FinTech elsewhere, Bitcoin and Fraud plus other Risks ahead

Bitcoin couldn’t keep up the pace and immediately the warning bells ring though the real risks might lie elsewhere. This and a little more in the latest edition of the FinTechnologist Weekly:


Serious and Not So Serious developments

FinTech Elsewhere

FinTech is often a topic in a limited number of jurisdictions but we tend to forget that smart solutions are needed elsewhere, too, to transform financial services if not more. Payment services are great in the developed countries but in less developed parts of the world can be real gamechangers and provide people with access to banking services. Therefore, it’s interesting to see how startups in other regions fare, what problems they look to solve and how. The FinTech ecosystem in Africa, for example, is an interesting case as it serves millions of unbanked people. And we are not talking about peanuts here. Flutterwave, which provides a payment infrastructure for global merchants and payment service providers across the African continent, recently crossed the unicorn mark by closing a $170m funding round that got it to a valuation of more than $1bn. Kuda is one of Africa’s leading challenger banks and just received an injection of $25m by Peter Thiel’s Valar Ventures. Fawry, an Egyptian e-payment platform has raised a total of $122m, so it may not be exciting as the silicon roundabout, but there’s clearly potential.


Bitcoin and Fraud

Here’s an interesting headline: “Will Bitcoin’s Popularity Attract Fraud?” It’s from an article in Lawyer Monthlywritten by two lawyers from a firm specialized in litigation.

The article describes the recent spike in popularity, its wider acceptance, before it points out the lack of transparency and regulation that is going to pave the way for crypto-fraud.

Well, the article gets a few things right and a few things not. Mostly, and here is why I thought the title was interesting, because it talks in present and future tense. Cryptofraud has been something that has been around for years ever since there has been any value in investing in or holding these assets. The newly discovered risk of money laundering and financing terrorism? Please! Criminals have been using cryptocurrencies for years to shift their illicit funds around and convert them into fiat. If anything, we’re living in a safer space now as opposed to only a few years ago when there was no oversight (not regulation as there were already rules applying to these activities) at all. Are cryptocurrencies risky or even dangerous? Absolutely yes to the former and probably to the latter. Just look at the recent price movements and you should understand that we are not talking about established investment tools. Even dangerous, because crooks still use it to conceal the true origin of dirty money or to help in illegal activities that include financing terrorists around the world. And as its value grows, more and more investors will become aware of Bitcoin and others and put their money into something they don’t fully understand, but then again who understands really what most companies do on a regular stock exchange.

In what is almost a side note, the article discusses the first ICO fraud case at the Commercial Court in London, which is interesting given the decreasing interest in ICOs and how long it takes to get a case through the courts. It also discusses briefly the specifics of the case and why it is important (the possibility of English courts to order injunctions to exchanges outside the UK), before it closes with an approval of the court’s proactive role in the global cyber and cryptocurrency fraud. As much as this might be necessary, I’m not sure this type of discussion is going to help much.



The Risky Road Ahead

The European Securities and Markets Authority has published its regular Report on Trends, Risks and Vulnerabilities. It looks at how EU financial markets recovered from the significant COVID-19 related market stress, but stresses that a very high market risk remains. The authors write that “the main risk we see for EU financial markets is that this ongoing decoupling leads to a reversal in investor risk assessment and a sudden market correction in a context where investors remain sensitive to events, exposing less- liquid markets to disorderly sell-off episodes.“ It also highlights that the prices of non-regulated cryptoassets at all-time highs imply significant risks for investors. Yet, more money keeps pouring in as if there was no tomorrow, which is an interesting statement about the sentiment among investors. It is even more astounding since the report projects that credit risk is likely to increase further because of significant corporate and public debt overhang, so the question is how long the party is going to last, you might ask yourself.

Well, the report also explains that the extent to which these risks will further materialise will critically depend on three drivers:

  • the economic impact of the pandemic,
  • market expectations of monetary and fiscal support measures, and
  • any occurrence of additional external events in an already fragile global environment.

Should we be concerned then? Well, cautious might be the better word.



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