Almost a week from now, millions of online shoppers will flock to spend on the world’s biggest online shopping festival: Singles’ Day.
According to a report by US-based consulting firm Bain & Company, online shoppers in China spent a whopping 410 billion yuan (US$60.4 billion) in 24 hours last year – double what Amazon generates in an entire month, during the online shopping festival which takes place on November 11.
The festival is seen by many investors as a proxy for consumer spending in China as well as an important barometer for economic health. However, with the rapid spread of the Covid-19 pandemic, the stakes are particularly high for retailers.
What is Singles’ Day?
Written numerically as 11/11, November 11 looks like “bare branches,” a Chinese expression for the single and unattached. During the 1990s, several Chinese university students decided they would celebrate their singlehood on this date, which they dubbed Singles’ Day or Double 11.
This became seen as an anti-Valentine’s Day of sorts, and many of China’s singles began splurging on themselves on the day in what seemed to be against social stigma of being in a relationship.
It took Chinese E-commerce sites years to cash-in on this day, which was kickstarted when Alibaba Group was the first to officially brand the event as an annual shopping festival back in 2009, as it offered discounts of at least 50 per cent and free nationwide shipping.
Only 27 brands took part in the first event, but by last year – a decade after it first launched – participation had ballooned to more than 200,000 brands from 78 countries and regions, helping lift Alibaba to a Singles’ Day record of 268.4 billion yuan (roughly $40.9 billion).
Skincare sales expected to dominate
Skincare products are expected to continue their upward sales surge as Singles’ Day is around the corner.
According to a report by US-based market research firm NPD, prestige beauty E-commerce sales reached $710 million in August 2020, a 61 percent increase over the same time period last year.
NPD’s report added that skincare E-commerce sales increased 71 percent in China, and 59 percent of prestige beauty consumers purchased skincare products online in August, making it the best-performing product category for the month.
“While the makeup category is as big as the skincare category in the US and fragrance is performing better than other categories in France, skincare is by far the biggest category in China, making up more than half of sales from prestige beauty consumers in the country,” Stanley Kee, Managing Director, APAC at NPD said.
As the second biggest segment in skincare, face cream gained a 70 percent year-over-year (YoY) growth in August. According to NPD, 16 percent of face creams sold via E-commerce in China contain clinical ingredients, which saw the most growth, gaining 163 percent versus August 2019.
“Consumers have obviously changed their skincare routine this year, focusing on self-care as they spent more time at home; and many of those using more products will likely stick with their new routine as life continues to normalize in China, helping the skincare category to maintain its sales momentum,” Kee highlighted.
Covid-19 & Singles’ Day
According to Alibaba, the E-commerce platform will open two sales windows this year, the first being from November 1 till 3, as well as the whole day on the November 11.
According to the Hangzhou-based tech giant, the additional sales window is to provide opportunities for new brands and small businesses to participate. There will be more than 2 million new products this year, doubling the amount from last year, the company said.
Amid an E-commerce boom resulting from the Coronavirus pandemic, this year’s Singles’ Day is expected to have an even bigger global reach than previous years. More than 2,600 new international brands will be offering promotions on the Tmall Global platform, according to Alibaba.
The company’s logistics arm Cainiao will charter around 700 flights for the shopping festival and more than 50 percent of this year’s cross-border parcels are expected to be delivered twice as fast as its usual speed, the company said.
Are CBDCs the future of monetary systems?
The world is becoming more and more digital as time passes, with finance services championing this transformation, especially with the increasing demand of contactless digital payments swooping in, as the global Covid-19 pandemic magnifies our need for them.
Many central banks around the world are looking to create their own digital currencies (CBDC) to spearhead the changing tides of the financial world.
The initial debate over this topic was sparked when social networking titan Facebook announced that they would be launching their very own Libra cryptocurrency last year.
As many have mistaken CBDCs for cryptocurrencies, they are fundamentally two different things.
According to U.S.-based think tank, Brookings Institution, CBDCs are traditional money, but in digital form; issued and governed by a country’s central bank. By contrast, cryptocurrencies like bitcoin are produced by solving complex math puzzles and governed by disparate online communities instead of a centralized body.
What’s common between both digital currencies, to a varying degree, is that both of them are reliant and based on blockchain technology; blockchain is a distributed ledger technology (DLT) that allows information to be stored globally on thousands of servers.
When two companies are in business together and use cryptocurrency as payment, the agreement forms the “block” in the chain. However, while some brick-and-mortar stores and many businesses do accept Bitcoin as a form of payment, cryptocurrencies are not considered to be legal – CBDCs, on the other hand, would be.
“Unlike central bank money, both traditional and digital, the value of cryptocurrencies is determined entirely by the market, and not influenced by factors such as monetary policy or trade surpluses,” the report by Brookings highlighted.
