Digital Banks Need TRUST not TECH; Real-Time Payment Global Explosion; De-Dollarization Gets Real with the Petro-Yuan; Payments Big Picture!
Richard Turrin
Helping you make sense of going Cashless | Best-selling author of "Cashless" and "Innovation Lab Excellence" | Consultant | Speaker | Top media source on China's CBDC, the digital yuan | China AI and tech
1. Digital banks need trust to deliver growth
2. Real-time payments global explosion!
3. De-dollarization takes off and goes mainstream
4. Payments: the big picture
Self-Portrait with Bandaged Ear, Vincent van Gogh 1889 . Van Gogh painted it in January 1889, a week after leaving hospital. He had received treatment there, after cutting off most of his left ear (shown here as the bandaged right ear because he painted himself in a mirror).
Today’s art fits the newsletter because of this week’s topics include de-dollarization and digital banks. Both are committing acts of self-harm. In the US through “weaponizing the dollar,” the digital banks through focusing on tech rather than trust.
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1. Digital banks need trust to deliver growth
Neobanks have great tech, but who cares when people are in fear for their deposits?!
Download: here
RiskNet and Moody’s don’t make light of the challenges ahead for digital banks:
“Digital banks are certainly facing tough times ahead, and there is likely to be consolidation and possibly even bankruptcies to come. How well digital banks can harness technology to create resilience will be key in determining how they fare.”
This report puts a brave face on digital banks’ use of technology, and to be clear, the digital native tech that digital banks rely on is vastly superior to incumbents. Let’s admit that up front and get back to reality.......who cares?!
Missing the point
This report misses the point. After recent bank failures, all the digital tech in the world won’t help neobanks unless it builds trust and manages clients' raw fear.
The problems neobanks faced were analytic pre-crisis: “interest rates rise worldwide, a cost-of-living crisis grips the UK, and an energy crunch and economic downturn sweep across Europe.”
Tough problems, to be sure, but nothing compared to a lack of trust.
Crisis of trust
Now they face a crisis of trust for which digital offers few solutions. Clients running to the perceived safety of “too big to fail” banks out of fear now puts neobanks in an even tougher spot unless they can build digital trust.
As underdogs, digital banks face real problems: “Large banks tend to benefit from higher interest rates, as they enable them to increase their net interest margin, medium-sized and digital banks – which tend to rely more on savings deposits than loans – will find it more difficult to widen their margins.”
Then there is profitability. With easy money from Venture Capital, profitability was an afterthought to growth. Now the tables have turned with the CEOs of N26 and Atom bank claiming that profitability is key. The heady days of blitz scaling are behind them.
So digital banks are caught in a perfect storm of no profits, low margins on accounts, and panicked consumers looking for safety. In their favor, digital banks are cloud-native and sport great technology.
None of the tech benefits will help digital banks, unless they are harnessed to gain client TRUST.
Great tech only matters mid to long-term, and many won’t make it that far.
Takeaways:
—Cloud-native digital banks offer a superior tech platform at a time when the primary concern of clients is trust.
—The report failed to mention how cloud-native can build trust!
—VC money dried up, and profitability is now more important than scale.
—Some digital banks are in trouble, and we should expect mergers.
2. Real-time payments global explosion!
Real-Time Payments are exploding! But China is still No 1. and I disagree with the report putting India as No 1!
Download: here
ACI Worldwide delivers a fantastic report on real-time payments (RTPs) and how they change our world. RTPs are exploding, bringing more freedom for our cash!
ACI growth figures show how BIG real-time payments are:
"Overall real-time transaction volumes around the world grew 63.2% in 2022 to reach a new high of 195.0B transactions and are forecasted to reach 511.7B by 2027, representing a compound annual growth rate of 21.3%. By 2027, real-time payments are expected to account for 27.8% of all electronic payments globally, up from 18% in 2022."
China undercounted
For all the good in the ACI report, I'm afraid I have to disagree with their methodology in analyzing China’s payments which radically undercounts China’s payments.
I am focusing on this because many people wrote to me on Twitter and Linkedin last year asking me about these stunning results!
For the record, I love UPI and India’s payment system, which is having a profound impact on India’s society, just as RTP did in China.
Let’s compare China and India:
?? India’s RTPs through UPI account for INR 126 Lakh Cr (USD 1.53 tn) in 2022 or 86% of India’s GDP in 2022.
