Blockchain and Crypto Startups are Eyeing on the Global Payment Industry
The crypto community was ecstatic when Tesla revealed in February that it would accept bitcoin as payment for its electric vehicles. Here was a publicly-traded firm, backed by a billionaire public relations machine, affirming the currency’s status as a means of exchange. Meanwhile, the asset’s image as a store of value was bolstered by new all-time highs exceeding $44,000 on the exchanges. After a few months, the situation has changed dramatically. Not only has Tesla reversed its decision to accept bitcoin payments, citing concerns about the cryptocurrency’s energy consumption.
But the most prominent cryptocurrency also lost 30% of its value on Black Wednesday, highlighting the currency’s inherent volatility and fueling the views of those who believe it is an unviable medium. Despite the market’s downturn, there is plenty of evidence that cryptocurrencies and blockchain-based platforms will continue to play an essential role in the digital payments arena.
The emergence of crypto-friendly challenger banks, the addition of digital assets to PayPal, increased stablecoin usage, including Visa’s adoption of USDC, a plethora of new lending opportunities.
The savings and borrowing products, and a preponderance of innovative solutions for frictionless cross-border transactions – and, of course, everyone is waiting for news of Diem – have all occurred in the past year.
All of this is before we get to the topic of Central Bank Digital Currencies (CBDCs), which are being actively created and piloted in China and are considered by over 50 central banks in other nations.
Traditional Banks Shooting on Multiple Aspects
The banking sector continues to wield considerable power in the payment industry; but, fast-growing e-payment alternatives such as Monzo, Cash App, and Wirex and crypto-native protocols, exchanges, and apps are challenging the old financial behemoths.
Making payments entirely through a bank account is beginning to feel as out of date as making long-distance calls through a fixed landline phone and having the operator ask who would pay the charges to connect the call.
According to Ronit Ghose of Citi’s newest Future of Money research, “money is entering a format war,” which is posing challenges for bankers on multiple fronts. Banks are under attack from crypto innovators to central bank innovators with CBDC.
It all appears to be attempting to diminish or completely disintermediate traditional banks in the payments ecosystem, just like fixed-line operators were attacked with mobile and content.
Nuvei Corporation, a Canadian payments company, agreed earlier this month to pay $250 million for fintech business Simplex. Simplex, which provides fiat onramps for major cryptocurrency platforms and wallet providers, is a critical component of the cryptosphere since it allows users to engage with digital assets using credit and debit cards.
It’s also a key player in the Visa network, with over $2 billion in transactions expected this year.
Nuvei hopes to strengthen the capabilities and overall value proposition of our single-integration approach to payments’ by acquiring Simplex. The company also stated that it wants to reduce complexity for merchants and consumers, an admirable goal for any fintech looking to stay ahead of the competition.
The ability to streamline customers’ payment processes by incorporating Simplex at the point of sale would be a massive win for cryptocurrency as a medium of exchange.
Nuvi is Canada’s largest non-bank payment processor, with connections to over 200 countries across the world.
Extensive checks are being written by crypto-native financial services firms as well. Galaxy Digital, a digital investment bank, has agreed to pay $1.2 billion in stock and cash for regulated custodian BitGo.
The galaxy will become a one-stop-shop for institutions, according to CEO Michael Novogratz, and its objective to institutionalize digital asset ecosystems and blockchain technology will be furthered.
Galaxy’s acquisition of BitGo, which serves over 150 exchanges and 400 institutional clients and processes 30 billion monthly transactions, makes it one of the largest financial services organizations in crypto.
Following a $300 million fundraising round in April, Paxos, a digital (money) infrastructure and custody provider, has officially achieved unicorn status.
The company now intends to establish its own National Trust Bank and apply to the Securities and Exchange Commission for a Clearing Agency registration.
A new financial ecosystem is being built alongside the old one, virtually brick by block. When the market realized what Bezos was up to, even though he had been telling everyone for years, Amazon’s 20-year flatline share price shot to the moon, and the rest is history.
Web 1.0, and a different period – digital money is primarily an innovation arising from extensive decentralized innovation networks. It is evolving faster than life itself – giant banks would do well to pay attention.
Why does PayPal prefer Crypto?
Many people haven’t heard of Galaxy Digital or Paxos, but PayPal is a well-known brand and one whose crypto trajectory, unlike Tesla’s, appears to be unstoppable.
Not only has the company made crypto a funding source for 26 million merchants, but it has also spent $200 million acquiring BitGo rival Curv, whose clients include eToro and BNP Paribas.
Sri Shivananda, PayPal’s CTO, believes that the technology transition toward blockchain and cryptocurrencies will assist in democratizing financial services and improve financial inclusion.
PayPal, which Elon Musk co-founded, is a trusted, recognizable business that might serve as a portal to the world of digital assets for consumers.
Skrill, the money transfer business that recently expanded its crypto offering to the United States thanks to a collaboration with Coinbase, may be argued to be in a similar boat.
Last year, Moneybookers, a company with 40 million active users in over 200 countries, launched its prepaid card and a remittance solution, and a loyalty program. It, like PayPal, is assisting in the mainstreaming of cryptocurrency.
Skrill and PayPal have been around for a while, but the next era of payments is bringing in new companies. Platforms such as Public Mint, a so-called “fiat-native blockchain” that claims to make payment settlement more effortless and more accessible.
They are allowing users to transact in dollars via a synthetic asset (USD+) whose underlying currency is retained by custodians, with network fees paid in fiat.
With its future Earn program, Public Mint wants to introduce direct fiat liquidity to the worlds of CeFi (centralized finance) and Defi (decentralized finance). The platform is compatible with different blockchains like Ethereum and Polkadot.
The concept aims to provide banks with better interest rates while avoiding the absurd APYs of existing high-risk liquidity mining.
Open Finance and Defi Growth
Since early 2020, tens of billions of dollars have poured into the Defi industry, but the Ethereum blockchain has been severely clogged. As a result, they are forcing network fees to sky high and pricing out many normal users.
Because of their capacity to support rapid, secure off-chain payments, scaling solutions like Celer Network have increased in popularity.
According to Celer, billions of transactions might be completed every second if enough nodes and apps run off-chain. Through its new Layer2.finance, which was just introduced on Ethereum, the layer-two solution attempts to address the key barriers to open finance adoption, notably high cost and difficulty of use.
While many blockchain-based payment firms aim to simplify operations from the existing system to make transactions more accessible, cheaper, faster, and safer, others are developing slicker solutions that aren’t limited to the banking industry.
A notable example is Community Gaming, a New York-based firm that runs virtual and in-person esports tournaments.
Community Gaming uses smart contracts to automate transparent payouts for gamers, which can also make money by organizing their events. Payments are made in bitcoin or via PayPal to add a fiat offramp in the future.
Community Gaming and firms like it will undoubtedly help propel crypto adoption further into the mainstream. The esports market is now valued at over $1 billion and is expected to grow fast in the years ahead.
If the epidemic hastened the worldwide shift to a cashless economy, it’s safe to argue the wheels were already in motion before 2020.
With the rise of cryptocurrencies, digital wallets, challenger banks, stablecoins, CBDCs, Defi protocols, and other blockchain-based payment platforms, cash is no longer the sole medium of exchange under threat.
Big banks should pay even closer attention. Silicon Valley has not only arrived, but it has brought along its pals from the worldwide, decentralized digital money gang.
Those pals are dating fintech’s newcomers and courting central banks, the older kids on the block, and unexpected bedfellows few would have predicted only a few years ago.
For some, this appears to be the start of a beautiful relationship, but it seems to be a nightmare for others.