Financial Technology or Fintech is having a major impact on the world right now. These are the companies directly competing with the traditional financial service providers trying to come up with more efficient, faster, and more transparent services all across the globe.
Japan is the third-largest economy in the whole wide world. Tokyo being the metropolitan region generates around 20% of the whole of
Japan’s GDP, making it the top 20 national economies all across the globe. Japan is well ahead of countries like the Netherlands, Switzerland, Taiwan, and Sweden. However, the country is facing a huge demographic problem at this point and time. The population peaked in 2010 at 128 million people, however, there has been a steady decline since then to 125 million with expectations of worse due to the rapidly aging populace. At the same time, the country is facing urbanization issues with a lot of smaller cities and villages facing huge depopulation problems with some estimates showing that one in six houses is already emptied out in the rural regions.
The impact of the novel coronavirus pandemic has shown a surge in the currency trading market in Japan as well. This means that those people who are working from home are discovering new ways of making some profit with their investments. The trading volume in the individual foreign exchange market has jumped from 403 trillion yen to 1,015.6 trillion ($9.4 Trillion) in just 2 months. Fintech companies are at the forefront of blockchain technology and therefore are very much responsible for the support and the availability of the services for the Japanese people.
Industrialization has hit the world like a truck, however, there are still countries that utilize a lot of cash payments in comparison to others. Japan is coming in a close second in a “competition” with Germany with its utilization of paper-based payments. The Japanese government decided to work against this tide and promote cashless payments as much as possible. In order to achieve this, they have increased the consumption tax from 8% to 10% on October 1st, 2019. There have been several discount schemes implemented as well with subsidizations of cashless payment terminals for merchants. In addition, they started providing a 2% to 5% discount for customers when they are making a purchase from the registered SMEs or franchise stores. As a small note, this does not include national store chains. This was also done in order to get the Japanese hospitality industry ready for the upcoming Olympics, where around 40 million people were expected to visit.
With more than 800,000 active forex accounts, Japan is one of the leading markets in the world making 35% of the whole traded volume around the globe. The size has more than doubled during the last decade. Japanese traders are way different from everyone outside of the country as they usually trade on the highly volatile and high-yielding currencies like Turkish Lira and Mexican Peso as well as South African rand, while others are sticking to more popular currency pairs like USD/EUR, etc. They utilize the margin accounts to leverage modest deposits usually up to 100,000 Japanese yen). However, statistically, most of the traders as of now in Japan are middle-aged men. Although, the young blood is also pouring in with cases like Eridanus Yano, a 19-year-old student from Tokyo purely making a profit using the technique called scalping. Young people are benefiting from all of these brokerage firms that are offering
demo accounts for beginners in order to help them get a small taste of what the FX market can do for them. These accounts help newbies who are trying to get into the foreign exchange market gets used to the environment and start trading in relative safety without risking the investments.
In Japan, the
Banking Act in 2017 has got new amendments, which started implementing a framework for regulating electronic payment service providers. They cover both payment initiation service providers (PISPs) and the account information service providers (AISPs) and create the registries for them. The banks are now required to publish all of the necessary information about their affiliation with the PISPs and AISPs.
While European Open Banking has ruled in some provisions and allowed some limited but free use of the compulsory APIs, the Financial Service Agency (FSA) has absolutely taken its hands out of the business and left all of the negotiations to the parties themselves. The banks are trying to recover some of the cost of the implementation for Open Banking, thus, this makes fees prohibitive for startups. This is especially true for the ones based upon costly architecture.
It is worth noting that the regulator had set the previous deadline for the disclosure to happen until the 31st of May, 2020. However, due to the novel coronavirus pandemic causing huge issues all across the world and in Japan as well, the regulator has extended the deadline to the end of September and permitted the use of screen scraping. Branchless banking or digital-only banks are allowed under the Japanese legislation thus in time with the modern technology and infrastructure it will allow them to open up without restrictions and thus the end-goal of what the regulator wanted will be achieved.
Japan is one of the first countries in the world which has established cryptocurrency regulation starting with Bitcoin as a legal tender thus creating licenses for cryptocurrency exchanges in April 2017. This has enabled Japan to have over 23 cryptocurrency exchange operators all across the country. This is reinforced by the fact that FSA has been tirelessly working on creating some kind of protection for the investors utilizing crypto assets. This means that there has been a welcoming change to the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA), which has strengthened the protection for said investors.