According to the Bank of International Settlements (BIS), electronic cash is more often than not held and supported by banks or on pre-paid cards paid for in hard currency to represent the numbers on a screen.
In this case, however, CBDCs act as a complete replacement for bank notes and coins all together, shedding away its representation in physical funds.
Many central banks around the world view CBDCs as a more cost-effective and efficient replacement for the traditional payment systems that have been around for decades, in the hopes of reducing transfer and settlement times, which would subsequently spur economic growth on a massive scale.
In parallel, CBDCs are seen as the natural champion that would face off against the rise of private sector issued cryptocurrencies such as Facebook’s Libra.
The fear among central bankers is not targeted toward the highly volatile and inconsistent state of cryptocurrencies, but mainly deals with the private sector’s effect on the financial system that would quickly erode sovereignty over monetary policies.
Many consider that CBDCs could address problems like inefficient payments that cryptocurrencies seek to solve, while maintaining state control over money.
The beauty of CBDCs is their ability to fully digitize the entire monetary system, allowing it to become more efficient with easier access to funds all while being transparent, due to the use of blockchain technology.
The theory goes that due to the CBDCs being centrally controlled, regulated, and backed by local governments, then it would grant them legitimacy, trust, and stability in the eyes of citizens and consumers.
This would also pave the way for better monetary policies to be enacted, allowing them to flow more directly and seamlessly while not being hampered by third parties, which would fuel cashless economies and systems.
CBDCs would allow citizens direct access to their funds via the central bank, or via commercial bank partnerships which would subsequently explode financial inclusion to another level; this is a radical change to the financial system, as people would enjoy secure access to their money merely through a smartphone and an Internet connection.
As the notion of CBDCs is still in its infancy, African countries such as Ghana and Rwanda are spearheading research and investigation into the potential use and investment into digital currencies in an attempt to provide financial support to its huge unbanked population.
While most countries are still in the research stages, France has already piloted a CBDC transaction, and Sweden is currently carrying out a one-year trial of the new e-krona, built on the Corda DLT platform.
Be that as it may, central bank digital currencies still need years of development to reach the mainstream, but the sooner banks and financial services can anticipate and prepare for the move, the sooner a seamless transition can be made.
However, one need not forget the barriers that come along with any digital transformation, from policy and regulations to the greater risk of cybersecurity.
If the central banks of the world are able to quickly adapt to the changing tides and fully support this transition, then humanity would be heading toward a new dawn of a more democratized monetary system all together.
Is Blockchain-powered FinTech the future of finance?
Imagine yourself as a bank executive, competing against a global, multi-service, low-cost, digital bank; customers checking their accounts via smartphones, paying bills or transferring money with a swipe of finger.
An AI-powered engine allows them to play around with their ETF portfolios with absolutely no fees, or cross-border payments.
Take a moment to consider facing a competitor with a nimble footprint, prototyping new services quickly, managing regulatory compliance transparently, using an AI system to limit fraud losses, and hedging currency risk using cryptocurrencies.
While this competitor does not actually exist today, the financial services industry is well on its way to transforming this not-so distant dream into reality, due to the disruptive technologies that have changed the playing field.
While many banks lean on their IT departments to spearhead efforts of innovation, and support legacy systems in parallel, the FinTech sector are leading the innovative line with user-friendly solutions developed from the ground up.
The pace of change shows no signs of slowing down; and the main driving force of this hike is blockchain.
According to a report by Market Data Forecast, the global FinTech market is foreseen to expand from $1.23 billion in 2020 to $9.2 billion in 2025, with a stunning growth rate (CAGR) of 75.9 percent.
“The recent Covid-19 outbreak has highlighted the demand for digital transformation in the banking sector as people are forced to use online services and limit their visits to the bank,” the report said, adding that “for this reason, most of the banking companies are collaborating with financial tech providers to offer differentiated and competitive services, since the digital customer experience will be the main competitive advantage and is expected to drive the market.”
But before we delve deeper into the effects of blockchain on FinTech, we must first define the technology itself.
What is blockchain?
Blockchain is a distributed ledger technology (DLT) that allows information to be stored globally on thousands of servers. When two companies are in business together and use cryptocurrency as payment, the agreement forms the “block” in the chain.
Blockchain links and secures these blocks using cryptography.
The most vital features of the technologies are three-fold:
- Decentralized – a blockchain-powered network excludes the risks of data being kept centrally by storing it across the network.
- Distributed ledger is a synchronized database and accessible across various locations and geographies by multiple participants. Each of the computers in the distributed network holds a copy of the ledger to guarantee transparency and prevent a single point of failure (SPOF).
- Immutable record – all blockchain networks follow a particular protocol for validating new blocks. Once registered, the data in any block can’t be changed without altering all the following blocks, which requires the network’s consent.
These attributes extend far beyond economics but are ideal for what FinTech hopes to achieve and accomplish within the financial services industry. In parallel to that, blockchain-powered FinTech applications can resolve the issue of trust between two transacting parties operating on equal term.
