24 minute read
Payments
from SBC Leaders Issue 21
by SBC Global
ELOISA MARCHESONI: THE EVOLUTION OF CRYPTO REGULATION CAN BE KEY FOR US GAMBLING
AS THE US EVOLVES ITS REGULATORY FRAMEWORK
for digital currency, we take a deeper exploration into how it can ‘solve endemic industry problems’ in gambling
BY JOE STREETER
Recent announcements from President Joe Biden around the regulation of cryptocurrency in the US underline a new era for digital currency in the region. Adoption of the President’s order runs alongside the rapid growth of the US gambling market and, according to Eloisa Marchesoni, the two sectors can complement each other.
Marchesoni, a self-made crypto entrepreneur, has become a leader in fintech and blockchain. She spoke to SBC Leaders about the role of digital currency within the US.
SBC: Firstly, as US igaming and sports betting regulation expands, what impact can digital currencies play in the payment journey for those sectors?
EM: There’s a significant overlap between igaming and betting audiences and cryptocurrency audiences. In fact, cryptocurrency offers discernable use cases that go beyond sponsorship opportunities. It offers to solve endemic industry problems — and promises to alleviate others.
One of the prime use cases for cryptocurrency in such industries is the ability to offer prize pool payouts in crypto. The borderless nature of cryptocurrency offers a solution,
particularly in less economically developed regions. Finally, firms in the betting and gambling sector can offer crypto as a seamless, native payout option.
SBC: How significant is Joe Biden’s executive order for the regulation of crypto and what does it mean for the growth of digital currency in the region?
EM: This order is a big achievement in the sense that the government acknowledges the importance of the asset class and of the technology and wants to take a whole of government approach without moving too quickly and creating laws which prevent unintended consequences.
Note that it does not rule out the potential for more restrictive policies in the future, especially given that different facets of the US government
hold varying opinions on how cryptocurrencies should be regulated, but this is certainly a very good day for the asset class and for the industry.
This order really instructs policymakers to expand and assess the impact that it will have on consumer and investor protections.
SBC: In terms of regulation, what are some of the lessons that can be learnt by the US from other more mature digital currency markets?
EM: Singapore is one of the most crypto-friendly countries that I believe the US should learn from in order to open up to crypto without becoming the go-to place for scammers, like Dubai has become.
Similarly to the United Kingdom, Singapore classifies cryptocurrency as property but not legal tender. The country’s Monetary Authority of Singapore licenses and regulates exchanges as outlined in the Payment Services Act.
Singapore, in part, gets its reputation as a cryptocurrency safe haven because long-term capital gains are not taxed. However, the country taxes companies that regularly transact in cryptocurrency, treating gains as income.
SBC: With the turbulence of Terra Luna, what does the future look like for Stablecoins and is more regulation required?
EM: The situation with TerraUSD proves that stablecoins are a rapidly growing
product, and that they come with all sorts of risks that such an innovative financial technology solution could ever bring. Specifically, there are risks to financial stability that are not mitigated at all due to the lack of an appropriate framework.
In a hearing, US Treasury Secretary Janet Yellen reiterated the need for a regulatory framework, also referring directly to the events involving the Terra ecosystem.
The Financial Stability Oversight Council is working on a report in accordance with the executive order issued by President Biden in recent weeks, with the aim of identifying potential risks to financial stability and/or potential gaps in regulatory oversight.
If the US merely draws attention to the drafting of a regulatory framework, Europe’s approach seems more aggressive, at least according to a leaked document that Coindesk has used as an unofficial source.
In fact, it seems that the European Commission is considering limiting the use of stablecoins to prevent them from being used as a replacement for the fiat currency. This would be a document that does not reflect the formal position of the Commission and that should be taken as one of several documents produced to guide the debate on crypto that has been going on for months and months now, behind closed doors, in the context of the finalisation of the Markets in Crypto Assets Regulation.