JD Digits, the Fintech Division of Chinese Online Marketplace JD.com, to Conduct IPO at China’s STAR Market
JD Digits, the Fintech-focused division of Chinese online marketplace JD.com, is reportedly planning to conduct an initial public offering (IPO) at China’s STAR Market, which is based in Shanghai. This, according to a filing submitted by several securities companies.
As first reported by TechNode, the planned IPO appears to be a part of JD.com’s business plan which involves taking its affiliates public in the coming years. JD.com may soon be floating shares of JD Digits and also its courier business (JD Logistics). The e-commerce giant’s own secondary listing took place in Hong Kong in June of this year.
JD Digits’ listing on the STAR Market will most likely involve a new technology board, which launched on the Shanghai Stock Exchange in July of last year. The board reportedly prefers firms specializing in the semiconductor and manufacturing sectors.
Four Chinese securities companies reportedly entered “pre-listing tutoring agreements” with JD Digits on June 28, 2020. The agreements should help the firm with filing an IPO on the STAR Market, according to a filing submitted to the China Securities Regulatory Commission (CSRC), the nation’s main securities regulator.
The CSRC notes that firms must be tutored by licensed or authorized brokers before they are allowed to launch IPOs in Chinese stock markets.
Established in August 2017, JD Digits is valued at RMB 133 billion (appr. $18.8 billion) after securing RMB 13 billion in capital back in 2018.
JD Digits was previously known as “JD Finance.” The company currently manages several loan businesses and also offers AI and blockchain-focused products and services which mainly involve city governance and agriculture initiatives.
JD.com, which is already listed on Nasdaq, also began listing on the Hong Kong stock exchange on June 18, 2020. It’s only the third Chinese technology company to introduce a secondary listing in the city-state after competitors Alibaba and gaming firm Netease.
Wirecard Folds: A Blow to Crypto Cards, but a Chance for Blockchain
Some of the most impactful frauds in modern history, from the Enron scandal to the Bernie Madoff investment scheme, were carried out by malignant actors inside or at the helm of corporate entities who manipulated the tangled, esoteric financial records. This is precisely the kind of behavior blockchain technology is designed to obliterate.
The rapid demise of the German financial technology company Wirecard, which established itself in the blockchain community as a major crypto debit card issuer, seemingly belongs to the same category of events. In the long term, it might contribute to the growing public demand for increased transparency of corporate financial records and money flows.
Wirecard’s crypto fling
The power to issue cryptocurrency debit cards connected to the Visa and Mastercard systems is an enviable one. Businesses that find themselves in this position serve as a gateway between the realm of digital cash and the world where it can be exchanged for goods and services as handily as fiat money.
This middleman job is also quite lucrative, as companies that absorb both the volatility risks and trouble of compliance are entitled to hefty fees on every step of the process. The regulatory burden, however, is so onerous that there is usually no more than one major principal provider issuing the bulk of Visa and Mastercard cryptocurrency cards at a time.
A company called WaveCrest was once backing a handful of the most popular products in this space — such as Cryptopay, Bitwala and TenX — until it fell out of grace with Gibraltar regulators and was shown the door by Visa in early 2018.
A German payments group, Wirecard, then stepped in to fill the void, eventually onboarding crypto card providers Crypto.com and Wirex, as well as WaveCrest’s orphans, TenX and Cryptopay. A rare European fintech success story, Wirecard rose to prominence as a global payments processor and triumphantly entered DAX, Germany’s premier stock market index.
Wirecard was big in the fintech field long before the term came to be associated with the convergence of finance and blockchain technology. In a conversation with Cointelegraph, Seamus Donoghue, the vice president of sales and business development at Metaco — a provider of digital asset technology solutions — observed:
“Wirecard AG began processing payments for gambling and pornographic websites 20 years ago and has grown to become a bluechip DAX listed German tech darling. With a peak market capitalization of 25 billion dollars, it counts Olympus, Getty Images, Orange and KLM among its customers. As a payment service provider, merchants use it to accept payment through credit cards, PayPal, Apple Pay and others.”
Operating on a truly sizable scale within the traditional financial system, Wirecard “does not appear to have branched out to service crypto firms in any meaningful way,” said Jeff Truitt, the chief legal officer of Securrency — a firm providing technology infrastructure to the regulatory technology and financial technology industries. Truitt also noted that few of the mainstream press articles covering Wirecard’s meltdown mentioned its affiliation with crypto at all.
