Only recently, Money2020 took place in Amsterdam, one of the largest conferences in FinTech of Europe as far as I’m aware. As one of In The Pocket’s target areas is the financial services industry, we had to be there. What we learned has an impact far outside the financial sector as payments, identity and regulation are part of nearly every (digital) product you use on a daily basis.

This is what I took home after three days packed with presentations, panel discussions and conversations with people on the show floor.

Blockchain technology becomes legitimised. 

Only a few years ago it was still unthinkable. Today it has become much less of a taboo. Crypto was well represented in the discussions on/off stage. Numerous players (Copper.io, Bitfinex, Ripple, etc) in the space had large booths right next to traditional players (SWIFT, Mastercard, Salesforce, Temenos, etc). In part, this is thanks to upcoming regulations such as MiCA / mini-MiFID in the European Union.

Almost everybody seemed to agree that the tech is here to stay, even if governments launch their own alternatives such as CBDC (Central Bank Digital Currencies). People have been using cryptocurrencies across the world (Chainalysis 2020 Geography of Cryptocurrency) and companies have been adopting the technology behind them to innovate in their portfolios (e.g.: Wien Energie is using asset tokenisation to allow citizens to invest and reap benefits of photovoltaïc panels or EV-charging stations).

Examples that were discussed outside of the beaten track include use cases such as using NFTs in the ticketing industry or loyalty schemes, allowing for new retention mechanisms and reward experiences, tracking provenance... without the restrictions that exist in traditional formats. 

Fractionalising ownership & investment in certain goods that otherwise would be out of reach for many was another example that came by. Masterworks is one of the platforms already facilitating these kinds of transactions for artworks since 2018, allowing trade in tokens or “shares” of artworks on a secondary market. While today this may be a fringe activity, it is easy to imagine a multitude of existing and new use cases where this would be better than the current way of doing things (tokenising vehicles, real estate, luxury goods,...).

Part of the challenges with these technologies is that in their current form, it often remains a complex task to understand, to be a participant, to buy or store assets and that gas fees (transaction costs) are high, especially for low value transactions. Many are looking at exactly these challenges. 

For the die-hards that know the ins and outs, everything should remain possible without needing third parties. However, new regulations bring opportunities to provide services on top of the technology to end users in a legitimate way. A concrete example could be established companies, such as your bank, offering custodial wallets that abstract certain risks (such as losing track of your private key/password and thus losing all assets in the wallet) away from the end-user versus the possibility of using a non-custodial wallet for those users that understand the complexity and the associated risks.

One could compare this with many of our current systems: who among you truly understands the complexity behind traditional online payments today (where often ancient infrastructure built for card transactions has been repurposed)? Startups and even incumbents have built great user experiences on top of this infrastructure and abstracted away from the complexity. The trust in these institutions and the regulations governing them is what allows you as a citizen to use them without much thought.

In the meantime, governments are boosting their CBDC projects too: +75 countries are working on CBDC projects. During Money2020 the UK announced that it will be piloting a ‘Digital Sterling’ intending to learn as much as possible and potentially launch in the second half of the 2020s. China has been working on a digital renminbi since 2014 and the latest trials held at the Winter Olympics allowed foreigners to use it. Although several questions are still unanswered (how to avoid reputation risk that would mean the death of a central bank, risk of a bank run, data privacy, financial inclusion,...), the flywheel seems to be moving. Will we be keeping (limited) amounts of “digital cash” on us in the near future to pay for our coffee anonymously, or will this technology be kept for wholesale use between large financial institutions? 

Many companies are still in the mindset of complying with existing regulations. But the time has come for established players to investigate which opportunities are created by new regulations. Those that have already dipped their toes in the crypto-waters will have a huge advantage to spot a blue ocean, others best not lose time and look for use cases they have today that could be solved better / faster / cheaper by implementing these technologies. As you see, it is surely not limited to new forms of money, investments/speculation or even payments. 

It's all about identity

It should not surprise that identity was another hot topic. David Birch wrote about it in his book “Identity is the new money” in 2014. While the European Union has adopted the eIDAS regulation (electronic IDentification, Authentication and trust Services) in the same year, the demand for better identity solutions has steadily increased with the advent of new technological developments such as the metaverse, ever more stringent KYC requirements around the world combined with pressure from citizens for a right to better privacy. 

One of the more interesting conversations around identity I witnessed in the context of a panel discussion on the metaverse. Presuming we start living in a mixed reality world of some kind in the near future, how do we want identity to function in that world? Do we need to show an official form of ID to enter a virtual strip club or a casino for example?

This might sound like a silly question, but if we expect to have these kinds of checks (which we are used to in the “real” world) we might run into some adverse privacy effects too. Especially when the metaverse and blockchain technology would be tightly interlinked, a bad solution for identity risks anyone being able to figure out when and where you hung out because transactions on the chain are immutable.

