Moving operations from traditional banks to Fintech disruptors may improve your margins, efficiency and the ability to hedge FX currency exposure. But businesses also need to prepare for the paradigm shift in money to take advantage of it and engage with new customer demographics Gen-Z and younger.

The future of money and the economy is going to get very weird in the next decade. The cyberspace industrialist Zuckerberg has unleashed the metaverse, which sounds like a bad trip for most people outside The Valley but it may define the future of e-commerce and even money.

Also, for the first time in history, anyone with a modest sum and decent internet can create their own version of ‘money’ (i.e. cryptocurrency). Ten years ago it was unfathomable that someone could mint their own coin and name it after themselves. But here we are.

Paradigm shifts in money

What makes ‘network money’ so different from previous epochs is that it’s bootstrapped with liquidity (through automated market makers, liquidity pools or, liquidity bots) and artificial demand through social media marketing (crypto influencers, Telegram groups, referral fees, pyramid schemes).

Evolution in a purely digital network proceeds at a much faster rate than a physical system such as gold/silver coinage, or physically-backed fiat, and this is why something as useless as Bitcoin has gone from a market cap of $35m to over $1.2 trillion in just 10 years.

Many other useless cryptocurrencies have followed even faster growth rates due to the advances in technology, financial instruments and, of course, FOMO marketing.

Metaverse Vs Micro Economy

New Zealand is a nation of small and micro business — including self-employed. Defined as those with fewer than 20 employees, there are approximately 530,000 small businesses in New Zealand representing 97% of all firms, which all together account for 28 per cent of employment and contribute over a quarter of New Zealand’s gross domestic product (GDP).

I take New Zealand as an example because it has a higher percentage of micro, small and medium businesses than other countries and MSMEs are the antithesis and counterpoint of the metaverse which is owned and being built by venture capital and will lead to more centralisation in the economy. A strong and diverse backbone of SMEs is the path to decentralising the economy, not NFTs or the metaverse.

While SMEs are caught between the forces of a global online marketplace and the local marketplace they will need to prepare for and participate in the metaverse (if only to engage with new young demographic of customer). It is also important they start learning and utilising the advances in financial technology that can enable them to improve margins, manage FX and reduce transactions costs.

Fintech Tips for SMEs

According to a survey conducted by Wise, formerly Transferwise, most NZ SMEs are still using traditional banking transfers both domestically and internationally and not taking advantage of financial technology, losing tens millions of of dollars in transaction costs and ticket-clipping fees every year.

Fintech is a hazy catchall phrase for everything from ‘Payment Providers’ like Paypal, to digital banks like Revolut or even more frontier tech like Decentralised Finance (DeFi).

Here are some fintech tips business owners can immediately explore and implement in their operations:

1. Prepare for the future of payments and e-money

Find ways to transact with e-money and stablecoins as these are going to play a large role in the future of payments. You could possibly can integrate Circle’s payment processing into your systems.

E-money is the opposite of credit cards and even BNPL (Buy Now Pay Later) apps. According to the UK’s Financial Conduct Authority the definition of electronic money is a digital claim on ‘real money’:

“For a product to be electronic money, it must be issued on receipt of funds. This part of the definition means that electronic money is a prepaid product. That is, unlike credit provided through a credit card, the customer pays for the spending power in advance. This is why credit cards are excluded from the definition of electronic money.” — UK’s Financial Conduct Authority

Stabelcoins fall under this remit of e-money. Stablecoins are digital claims on national currency (often ‘physically’ held in reserve by the issuer) represented on a blockchain such as Ethereum or Bitcoin and are redeemed when spent. Coinbase, one of the world’s largest cryptocurrency exchanges and co-founder of the USDC stablecoin, has been operating with a UK e-money license for years.

2. Explore new point-of-sale technology, especially digital wallets

As the lines become more blurred between what is/isn’t money the younger generation will trust money issued by a Fintech company as much (if not more) as a retail bank.

Very soon it will be common for people to pay in digital gold, bitcoin, stablecoins or an NFT and it will be cash-settled at point-of-sale. Changelly is an exchange for instant crypto-cash and crypto-crypto transactions that can be integrated to payment services with API integration.

3. Move your business account to a digital bank

It’s just easier. When you’re earning 0% on cash on call why wouldn’t you?

The European giants Revolut, N26 have become part of the everyday lexicon: “I’ll Revolut you!”

Start moving your business banking to digital banking. Revolut and Wise (formerly Transferwise) now both offer business services which are perfect if your business operates across borders as they offer far better currency exchange rates than retail banks. With Revolut you can actually hedge your foreign currency exposure with futures and forwards contracts.

4. Take advantage of the crossover of Fintech and DeFi

While decentralised finance (DeFi) is currently the frontier of the Wild West from it may emerge the future of P2P lending, risk mitigation, insurance and even saving.

The crossover between Fintech and DeFi will turbocharge the power of debit, investing, FX converting, lending, crowdfunding and leveraging. The best example today is Revolut which offers regular digital banking as well as a crypto wallet where you can buy, save and store. Also, Monolith a DeFi banking app from the UK, offers a regular debit card that allows users to spend their crypto in fiat at point of sale.

5. Remove the middlemen! Embrace open banking

Fintech has introduced more middlemen (BNPL the latest iteration) so try to reduce the number of ticket-clippers from your operations, especially merchant acquirer and payment processing for credit cards.

All credit (and even debit card) transactions take several days to settle as the acquiring bank (aka merchant acquirer) processes card transactions on behalf of the merchant to reconcile them on the ledger. Therefore, an acquiring bank is a middleman for the merchant. Then consider with an Apple or G-Pay smartphone payment you now have potentially 3 middlemen on a transaction: Big Bank, Big Tech and your payment provider.

Embrace open banking, aka real-time settlement, products such as Australia’s Zepto (formerly Split Payments) which settles every transaction, credit or debit, in real time thus cutting out the acquiring bank in the middle and reconciling your ledger instantly.

For businesses with an online presence it also does away with outdated direct debit forms, has much lower costs than credit card processing and integration challenges

While open banking is available in varying degrees in different countries the EU and Australia have made it a standard.

About Future Perspectives

Future Perspectives is your window to the New Economy, helping SMEs create strategies around disruptive financial technology to prepare for the future of money and find opportunities in the New Economy. For more info or see how we can work together connect with me on LinkedIn. Thanks.