TerraUSD has been well below the dollar for several days now, and although the inventor and founder of technology Do Kwon has said a solution is being worked on to get blockchain back on track, investor confidence is at an all-time low. Many doubt, in other words, that the currency will be able to recover its target value. Overall, the TerraUSD case has put the spotlight on the risks, which are always feared, about the effective sustainability of algorithmic stablecoins.
The advantage of algorithmic stablecoins is that you don’t need to have large economic resources to engage in other escrow investments. But what if an abnormal operation is carried out on the network that the algorithm is unable to balance - and there are no external and independent resources to keep the whole system stable? Well, exactly what was observed with Terraform technology.
Moreover, the whole market (and not
just crypto) is plunging, thus making the situation even worse.
Stablecoins are suffering, too, as it is becoming more and more costly to keep the peg by growing the reserves, and the mirage of richness is hard to give up for the projects’ founders. They have enjoyed an abnormally long summer which lasted a little over 10 years. Do Kwon may have not been able to accept the coming winter, and the same could happen with other stablecoin projects. Is it the fault of technology or of humans operating it? You answer.
GREATER REGULATORY GUIDANCE, IF WELL TARGETED, COULD HELP REDUCE SPECULATION AMONG CRYPTO ASSETS THE TERRAUSD CASE HAS PUT THE SPOTLIGHT ON THE EFFECTIVE SUSTAINABILITY OF ALGORITHMIC STABLECOINS
and regulators to ensure that digital currency is further embraced by the mainstream?
EM: Greater regulatory guidance, if well targeted, could help reduce speculation among crypto assets. Less speculation can lead to higher investor confidence, which could draw in more long-term investors who have so far said no thanks to a highly speculative, volatile crypto market.
Crypto investors currently have little to no protection in the market, as there is no regulatory framework in place to ensure protection of assets. Some exchanges maintain compliance with evolving federal and state regulators in the United States.
This includes many established,
high volume US-based exchanges, like Coinbase and Gemini, but they’re not regulated similarly to public stock exchanges or alternative trading systems. That can be problematic. Investor protections could make the market less vulnerable to outside manipulation. Safer markets can lead to more investor confidence, which often means greater value over time.
Crypto isn’t even subject to requirements to prevent fraud manipulation, nor to standards on conflicts of interest. My point is simply that we don’t have the same kind of standards that we have in other markets and that regulators need to fix that, too, as soon as possible. •
SBC: What are the steps that you think need to be taken by governments
AFRICA’S ‘FRAGMENTED’ BUT ‘EVOLVING’ DIGITAL PAYMENTS SPACE
ASTROPAY CEO MIKAEL
LIJTENSTEIN sat down with SBC Leaders to discuss his views on the direction Africa is heading in terms of digital payments, how important financial inclusion is for the continent and where it stands in the current global digital payments landscape
BY VIKTOR KAYED
Technological advancements over the last couple of decades have completely transformed the way we communicate with each other. Not only in text and speech, but also financially. While moving money nationally and internationally used to take days and even weeks in a time not so distant from now, today this occurs instantaneously, with millions of transactions being processed every hour.
Payment provider firms such as AstroPay have become game changers for both individuals and companies alike. People working abroad can transfer money to their loved ones just by making a few taps on their mobile phones, while businesses and merchants can develop cross-border operations with ease. However, some markets have managed to catch on with the technology faster than others, diluting the concept of a total global financial inclusivity.
One such emerging landscape is Africa, where AstroPay has established a strong local presence to help the continent become a hub for digital payments.
Starting with a general overview of Africa’s current attitude towards digital payments, the firm’s CEO Mikael Lijtenstein noted that widespread adoption has been slower because of inconsistencies in how each country views and offers transactions.
“The prospect of Africa going cashless has led to a rush to revolutionise the continent’s digital payments landscape,” he said. “Digital payments in Africa are evolving fast and expected to become more dynamic with the evolution of alternative payment methods and
digital currencies.
“But despite huge investments into the industry over the years and the presence of big players working to shape its infrastructure, the longstanding narrative is that the space is still heavily fragmented.