?? China’s mobile payments were 526.98 tn yuan (USD 76tn) in 2021 or roughly 400% of China’s GDP in 2021. I’ve used 2021 figures clearly reported by the PBOC.
IN BOTH GDP AND GROSS AMOUNTS, CHINA'S RTPS ARE LARGER THAN INDIA'S.
Why the discrepancy?
ACI uses figures reported by the PBOC’s IBPS (internet banking payment system), which is only part of China’s RTP story. IBPS captures bank transfers but not WeChat and Alipay, which are China's largest sources of RTP.
WeChat and Alipay’s portion of China’s RTPs is included in “Nets Union” figures when they process bank payments. Wallet-to-wallet transfers without a bank remain uncaptured in RTP data.
By using IBPS data, ACI is severely underreporting China’s RTPs. I look forward to hearing from ACI as to why they only use IBPS figures. Still, ACI should have seen PBOC payment system summaries that very clearly include NetsUnion in their figures.
I can only guess that ACI uses IBPS because IBPS is 100% run by PBOC, and ACI is comparing central bank RTP systems. NetsUnion is technically a separate entity in which the PBOC owns 37%, with 63% owned by Alipay, WeChat, PingAn, and others.
As much as I love UPI, China’s RTPs are still number one.
Takeaways:
—Real-time payments are the future and will change society
—ACI puts India in the RTP lead is based on an error in counting China’s RTPs.
—ACI doesn’t account for China’s NetsUnion payment system even though the PBOC does.
—I love UPI, so don’t hold the numbers against me!
领英推荐
3. De-dollarization takes off and goes mainstream
De-dollarization is real as China makes first sale of LNG in YUAN????
Within hours of my writing the article below news broke that China and Brazil have reached a deal to trade in their own currencies, ditching the US dollar as an intermediary. China is Brazils largest trading partner and will bring $150bn in trade in to yuan. The stated goals are to reduce cost and to “promote even greater bilateral trade and facilitate investment.”
Link to great video by Fareed Zakaria video: here
The five stages of grief are denial, anger, bargaining, depression, and acceptance. Most are still in denial when discussing de-dollarization, though this week’s headlines should nudge people into the anger or bargaining stages.
Two stories on de-dollarization that should make it clear that a multi-polar currency world is emerging and that the US media is finally taking note. The topic is no longer the domain of conspiracy theorists or, as I am often called, “collaborators.”
CNN’s Fareed Zakaria is hardly a communist propagandist. He is mainstream media personified, and his editorial on de-dollarization is thoughtful:
“We keep searching for the single replacement for the dollar, and there will not be one. But could the currency suffer weakness from a thousand cuts.”
This line is prophetic. De-dollarization will be a slow process, which is why so many will continue to deny its existence.
Many in denial will quote indisputable SWIFT figures proving dollar primacy. What these figures can’t show are the many cuts yet to come.
Now to the latest cut, China sells its first LNG in yuan.
Reuters:
“Chinese national oil company CNOOC and France's TotalEnergies have completed China's first yuan-settled LNG trade through the Shanghai Petroleum and Natural Gas Exchange, the exchange said on Tuesday.”
“Approximately 65,000 tonnes of LNG imported from the UAE changed hands in the trade, it said in a statement.
TotalEnergies confirmed to Reuters that the transaction involved LNG imported from the UAE but did not comment further.”
“During a visit to the Saudi capital Riyadh in December President Xi Jinping announced that China would "make full use" of the Shanghai exchange as a platform to carry out yuan settlements of oil and gas trades.”
The first cut was that the trade was with the UAE, which is building a CBDC and a participant in the mBridge BIS pilots for CBDC cross-border transfers. Do you think UAE’s interest in CBDC is unrelated to energy sales?
The second cut is that the trade went through the Shanghai exchange, China's newly built energy market. More deep cuts from this exchange are coming.
How you deal with de-dollarization is your choice: denial, anger, bargaining, depression, or acceptance.
Thoughts?
Takeaways:
—CNN picking up on de-dollarization is significant, if not surprising.
—De-dollarization will be gradual, which will support denial.
—China purchasing LNG in yuan is the first of many cuts.
—Adding insult to injury, a French company paid in yuan!
—Many will choose to live in denial.