Between bulletproof identity authentication protocols and smart contracts, blockchain is considered one of the most secure environments on the market.
Blockchain in the FinTech landscape
Blockchain offers a more seamless, effective, and transparent alternative to the legacy systems currently in place, mainly catered around the concept of fairness and decentralization, which likely creates the perfect financial storm to revamp the financial industry as a whole.
- Eliminating the middleman
What usually takes regular banks three to five business days to process fund transfers due to all the necessary hoops and protocols needed, would take blockchain-powered FinTech apps minutes to complete.
Not only that, but these applications can grant users real-time data updating features that paints a clear and error-free picture of the transactions being made.
- Smart contracts
According to StartUs Insights, Smart contracts that are embedded into a blockchain does not rely on a centralized stakeholder for hosting and controlling, which eliminates chances of data manipulation and/or conflicts of interests.
“Any attempts to modify the contract or its contacts will be automatically corrected by other blockchain nodes, making it too expensive and nearly impossible to tamper with the agreement,” the report by StartUs Insights highlighted.
An example of this can be seen through a collaboration between Credit Suisse and a startup called Synaps a joint initiative by Symbiont and Ipreo, which focuses on automating and improving the global loan syndicate market using blockchain-based smart contracts.
The collaboration is developing a solution for easing the process of arranging, signing, and executing syndicated loan agreements.
- Lowering transaction costs
It comes as no surprise that banks are making fortunes through transactional fees, as financial regulators are still cashing in by essentially permitting customers to use their own money.
When blockchain firmly steps into the mix, this cost will drastically plummet, due to their ability to grant users direct, peer-to-peer transactions, unshackling customers from all intermediaries.
An example of this can be seen through a startup called Request Network, which has developed a solution for not only directly sending and receiving money but also for paying and issuing invoices, for businesses to accept money for online payments, as well as for cities and governments to be more transparent and allowing citizens to monitor their transactions.
- Finance beyond borders
The beauty of blockchain is that it’s entirely based on the Internet; shedding away the need for any operational setup and the need to tie into any local regulation or entity. One only needs a private account to begin using it.
This frees customers from the parameters set forth by banks to make transactions, paving the way for more decentralized systems that would allow global transactions to happen while only needing Internet access.
- Fair and transparent regulations & auditing
The mainstream use of blockchain within the FinTech sector would enable developers to create the most concise auditing protocols.
According to U.S.-based software company TheBlockBox, a blockchain functions as a storage of linear blocks that adds a new entry for every new action, but it never tampers with old blocks no matter how big the system gets.
“This can provide all the data needed to conduct a quick and secure audit of transactions, which is precisely why transparency is something experts hail as the main upside of blockchain networks,” the TheBlockBox report explained.
While the hype behind blockchain-powered FinTech is alive and well, the industry is still relatively nascent especially for decentralized networks to become a mainstream financial model.
The model goes completely against the tide of the financial industry today, thus making it a more radical approach to an already hyper competitive industry.
However, with the current technological advancements making strides every day, we should see the technology starting to attract the ears and eyes of the many in no time.
KSA among top 20 FinTech ecosystems worldwide
Saudi Arabia’s capital city, Riyadh, has been named one of the top 20 cities to watch for its high achievement and development within the FinTech space worldwide, according to a report by research organization Startup Genome.
Bahrain and Riyadh were the only GCC-based countries that were mentioned in the report, with Silicone Valley, New York, London, Singapore, and Beijing topping the charts.
Startup Genome analyzed dozens of countries across the globe based on factors including funding, exits, talent and focus, as well as the impact of ecosystem players such as policymakers and founders.
According to the report, the Kingdom enjoyed heavy support from Saudi-based logistics firms, which subsequently received 65 percent of all startup funding during 2020.
In parallel, EdTech was also a growing sector within the country, accounting for 11 percent of total funding mainly due to the COVID-19 pandemic’s heavy emphasis on the need for distance learning applications and platforms.
“Since 2019, there has been a 352 percent increase in smartphone payment transactions and a threefold increase in the number of fintech startups setting up in the Kingdom,” the report highlighted regarding the Saudi FinTech ecosystem.
In addition, Saudi Arabia’s government played a big role within the startup scene, as the report noted that international entrepreneurs can obtain an entrepreneurship license, with 100 percent ownership of their company, in under three hours.
Venture capitalists have found a home within the Kingdom, as the Ministry of Investments granted 15 licenses for VCs to setup shop within the country, receiving help from Saudi Arabia’s Venture Capital and Private Equity Association and the General Authority for Small and Medium Enterprises “Monshaat.”
Saudi Arabia’s technological rise is indicative of a growing and flexible economy that aims to cement itself as a global startup hub, reflecting the goal of the Kingdom’s Vision 2030 strategy.
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