“Having different payment options in each country, and the difficulty of handling online transactions in different currencies, complicate the processing of digital payments in the continent.”
While Africa has high mobile money penetration across markets, merchants
who want to establish cross-continent operations need to consider each country on a one-to-one basis.
“In Ghana for example, users can pay with MTN, AirtelTigo, Vodafone, or from a bank account. Kenya, on the other hand, is highly driven by mobile money, while in Nigeria bank transfers are more common,” Lijtenstein explained.
“The challenge for merchants that want to expand their business to the region is to be able to provide each of these options per country. Partnering with a reliable payments company that offers access to all these payment methods, from a single integration and from one contract, enables merchants to grow their business cross-border.”
This is different to a more ‘mature’ European market, for example, which Lijtenstein points out provides “universally guaranteed” access to payment options like digital wallets.
However, as lucrative as it might
seem to just copy and paste whatever works in a developed landscape, it is not always that easy, as the foundation often differs in an emerging market, AstroPay’s CEO noted.
“Rather than learning from more mature markets, it is about countries finding the solutions they need for their citizens. The realities of emerging countries are very different from those of developed ones, so it is not always possible to adapt the same practices.”
Lijtenstein cited lower rates of internet penetration and bandwidth connectivity as some of the aspects that hold back the expansion of Africa’s digital payments.
“Africa’s digital transformation is underway, generating transformational changes across all economic sectors and providing much-needed social upsides. On several market growth telecommunications parameters, the continent has recorded the highest growth rates globally.
“However, while the growth figures are impressive, a stark digital divide remains. An estimated 900 million people are still not connected to the internet, and for those who are connected, connectivity prices remain mostly high, and bandwidth is severely limited in many areas.”
Going back to merchants in Africa having to juggle between multiple payment offerings to reach a wider audience, Lijtenstein highlighted how solutions like AstroPay are here to help.
He said: “In our experience the main challenge merchants face is being able to provide as many payment options as possible to reach a wide range of users, mainly the younger generations that are digital first and who always want to use the latest thing on the market.
“Over a thousand merchants already partner with us and have benefited from the possibility of accessing countries in Africa, Asia, LatAm and Europe from a single integration, allowing them to offer over 200 payment methods without the need to partner with them one by one.
“Also, merchants can access a community of over six million users to promote their brand, a number that keeps growing exponentially.”
THE PROSPECT OF AFRICA GOING CASHLESS HAS LED TO A RUSH TO REVOLUTIONISE THE CONTINENT’S DIGITAL PAYMENTS LANDSCAPE WHILE THE GROWTH FIGURES ARE IMPRESSIVE, A STARK DIGITAL DIVIDE REMAINS
Lijtenstein believes that Africa has a bright future in the digital payments market space due to the continent’s young population that is generally more tech-adept. He noted: “The population of Africa is majorly young, especially when compared with the population of the other continents.
“Around 200 million people are aged between 15 and 24-years-old, a wide audience that is mobile-first and has a strong demand for online solutions that are convenient and secure. This has a direct impact on financial inclusion, as most of the population in the continent does not have access to traditional financial institutions.
“Instant payments can further realtime payments and foster financial inclusion in a continent where cash transactions are still the king. Fintechs have become agents of democratisation for the unbanked populations, making it possible for them to pay online on international sites.”
Concluding with developments in the payment journey and player trends in African sports betting, Lijtenstein underscored AstroPay’s continuous advancement into the sector. “At AstroPay understanding the complexity of the region and the particularities of each market within Africa has been paramount to develop a user experience that satisfies these populations’ needs.
“For 13 years we have been working in developing local solutions by listening to our users to make sure we fully understand what our customers want. This is where our experience comes as an advantage. It allows us to offer exactly what our clients need by respecting the differences of each population.
“Offering the most renowned local payment methods in each country assures reaching a wide audience, regardless of their access to traditional payment options.
