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Industry roundup: 4 February

China’s digital yuan officially launched today at the Winter Olympics

The Winter Olympics was initially planned as a major debut of eCNY, introducing the digital form of China's sovereign currency to millions of visitors around the world. Foreign visitors can use eCNY, one of the three payment methods available to foreign athletes and visitors, to purchase items without a domestic bank account during Winter Olympic games. However, the plans levelled off with the start of the pandemic, where Beijing adopted a "closed loop system" for the games, quarantining 11,000 participants from the public.

According to Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, commented that the Olympic Games would have been the initial opportunity for tourists and Chinese citizens to get acquainted with the digital yuan. Last month, the central bank publicized that more than 261 million individual users nationwide (twice the amount from October 2021) registered a digital yuan wallet, an app for using eCNY. According to Beijing's Financial Supervision Authority, Beijing has been pilot testing digital currencies for use in games for over a year, recording 9.6-billion-yuan (US $ 1.5 billion) worth of transactions by the end of 2021.

Prior to the Olympics, Beijing tested digital yuan in more than 400,000 cases of actual purchases of goods and service, with more than 12 million individual users and 1.3 million corporate users in the app. Richard Turrin, Shanghai-based consultant and author of Cashless: China’s Digital Currency Revolution, stated to Al Jazeera that China has become a highly digital and cashless society for the Chinese citizens, but there are no systems available to connect foreign credit cards. Turrin added that international visitors are often unable to make payments in China, especially to small merchants and taxi drivers.

In 2021, Bloomberg Intelligence estimated that digital yuan could gain 9% domestic market share by 2025. Alipay and WePay are currently estimated to have a combined market share of over 90%. According to Suji Yan, founder of Mask Network, a Singapore-based cryptographic and encryption start-up, converting from large technology companies’ digital payments (like Alipay and WeChat) to a CBDC is an easy transition for Chinese citizens.

Beijing's Olympic application of the digital yuan may face less acceptance from foreigners due to concern for privacy and regulatory scrutiny. According to state media Xinhu, there are four levels of user categories available, enabling users to determine the amount of information to share with the digital wallet app to meet various usage limits. However, users still feel hesitant about their transactions and privacy with even the simplest model including just entering a cell phone number. Consequently, most foreign athletes are using their Visa credit cards for purchases.

In July 2021, three U.S. Senators urged the U.S. Olympic Committee to ban U.S. athletes from receiving and using digital yuan during the Beijing Olympics because of privacy concerns. Other countries, including the United Kingdom and Canada, provided similar guidance to their athletes.

Some obstacles for the use of digital yuan are the fact that it cannot be currently used overseas and high skepticism of broader acceptance in the near future.

According to Turrin, in order to improve integration with central banks in different countries, collaboration with current initiatives, particularly the Belt and Road Initiative, a global long-term policy and investment program that aims at infrastructure development and acceleration of the economic integration of more than seventy countries and Regional Comprehensive Economic Partnership (RCEP) countries, will help in the deployment of its international use.

AI and cross-border payments becoming more vital due to financial sector complexity

As businesses continue to grow globally, the volume of international cross-border payments increases. According to a McKinsey and Visa survey, US $ 120 trillion in global B2B payments are processed annually. Additionally, the research estimates that the global market for artificial intelligence (AI) in fintechs will be worth $46.9 billion by 2030. Abdul Naushad, President and CEO, Buckzy Payments Inc., a cross-border payments network and embedded finance platform enabler for leading financial institutions and fintechs worldwide, commented that AI plays a key role in processing cross-border payments.

Technological advances and competitive challenges have transformed the payments industry in conjunction with trying to meet both consumer demand and standard banking regulations, added Naushad. An important part of AI's value in cross-border payments is how AI can significantly improve security. AI's ability to recognize patterns and suspicious activities is invaluable for identifying fraud and suspicious transactions in addition to processing sensitive financial statements in a safe, secure and expeditious manner. AI also improves performance and efficiencies in operations and adds value to other key processes.

Naushad further commented that AI can be used to generate expense reports faster than humans with minimal errors. Additionally, AI automates repetitive tasks such as data entry and leverages pattern recognition for critical activities such as fraud screening, security and compliance. Furthermore, AI forewarns staff of potential concerns, enabling them to focus on high-value activities.