A shady record
Foreshadowing Wirecard’s present collapse was a chain of incidents where the group’s various units were suspected of fishy accounting practices. The Financial Times even ran a specialized series, “House of Wirecard,” looking into various instances where the company’s financial reporting raised questions. Last year, Wirecard emerged largely unscathed from a scandal that uncovered a pattern of systematic book-padding across the firm’s Asian operations.
The latest round of controversy began to unfold on June 18, when Ernst & Young auditors reported that they were unable to locate more than $2 billion that was supposed to be sitting in Wirecard’s Philippines-based accounts. A few days later, the payment processor’s board admitted that the funds likely did not exist. From there, things escalated quickly with CEO Markus Braun’s arrest on June 23 and Wirecard’s insolvency filing on June 25, followed by the United Kingdom’s financial regulator suspending the firm’s subsidiary that issues Visa crypto debit cards. Fortunately for cardholders, the ban proved to be short-lived, as it was lifted after just three days.
Against the backdrop of law enforcement officers searching its Munich headquarters, Wirecard is now going into administration. As the Financial Times reported, potential buyers are already lining up for its various units. Expectedly, in a matter of a few days, the value of the company’s stock all but evaporated. Despite EY claiming that its “robust and extended audit procedures” could do little to detect the complex fraud scheme, disgruntled investors are taking legal action against the auditor for failing to report the abuse soon enough.
The Wirecard case could inflict long-term reputational and business damage on actors far beyond those immediately involved. As the Wall Street Journal’s Patricia Kowsmann opined, the scandal particularly “has proven an embarrassment for BaFin, Germany’s markets’ regulator.” Other observers maintain that it could even put a stain on Germany’s ambitions to become Europe’s financial center after the U.K.’s departure from the European Union. In the wake of the initial reports of the fraud, German economic and finance expert Holger Zschaepitz tweeted:
“Good morning from #Germany, whose reputation as a reliable business location has suffered. The collapse of Wirecard has damaged trust in the German regulatory framework. After the turmoil at VW, Bayer, or Deutsche Bank the Germans are seen as tricksters.”
Alexander Bychkov, the CEO of Embily — a global crypto debit card provider — agrees that the Wirecard swindle could contribute to a shift in which jurisdictions are considered “safe” for payments businesses:
“The present Wirecard debacle gives companies that are regulated in other parts of the world an opportunity to compete on a global level since ’safe jurisdictions’ don’t seem to be that safe, e.g. emerging markets have been the scene for creative innovations in payments for the past decade. However, when it comes to crypto, each country is still a test lab for digital currencies and payment methods.”
Auditor firms, particularly those constituting the Big Four, can also expect some serious heat resulting from the case. EY’s failure to detect the shady dealings and warn the public has already resulted in resurged scrutiny of auditors’ own organizational processes and calls for the titans of the industry to be broken up, and a lawsuit is even being filed against the firm.
Truitt sees the Wirecard case as a symptom of an institution-level dysfunction, as “marquee institutions apparently failed to detect systemic fraud,” adding that: “Unscrupulous actors at Wirecard seem to have engaged in wrongful activity for far longer than they should have. Despite the highest standards, the system failed.”
The extent of crypto loss
It is plain to see how the downfall of the key crypto debit card issuer could cause immediate harm to the industry, both operationally and in terms of trust. Alexander Blum, the co-founder and chief operating officer of fintech company Two Prime, told Cointelegraph that because Wirecard supported some prominent crypto debit card issuers, its collapse will unsettle the niche market: “The fall of Wirecard, despite what these companies may say, puts a real kink in their plans. Millions of cards these companies have spent years to distribute are now useless.”
Andrew Howell, the lead blockchain engineer at blockchain network management tool Blockdaemon told Cointelegraph: “Customers may lose faith in these companies if [they] cannot get their cards reactivated or alternatively find a replacement card issuer in the near term.”
At the same time, the severity of the damage is limited by the fact that Wirecard did not actually hold any of its card users’ digital funds. Adam Traidman, the CEO of crypto wallet firm BRD, told Cointelegraph:
“Fortunately, it is safe to assume that Wirecard does not have direct custody of most, if any, companies’ crypto assets, as mentioned by Kris Marszalek of Crypto.com. So, I do not see this affecting crypto much at all.”
