 37% measured in the NBS Jan/Feb 2019 General Household Panel (GHS) post-harvest survey. The charts below show that almost all households in the country have experienced the shock of the increase in food prices and reveals the disturbing rate of severe food insecurity experienced by households since the pandemic started. [caption id="attachment_5402" align="aligncenter" width="573"] Households experiencing shock of increase in price of major food items consumed[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 3: July 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2010/2011, 2012/3013, 2015/2016 and 2018/2019. Note: Round 3 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted between July 2 and July 16, 2020. 1,950 households from the baseline survey (Round 1) were contacted and 1,820 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. [caption id="attachment_5403" align="aligncenter" width="582"] Households Food Insecurity Experience[/caption] Source: National Bureau of Statistics (NBS) COVID-19 National Longitudinal Phone Survey Round 4: August 2020; Living Standards Measurement Study (LSMS) Integrated Surveys on Agriculture: General Household Survey Panel 2018/2019. Note: Round 4 of the Nigeria COVID-19 National Longitudinal Phone Survey (COVID-19 NLPS) 2020 was conducted in August 2020. 1,881 households from the baseline (Round 1) were contacted and 1,789 households, fully interviewed. According to the NBS, the data are representative at the national level and survey weights were calculated to adjust for non-response and under-coverage. The Federal Government of Nigeria’s (FGN) Revenue Problem have worsened The FGN’s finances has been hit with a double whammy of Covid-19 and low oil prices. The record crash in oil prices and the global spread of the coronavirus earlier this year prompted a downward review of the FGN’s overly ambitious revenue targets for 2020, which will see its fiscal deficit widen further. In its May 2020 Economic report, the Central Bank of Nigeria (CBN) noted: “If the current COVID-19-induced restrictions persists, and oil prices remain low, government revenue is likely to further decline. However, recurrent expenditure is projected to continue to rise, considering the countercyclical fiscal policy measures needed to sustain the economy. Consequently, the overall fiscal balance is expected to deteriorate further, while the Federal Government resorts to new borrowings to finance its increasing obligations.” The Country’s Ministry of Finance echoed a similar message as from the CBN expressing worry about the state of the FGN’s finances noting that “The projected Debt Service/Revenue ratio at 47% (actual for 2019 was 58%) raises some concern about the sustainability of FGN debt. However, it is more indicative that the country is faced with a serious revenue problem rather than a classic debt problem. Efforts must therefore be geared towards tackling the revenue problem so it does not degenerate to a real debt sustainability issue.” The chart below illustrates an increasingly worrying revenue problem for the FGN and shows total recurrent debt expenditure taking up a large chunk of total revenue inflows. [caption id="attachment_5404" align="aligncenter" width="588"] FGN revenue inflows and recurrent dept expenditure[/caption] Source: Budget Office of the Federation, Federal Ministry of Finance. Note: Recurrent Debt Expenditure includes debt service payments and line items such as interest on ways & means and sinking fund to retire maturing loans.   Oludayo Abass - Associate Sources: “CBN Economic Report, May 2020”, Central Bank of Nigeria, https://www.cbn.gov.ng/Out/2020/RSD/CBN%20Monthly%20Economic%20Report,%20May%202020.pdf, accessed 27 October 2020 Covid-19 Impact Monitoring, National Bureau of Statistics, July and August 2020 “Covid-19 in Africa: protecting Lives and Economies”, United Nations Economic Commission for Africa, https://www.uneca.org/sites/default/files/PublicationFiles/eca_covid_report_en_rev16april_5web.pdf, accessed 27 October 2020 “Covid-19 Nigeria”, Nigeria Centre for Disease Control, https://covid19.ncdc.gov.ng/, accessed 27 October 2020 “Hunger and food insecurity", Food and Agriculture Organization of the United Nations, http://www.fao.org/hunger/en/#:~:text=A%20person%20is%20food%20insecure,an%20active%20and%20healthy%20life., accessed 27 October 2020 “Social, environmental factors seen behind Africa’s low COVID-19 cases”, World Health Organization, https://www.afro.who.int/news/social-environmental-factors-seen-behind-africas-low-covid-19-cases, accessed 27 October 2020 The Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2021-2023, Budget Office of the Federation, Federal Ministry of Finance, Budget & National Planning Quarterly Budget Implementation Reports 2010-2020, Budget Office of the Federation, Federal Ministry of Finance, Budget & National Planning “WHO Coronavirus Disease (COVID-19) Dashboard”, World Health Organization, https://covid19.who.int/, accessed 27 October 2020