4. Payments: the big picture
“Payments Unbound” is a great overview of the big trends in the payment space.
Download: here
JP Morgan teamed with the tech writers of Wired to make a fun read that nicely captures the future trends impacting payments.
That this is a lighter read, but that shouldn’t deter you! I confess I don’t spend a lot of time on topics like brain-computer interfaces, and while it's not part of payments today, it will be someday.
This document shines in looking into the future of payments 10+ years off!
A few noteworthy chapters:
1. What’s next for APAC (pg 10)
I love this infographic! It nicely shows why Asia: “is a cradle of innovation when it comes to fintech and a must-follow space for where payments go next. I’ve been saying follow Asia for years!
2. Is pay by brainwave the future? (pg 11)
I had fun reading this one, as I confess it’s a ways off, yet a fun read. I hadn’t given much thought to "pay by brain" but agree that it may be a reality in a not-so-far-off future! Biometric facial payments are controversial can you imagine brain?
3. What will it take to make digital ID happen? (pg 15)
That’s the very question I’d like answered! This is the one area where crypto and TradFi share a common need, yet I still don’t see non-gov’t issued digital ID coming anytime soon. Gov't digital IDs will have large swathes of the population having conniptions over gov’t overstep and dystopia.
4. Should you be preparing to transact on the metaverse? (pg 22)
Good question! The author has a great line: “The metaverse is a conversation about what would happen if various things coalesced at some point in the future.” We’ll get a metaverse, and we’ll transact on it. The question is when and will people really want to use it?
5. Payments innovation will drive financial inclusion (pg 24)
Yes, and the author’s focus on remittances is a good one. I will go further. Once included emerging nations are going to see an economic boom not unlike what happened in China’s rural communities. This is a game changer and will lead to tremendous growth throughout emerging economies and, with it further changes in geopolitics. But you knew I’d say that!
The paper had two big misses! First, it missed discussing payments as a "public good," Second, where was the CBDC chapter? Perhaps JP Morgan as the sponsor, had something to do with these omissions?
Takeaways:
—Payments are changing our world in ways that we can’t quite yet imagine.
—We haven't even scratched the surface of what is possible with payments!
—CBDCs are great, but what’s next?
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Rich Turrin is the international best-selling author of "Cashless - China's Digital Currency Revolution" and "Innovation Lab Excellence." He is number 4 on Onalytica's prestigious Top 50 Fintech Influencer list and an award-winning executive previously heading fintech teams at IBM following a twenty-year career in investment banking. Living in Shanghai for the last decade, Rich experienced China going cashless first-hand. Rich is an independent consultant whose views on China's astounding fintech developments are widely sought by international media and private clients.
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Operations Excellence | Digital Transformation | Commercialization - Business Growth | Innovation | Technopreneur
1 年Interesting years ahead. Thanks for sharing your thoughts.
25+ Years in IT / Sr. Project Manager / Business Analyst
1 年Turning the discussion a bit. As trust diminishes, the question becomes what is the alternative to the US dollar. And it is here that a perplexity arises in my mind. Why go with China? International Monetary Fund data show China's explicit local government debt nearly doubled over five years to the equivalent of $5.14 trillion — or 35.34 trillion yuan. https://www.forbes.com/sites/miltonezrati/2023/01/16/chinas-overwhelming-debt-burden-points-to-still-deeper-problems/?sh=4dde859a4433. It is by no means better than the US. China has a 250 debt to GDP ratio; another reason to not trust China. https://fingfx.thomsonreuters.com/gfx/rngs/CHINA-DEBT-HOUSEHOLD/010030H712Q/index.html And then many of the deals that China makes are secret and not disclosed https://amp.scmp.com/economy/china-economy/article/3084979/china-debt-how-big-it-who-owns-it-and-what-next Then when you add the fact that china inherently denies individual property rights in her constitution , which seems wholly contrary to a bank account, which is personal property — at least in US — and contrary to UN human rights. Possibly I missing or confusing something and stand in the need of instruction.
Exactly Richard thanks for sharing have a wonderful weekend!
Expert-Consultant Banking&Islamic Finances
1 年Trust requires ethics, but ethics requires justice and justice requires a balance of power!!!! However, the power of money has inhibited all other powers and will inevitably end up destroying the entire ecosystem.
Thanks for Sharing! ?? Richard Turrin