Embily’s Bychkov further explained that users’ fiat assets are safe as well: “The clients’ fiat funds are held by an e-money institution (EMI) which is typically regulated by financial regulatory bodies and the funds are held by another bank (not Wirecard) as required by those bodies.”
Diminished faith in fintech?
For some experts, the Wirecard case appears to be grave enough to shake public trust in financial technology at large. Erick Pinos, the Americas ecosystem lead at blockchain platform Ontology, said that the scandal “lays bare how broken and opaque the fintech system is, that a company as large as Wirecard was able to operate with this level of deceit.”
Metaco’s Donoghue opined that the Wirecard fraud could deal a lasting reputational blow to the companies that dealt with the German firm. Donoghue thinks the argument that a company can “offer new services and products like cryptocurrencies, while their processes and funds were as safe as with traditional mainstream financial service providers, has been weakened.”
Nick Cowan, the CEO of the Global Stock Exchange Group, otherwise known as GSX Group, views the situation more optimistically. He maintains that while the misdeeds the scandal exposed are common for the corporate finance sector at large, the fintech field holds the cure:
“I don’t believe this will have any widespread negative consequences towards investment or support in the fintech sector, the unfortunate reality is that corporate fraud will exist as long as there are avenues for bad actors to manipulate and exploit. Fintech is pushing the boundaries to stop situations like this from taking place, or at least mitigate the likelihood of their occurrence.”
The blockchain remedy
In the short term, the affected debit card providers will have to urgently resolve the problem of finding an alternative principal issuer, opening room for another processor to bridge the gap. It is also possible that Wirecard Card Solutions, the company’s independent U.K.-based subsidiary, will continue to issue Visa and Mastercard crypto cards after changing hands in the administration process.
In the longer term, however, more fundamental changes will have to engulf corporate finance and payment industries if they are ever to rid themselves of the fraud plague. Some obvious solutions include transitioning toward more decentralized and transparent payment and accounting systems. Ontology’s Pinos commented:
“We should strive to use the merits of blockchain to build new financial products that push transparency and financial inclusivity to ultimately propel the fintech industry into a better place where it serves the people.”
Survey from Fintech Lender and Digital Bank Zopa Reveals UK Millennials Aim to Save More than Senior Citizens for Emergencies After COVID-19
Nearly a third or 33% of UK residents say they were financially unprepared for the COVID-19 outbreak and resulting challenges.
Around 38% of UK residents responding to a survey conducted by Fintech Zopa said they’re now preparing their savings for another potential emergency situation that could come after another (possible) nationwide lockdown goes into effect.
Zopa says that younger people, which mainly include millennials (born in the early 80s to early 90s), appear to be leading the way when it comes to making significant changes to their savings habits. According to the survey by the peer to peer lender, people between 24 and 39, living in the UK, are twice as likely to put funds aside right now to deal with potential emergencies than those who are over 55 years of age (senior citizens).
According to Zopa, the average UK resident aims to save around £6,700 by the end of 2020 in order to prepare for unexpected life events.
Millennials also aim to save about £21,500 by 2025, which is a bit more than around £18,900 saved by Brits who are over the age of 55 and the country’s (savings) average of approximately £20,700.
Clare Gambardella, chief customer officer at Zopa, said that the last few months have “really put the nation’s finances under a microscope.” The Coronavirus crisis appears to have caused many Brits to reconsider how they save and spend their money.
Gambardella added that the Fintech lender can now see that where it’s possible, UK residents are using this current time to develop “good financial habits – particularly the younger millennial audience.”
Gambardella further noted that the Fintech firm is launching its bank at a time when clients need products that can help them achieve their financial goals. Zopa has over 15 years of experience in offering “simple, fair products and award-winning levels of customer service to over half a million customers,” Gamnbardella confirmed.
The company now looks forward to offering the same level of quality with the launch of its bank.
After an extensive regulatory journey, Zopa was recently awarded a full bank license as it transitions from a top online lender to a Fintech offering a growing portfolio of financial services.
Zopa Bank will sit alongside its existing peer to peer business (Zopa Limited), as part of the overall Zopa Group. Zopa currently holds a high user rating with 96% of Zopa’s Trustpilot reviews being either 4 or 5 stars – something that bodes well for customer acquisition. As a P2P lender, Zopa approves approximately £1 billion of personal loans per year.
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