AI also adds value to creditworthiness, another critical part of ​​finance. Naushad further explained that banks and financial institutions are businesses that need clients in order to make money, but prospective clients are ignored or rejected by existing credit rating processes. By using AI-driven processes to assess an individual’s creditworthiness based on their personal information, banks will be able to calculate the costs and risks of accepting customers more accurately and effectively. AI-powered solutions, an integral part of a bank’s strategy, help banks stay competitive in the market. AI minimizes operational costs, automates processes, and enhances the customer experience.

According to Naushad, finance is becoming more complex, and the responsibility lies on the banks and fintechs to equip the human workforce with the tools needed to keep up with this complexity. Cross-border payments are critical for economic prosperity, international trade, global financial stability, continued growth of international e-commerce, and poverty alleviation. Therefore, a frictionless AI-based solution for cross-border payments is crucial.

DiPocket and Banking Circle partner to deliver faster payments, SWIFT and SEPA

DiPocket, a provider of corporate disbursements and payment solutions, is improving customer access to faster payments through new partnerships with technology first payments bank, Banking Circle. By using Banking Circle's virtual International Bank Account Number (IBAN) for both corporate and client fund accounts, DiPocket will enable customers to access payments and SWIFT quickly. Additionally, DiPocket’s enhanced system avoids operational issues with other partner banks. Furthermore, DiPocket will use Banking Circle for Single Euro Payments Area (SEPA) EUR payments.

Currently, DiPocket is authorized in the United Kingdom and Lithuania and in offices in Vilnius, London, Warsaw and Kiev. DiPocket is focused on expanding into Central and Eastern Europe and the United Kingdom. It serves large leading companies and emerging innovators, offering white label payment solutions such as funds disbursements, card issuance for financial institutions, and open banking solutions.

Fedele di Maggio, CEO, DiPocket, commented that their main focus is to provide customers with access to faster payments. Banking Circle’s integrated options and multi-currency accounts will resolve operational issues such as system outages. Anders la Cour, Chief Executive Officer, Banking Circle Group, further commented that Banking Circle’s unique suite of solutions streamlines local and cross-border payments and enables payment service providers (PSP), like DiPocket, to manage the evolving needs of numerous correspondent banking relationships or help secure their own bank licenses. Both organizations share the same vision to achieve the simplification of payments and utilization of the top solutions across the financial ecosystem.

Treasury Prime announces new compliance solution to empower fintechs

As fintechs continue to broaden the financial landscape, deeper regulatory measures prove key to their success and security. Treasury Prime, a banking as a service (BaaS) company, is expanding its compliance services with new solutions that enable fintechs to build and deliver risk-based compliance programs in weeks.

With an expanded suite of compliance tools, resources and regulatory specialists, fintechs can create custom compliance programs designed to protect them from the risks that may harm their business or clients. Additionally, fintechs will be seen more favourably by regulators and banking partners by adopting a proactive approach to compliance, ultimately enabling them to promote and expand their services effectively.

Sheetal Parikh, Associate General Counsel and Vice President of Compliance Solutions, Treasury Prime, commented that the regulatory landscape is shifting for fintechs. Regulators expect fintechs to comply with the exact same level of regulatory obligations as banks in offering banking products. Treasury Prime’s new solution provides fintechs with the advanced tools and expert guidance needed to quickly build a strong compliance framework that meets the robust compliance standards imposed on banks.

The Consumer Financial Protection Bureau issued a series of instructions to collect information on the business practices of major technology companies operating payment systems in the United States. Treasury Prime's BaaS model enables fintech clients to instantly incorporate banking services into their offerings, while simultaneously building a robust compliance program to meet the industry's growing set of regulations.

As regulatory scrutiny increases, fintechs needs to adopt a compliance strategy that addresses short-term risks while allowing long-term scaling, commented Parik. Additionally, this solution provides fintechs more control over their compliance programs and direct access to banking partners, helping fintechs protect their business and customers without compromising the needs of the solutions they bring to market.