“We also have dedicated teams to source feedback from our users, especially the early adopters in each country, to hear about their experience using our product, suggestions for improvements, and which sites they’d like to use AstroPay on, among other things.” •
David Clifton, legal expert
Charles Cohen, industry compliance expert
AFFORDABILITY: THE GAMBLING REVIEW’S MAJOR DILEMMA
AS WE APPROACH THE GOVERNMENT’S REVIEW
of the 2005 Gambling Act, compliance and legal experts are questioning whether affordability will become the tricky last hurdle that industry stakeholders need to overcome
BY TED MENMUIR
In its spring update, the UK’s Department of Culture, Music and Sport was unwavering in its decision that it will publish the Gambling Act White Paper review by an ‘unspecified date in June’, thus concluding a painstaking two-year process to deliver UK gambling’s generational change.
The process has become a regulatory marathon, pushing compromise to the forefront of gambling leadership minds who have long accepted that the industry’s terms of play will be altered forever.
Ahead of the White Paper, industry stakeholders have pledged to accept its judgement on new advertising standards, sports sponsorship, licensing duties, operator conduct, safer gambling, enhanced customer care, game design and consumer protections.
A stoic mindset was required as ministers moved to ‘rewrite the gambling industry’ in which its participants were deemed to have benefitted from more than a decade of liberalised market conditions.
But having decided to conform with reformists' demands, UK gambling remains resolute that any actions on customer affordability checks will bring a damaging conclusion to the government’s review.
Affordability has, therefore, become the tricky last hurdle to clear as the review comes into its final stretch,
and with UK gambling having no inclination as to what direction the government will take in the most divisive of outstanding matters.
As legal expert David Clifton (partner of Clifton Davies) observed in his latest ‘White Paper Musings’ for SBC – following a review that saw DCMS gather more than 16,000 consultations from industry stakeholders during its call for evidence phase – “no clearer indication has yet been provided with regard to the precise nature of the Commission’s current expectations on affordability checks.”
Of note, Clifton pointed to December’s GambleAware Conference, in which DCMS Gambling Minister Chris Philp and new UK Gambling Commission CEO Andrew Rhodes addressed industry concerns.
Both review stakeholders cited affordability as “vital to solving the issue of financial vulnerability of UK consumers engaging in gambling”, yet remained tight-lipped as to how the government would choose to implement any type of customer affordability requirements.
Clifton’s musings concluded that while affordability will play a critical role in the review’s outcome, “operators will be in the dark until the White Paper is published and discloses definitive requirements”. The subject matter has even divided ministers and industry reformists, who seem unable to define how customer affordability checks should be imposed on operators.
Though checks on individual customer spend have hogged
Chris Philp, DCMS Gambling Minister
the debate spotlight, affordability requires wider technical understanding with regards to customer privacy, handling of sensitive data and the role of financial services in verifying customers.
At the GambleAware conference last December, Philp had admitted that he could not see the Gambling Commission being required to verify the “payslips or bank statements from every customer spending £100 or so”, adding that the measure “is likely to be unwelcome, disruptive and disproportionate to the risks”.
Fast-forward to April’s rescheduled ICE London 2022 conference, where industry compliance expert Charles Cohen warned attending delegates that the “UK government was poised to announce an affordability limit of £500”.
Founder of gambling affordability
data specialist DoTrust, Cohen outlined that the government wanted to avoid a repeat of 2018’s bungled FOBTs verdict that led to a split between DCMS and the Treasury on the ‘delayed timeline’ to implement a machine wagering reduction from £100-to-£2.
But why enforce an affordability check at £500? Cohen responded:
“The view is that the number itself is the messenger, not the message. Actually having a number would be progress for many; at least everyone will know where the line is drawn and that all operators are being held to the same threshold.”
Of significance, it was reported that DCMS had cited a UKGC sanction against a PLC operator, “in which an NHS worker earning £1,400 a month set a deposit cap at £1,300 a month”.