The issue is that we don’t have an online identity solution that functions as the one we use in the physical world. We can take out our Belgian ID card, show it to a liquor store in Italy for him to check our age and sell us the bottle of amaro. The shopkeeper trusts the issuer (the Belgian government) and can easily verify information, but he would have to have Mike Ross’ memory to remember my social security number or other details for mal-use.

Our current online identities mostly consist of centralised account-based solutions that require integration among parties for trust to exist. Something that becomes hard to do if we move into a metaverse landscape, where it is imagined that there will be multiple worlds or environments just like in the physical world with many countries, entities and organisations that recognise each other's “ID cards” without necessarily having tight integrations. 

The solution most commonly touted for these identity issues seems to come down to verified credentials. Some of you might have heard about SSI (Self Sovereign Identity) in the past years. The idea of SSI is that a person should be able to have sole ownership of their entire identity (biometric information, driver’s license number, university degrees,...), as well as control over how that data is shared & used.

Verifiable credentials are a proposed method of bringing SSI to reality, without the need for a central infrastructure. On top of the philosophy that one owns and controls its own identity (such as we do with the cards in our wallet), VC also adds functionality that does not exist in the physical world. VC will allow what is called “selective disclosure”: sharing only parts of your identity (credentials). In the case of the online casino, you may only need to disclose your age for the owner to comply with government regulations and let you in. 

For comparison’s sake, with today's tools, an online casino might require you to go through an extensive KYC process before being allowed to enter. These processes have been streamlined by parties such as Onfido, Microblink & OneSpan, but they often disclose your whole identity to the company (including information not needed such as social security number). This means losing control over that information and needing to trust in the information security and governance of these companies (see the difference with showing an ID card to the shopkeeper to prove your age? He gets more information than needed, but can’t easily store it). On the side of the companies, it’s difficult to remain compliant with all kinds of privacy regulations across the world, where very often only data that is explicitly needed can be stored. 

This opens up many avenues, as any credential (even your dietary preferences, allergies, medical prescriptions,...) can be added, any party (even person) that issues credentials can become an issuer and any other party can become a verifier without there being any need for integrations between issuers & verifiers. 

There is no formal solution yet, but the process of figuring out how this can all work in conjunction is clearly ongoing. There is a big exercise around how to bring these advantages in functionalities to citizens in an understandable and easy-to-use way. It is fully imaginable that providers of custodial wallets (mentioned in the first topic) might also provide functionalities for managing all these credentials in a safe & user-friendly way.

You can probably see that the tools we might use for payments/money and the tools we might use for identity/authentication are probably intermingling in the near future.  It is clear that the whole philosophy of decentralising and cutting out middlemen is an important promise for the industry to work towards. Existing intermediaries need to evaluate their position and strategy & new intermediaries will pop up to allow all citizens to take part. 

Regulation Paralysis

Thanks for reading this far. The last topic I want to touch upon is the shortest and it was briefly touched in the topics above. One of the common threads I noticed was some kind of paralysing effect of the (lack of) regulations on many topics on established companies. From embedded finance / open banking to identity over all things crypto, incumbents seem to be waiting for regulators to create the context and then see if and how their value proposition still fits in that context.

I see several issues with this.

The first is that it slows them down when it comes to discovering & testing new value propositions, I can only assume this is out of fear of making mistakes (internal compliance teams/mechanisms acting blocking).

The second issue I heard is policy & regulators are at risk of creating overreaching regulations and thereby blocking innovations. (e.g. regulators writing technical specifications for API’s that are deprecated almost at the moment they are final, versus regulators setting guiding principles). These are highly complex topics, even at the most zoomed-out level, politicians, citizens and even some regulators do not have even a basic understanding of them yet, but they are expected to make policies and regulations around them.

If trusted companies & (government) organisations try things out, experiment more broadly with different concepts, user experiences, and find new revenue models, in safe environments... boundaries will become apparent and understanding within the population will likely increase as concepts become less abstract.

Lastly, our elected officials need to step up their knowledge in these highly technical and fast-moving fields and discuss them more with citizens, in parliaments, in the media,... to set clear base principles and to prevent regulators from creating their own vacuüm in even more complex regulatory documents, stifling innovation and opportunities for both companies and individuals along the way.

Money2020 was definitely a great experience, trying to combine networking (I’m in sales after all) and soaking up as much information from presentations, panels and fireside chats as possible was quite a challenge for one guy. The energy there was high, and the people I talked to were all knowledgeable, motivated and enthusiastic about technological advancements in the broad industry.

If any of these topics spark an interest or a reaction of some kind, feel free to reach out!