Some of the core benefits of Treasury Prime’s compliance offering include:

  • Better management of customer experience: By providing fintechs with a toolkit and applying a consulting approach, Treasury Prime enables companies to customize their compliance programs and control the account opening experience, resulting in pertinent conversations, fewer manual reviews, and easier identification of false positives.
  • Direct partnerships with banking partners: Outsourcing compliance to a third party inevitably leads to over- or under-inclusivity risk profiles. Treasury Prime provides fintechs a seat at the table, where fintechs are provided complete visibility into the issues and the ability to control their risk profile.
  • Access to powerful tools and regulatory specialists: Treasury Prime provides guidance on regulatory requirements such as Bank Secrecy Act/Anti-Money Laundering (BSA / AML) compliance by developing a program tailored to fintechs’ unique risk profile.

Many sponsor banks and their fintech partners face the challenge of managing compliance and risk monitoring across a variety of services. Treasury Prime has partnered with RegTechs, Alloy and Unit21, to provide fintechs with access to powerful identity decision-making and transaction monitoring tools.

The partnership between Alloy and Treasury Prime will enable fintechs with a complete suite of compliance and identity management products to meet all KYC and AML regulations through a single API connection that can be up and running within weeks. Brian Bender, VP of Strategic Alliances, Alloy, commented that the integration with Treasury Prime will help the digital onboarding process and provide the necessary infrastructure for fintechs to automate identity and risk decisions that can be optimized for growth.

The out-of-the-box data integration between Treasury Prime and Unit21 will enable banks and fintechs to use Unit21's capabilities to quickly deploy preconfigured fintech-specific rule sets and models to monitor suspicious activity and customize these rules and models for their unique case needs. This collaborative offering also enables a concerted alert investigation in real-time within the system.

This framework allows banking partners to assign first-level alert adjudications to fintechs that are best suited to understand whether activities within the platform are actually risky. Simultaneously, banking partners have complete insights into the underlying activities and disposition of alerts.

Trisha Kothari, CEO and Co-founder, Unit21, stated that Treasury Prime will be able to empower fintechs to bring innovative financial products to market faster than ever before. Unit21's fraud and AML transaction monitoring and case management solution flexibility will enable fintechs to perform in a secure and compliant way.

Digital banking transformations expand into Thailand

The Central Bank of Thailand commenced strategic plans to create a regulatory framework for virtual banks to meet the needs of consumers entering the digital age. Thailand plans to embrace financial technology companies and improve financial inclusion of the country's bankless or non-banked population. Furthermore, Thailand will join other countries in the region such as Singapore, Malaysia and Indonesia to encourage competition and digitize banking services.

Roong Mallikamas, Deputy Director, Bank of Thailand, commented on plans to issue guidelines for digital banks by June 2022, allowing existing lenders and new applicants to apply for licenses. Additionally, the central bank plans to lift the current limit of 3% of commercial banks' capital funds on investments in financial technologies, except digital assets.

In the quest to embrace fintechs, Thailand, the latest country in Asia to adopt the concept of virtual lenders, aims to provide various digital payment and banking services. Although Thailand does not have independent virtual banks, domestic and foreign lenders offer a variety of digital services in the country, including payments. CIMB Thai Bank, the Thai division of Malaysia’s CIMB Group, announced that it will apply for a digital banking license as soon as it is offered by the Bank of Thailand as part of its digital strategy. In addition, UOB in Singapore has already launched the digital banking service TMRW and plans to build a full-scale digital retail bank in Thailand.

Mallikamas commented that the central bank proposes to provide more players with access to key financial infrastructure such as interbank payment systems and credit guarantees at a more reasonable cost. Furthermore, the Bank of Thailand would also work on minimizing unnecessary regulatory burden or costs to the service providers by pushing lenders to adopt financial technologies.

In efforts to enhance Thailand’s financial economy, Thailand has abandoned its plan to impose a 15% withholding tax on cryptocurrency transactions in response to a backlash from the country's crypto traders. According to the Financial Times report, earned income from crypto trading or mining can be accounted for as capital gains on income tax. The new rules allow traders to offset their losses with the profits they earned in the same year. This plan change was subsequent to a warning from crypto industry stakeholders stating that excessive taxation could eradicate potential growth in the sector.

According to the Bank of Thailand, the Ministry of Finance and the Securities and Exchange Commission, guidelines for specific digital assets that support the financial system will be a

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