Though such a limit is yet to be officially declared, Cohen remains steadfast that a £500 affordability measure will be imposed on UK operators, with a pending decision coming at a time when the “cost-ofliving crisis in the UK will put pressure on punters’ wallets at a crucial time in the evolution of the sector”.
Cohen proceeded to follow the observation with the astute comment that “we are at a time when the government must value the cost of pasta over the cost of gambling”, adding: “The hope is that the industry is consulted at this point, although the record of the Gambling Commission at this stage is poor in this regard.
“Whoever gets the job of writing the rules will certainly need guidance – I’m sure the sector’s regulatory and compliance experts are as we speak modelling what they think might be coming down the track. Their combined expertise will be crucial in the next six months.”
Publishing its 2022 industry guidance, London law firm Wiggin LLP advised clients that it considered affordability as the “central dilemma of the pending review of gambling laws”.
Addressing the unwavering stance of stakeholders on the matter, Wiggin noted a number of comments made in the 2001 Budd Report on gambling, which ring as true today as they did then.
Budd’s 2001 report cited the ″central dilemma″ of the desire to permit free choice and the fear that such choice may lead to harm either to the individual or to society more widely.
The report also advocated a move in the direction of allowing greater freedom for the individual to gamble in ways within the boundaries of a controlled regulatory environment that has come under scrutiny today.
Wiggin noted: “The central dilemma, as expressed in the Budd Report, remains today and anyone reading the consultation will be mindful of it. It raises highly pertinent questions as to the purpose of gambling regulation and the extent to which it (and indeed other forms of regulation) should impose upon our lives and restrict the choices that we wish to make.” •
WHOEVER GETS THE JOB OF WRITING THE RULES WILL CERTAINLY NEED GUIDANCE IT RAISES HIGHLY PERTINENT QUESTIONS AS TO THE PURPOSE OF GAMBLING REGULATION
WEB3: EXCITEMENT, TREPIDATION AND NEW RISKS LIE AHEAD
IT'S OUT WITH WEB2 AND IN WITH WEB3. Cryptocurrencies may not be nothing new, but the development and innovation of Web3 functions such as NFTs and the metaverse is starting to shape the payment landscape for years to come
BY CALLUM WILLIAMS
When the value of TerraForm Labs’ Luna and USD tokens crashed, plummeting 98% in value and ultimately ceasing to exist, the ‘Crypto Crash’ sent waves across the sector, with Luna’s collapse resulting in other tokens such as Bitcoin, Ethereum and Avalanche all taking a hit.
This was a stark reminder of the volatility and risk that comes with investing in cryptocurrency - one that could deter existing and potential investors for years to come. But instead of completely writing off cryptocurrencies due to preexisting fears, it is also important to understand why Terra Luna collapsed and what is being done to make the space inclusive and ease anxieties.
It has since been revealed that TerraForm Labs Founder and CEO, Do Kwon, was not transparent with Terra’s holdings and reserves which, in turn, was not doing its due diligence in protecting investors.
So how can an event such as Terra’s crash be avoided again? How can new users of crypto venture into the space without trepidation and fear over potential losses? Pavel Mateev, Founder and CEO of Wirex, suggests the use of stablecoins as an alternative to more traditional cryptocurrencies.
He said: “If users have concerns about volatility, then stablecoins are a great option and thought to be the future of the digital economy, since they uphold all of crypto’s
Pavel Mateev, Founder and CEO of Wirex
other benefits such as cheaper costs and faster transaction speeds, whilst removing the volatility factor.”
Mateev also stressed the importance and need for education when venturing into the crypto space, whilst also recognising that regulation is still in its infancy.
He advised: “Trust is more important than ever in the crypto environment, where some regulations are still in their infancy. It is unfortunate that the Terra Luna crash took place as it has unfairly given a bad name for much of the rest of the crypto industry in the media.
“What this shows is that education is key, meaning that consumers need to do their research to ensure that the crypto company that they are working with, or giving their money to, is safe, secure and trustworthy.”
Wirex is renowned for its multifunctional crypto wallet, the ‘Wirex Wallet’, which aims to make buying, selling and trading cryptocurrencies as seamless as possible, with added security measures for user safety.
Built upon blockchain technology, the Wirex Wallet is labelled by the company as a “world-first”. The firm has made it clear its ambition is to make fiat to cryptocurrency exchanges with the most amount of simplicity possible.
Mateev continued: “Our core mission is to empower everyone to access the benefits of crypto, making it simple and easy-to-use is a vital part of that.
“Part of the simplicity involves improved accessibility, where uniquely, the app will not require a private key and, instead, will rely on biometrics for access. Combining an exceptional user experience with multi-party computation technology ensures resilient security and compliance.”
One of the most recent updates added to the Wirex Wallet is the NFT functionality. NFTs were thrust into the mainstream in the aftermath of the COVID-19 pandemic.
However, similar to crypto, NFTs possess potential risks. The scarcity of a certain digital collectible can possibly lead to users performing NFT transactions on both sides of the sale, artificially inflating prices, also known as ‘wash trading’. Consequently, tokens could be perceived as being more valuable than they actually are.
Research from Chainanalysis found that more than $8.9m of wash traded NFTs were created by just 110 potential traders. The reasoning behind this was due to buyers unknowingly purchasing digital collectibles that were overpriced as a result of the wash trade.
NFT markets such as OpenSea are considerably more susceptible to hackers and fraudsters too. Just recently, the popular Bored Ape Yacht Club NFT marketplace was hacked, losing up to $360,000. This is not the first time this has happened to the Yuga Labs creators, after hackers breached their servers in April last year, resulting in $2.8m in stolen goods.
“Ownership of NFTs has been exploding in recent months, and convenience and a great user experience is important with any blockchain-related products,” stated Mateev. “As mentioned previously, it’s our core goal to enable everyone to have straightforward access to the benefits of blockchain technology, which includes NFTs.”
Conversation soon turned towards the role that NFTs will play in the burgeoning metaverse, which is an almost augmented reality that connects the physical world to the digital one.
He explained: “Many argue that NFTs and their technology will play a vital role in the metaverse by offering certificates of ownership.
“Governed by smart contracts, NFT technology represents a sea of possibilities, most notably the ability to copyright a user's work, as well as giving buyers the guarantee that they own a unique digital asset. This will be pivotal in transferring goods within a virtual universe.”
The metaverse is becoming an increasingly viable lane for financial institutions like HSBC. Last March, the bank bought virtual real estate in the Sandbox metaverse; JP Morgan and Standard Chartered also delved into the digital world in a bid to transform the way payments are transacted moving into the Web3 space.
But what role will the metaverse play for payments, especially when it comes to transferring our fiat currency to crypto currency as we alternate between the physical and digital worlds?
“Effectively, digital and real worlds interact and there can be parallel worlds for people to exist in simultaneously,” outlined Mateev.
“Therefore, the digital economy will play an important role in the metaverse, and non-custodial wallets will be an important place to store your personal information and
WE TRULY BELIEVE THE DIGITAL ECONOMY WILL OVERTAKE TRADITIONAL FINANCIAL INSTITUTIONS THAT ARE OUTDATED
possessions within the metaverse, which can be connected to all around the ecosystem.”
With cryptocurrencies operating largely under no defined regulation, the increased use of augmented reality would also see a rise of cryptobased payment firms, such as Wirex, take the lead for seamless fiat to crypto transfers.
But this isn’t how Mateev sees
the future. The Wirex CEO is fully expecting firms like Visa and Mastercard to operate within the Web3 space, as more businesses begin to adapt, the more accessible and seamless the Web3 experience will be for the user.
“We have for long believed in the potential of the digital economy, and truly believe it will overtake traditional financial institutions that are outdated.
“We have already seen major card networks like Mastercard and Visa make steps to both integrate the technology, and support other companies in doing so. It is likely that as regulations adapt, businesses and consumers will have more confidence to operate in the space.” •
