2. Central Bank-Backed Digital Currencies, Stablecoins and Social

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2ND YEAR ON THE LIST Central Bank-Backed Digital Currencies

KEY INSIGHT EXAMPLES DISRUPTIVE IMPACT EMERGING PLAYERS • Bank of China Central banks are is- In 2018, the Marshall Islands created a More central banks may soon em- new digital currency called the Sovereign brace CBDCs, paving the way for more • Bank of International Settlements suing and regulating (SOV), which is now legal tender in the streamlined flows of global currencies blockchain-backed to- Micronesian nation. Singapore’s central and foreign exchange markets. In fact, as • Worldwide central banks kens called digital state bank created a digital currency backed many as 70% of central banks are actively • World Economic Forum by the Singapore dollar that runs on the exploring this technology to develop their currencies—or central Ethereum blockchain. Canada’s central own decentralized currencies, according bank digital currencies bank has been researching the issuing of a to professional services firm PwC. When or CBDCs—which could digital currency. China is the undisputed it comes to natural disasters, pandemics, leader in CBDCs, successfully executing and humanitarian aid, CBDCs could modernize some of the a large-scale pilot of more than 4 million deliver emergency relief funds faster and most antiquated areas digital yuan transactions from April to enable easier tracking and monitoring of global finance. De- December 2020. An international co- of digital currencies. Yet for that reason, alition of central banks, including the critics say that CBDCs also present priva- spite the popularity of Bank of Canada, Bank of England, Bank cy and surveillance concerns. The pop- digital payment rails (the of Japan, European Central Bank, and ularity of CBDCs prompted the World infrastructure that allows U.S. Federal Reserve, issued a report in Economic Forum to publish a policymak- October 2020 outlining key principles for er toolkit to ensure the improvement of payment transfers from CBDCs. payment systems’ safety, resilience, and one party to another), efficiency; increased financial inclusion; the global monetary sys- and better data transmission and report- China is a leader in the field of central bank ing to central banks. digital currencies. tem is still largely based on state-backed, physical fiat currencies.

1ST YEAR ON THE LIST Stablecoins

KEY INSIGHT EXAMPLES DISRUPTIVE IMPACT EMERGING PLAYERS Visa and peer-to-peer payment com- Stablecoins—specifically those pegged • Tether Stablecoins work to pany Circle Internet Financial created a to the U.S. dollar—open up a univer- • Circle minimize the volatility credit card that uses USDC, a stablecoin sal means of exchange across the globe • Coinbase of the price of a cryp- pegged to the dollar. The underlying peg without traditional financial hurdles. of another stablecoin, Facebook’s Diem People can now store savings in a stable • Gemini to-currency, by “peg- (formerly Libra), has yet to be announced. asset rather than a local currency suffer- • Binance ging” them to a specific The New York attorney general’s office ing from inflation, and stablecoins offer and the U.S. Justice Department investi- faster, more affordable remittances. This exchange rate for a gated whether Tether, the most widely also raises regulatory concerns for cir- currency, crypto-cur- used stablecoin, was used in cover-ups cumstances in which stablecoins are used rency, fiat money, or an and market manipulations. (Tether to evade currency controls and sanctions. admitted to no wrongdoing and settled exchange-traded com- for $18.5 million in February.) Tether’s modity. value proposition is that it is “tethered” to the value of a dollar, and for every Tether in circulation, Tether Ltd., its parent company, has a dollar in its cash reserves. The controversy has not hampered investor interest or global adoption. The stablecoin regulatory landscape is evolv- ing. In late 2020, U.S. Rep. Rashida Tlaib Tether’s value proposition is that it is “tethered” to (D-Mich.) introduced the STABLE Act the value of a dollar. to require companies issuing stablecoins obtain a banking license.

12TH YEAR ON THE LIST Social Payments

KEY INSIGHT EXAMPLES DISRUPTIVE IMPACT EMERGING PLAYERS In 2009, Venmo became the first social As physical cash declines and banks and • Affirm Tech companies are payment app, requiring users to caption retailers depend on big tech to facilitate • Ant Group leveraging APIs and their transactions and offering the option transactions, competition is intense. • Baidu digital infrastructure to to share transactions publicly. Owned Tech companies enjoy revenue streams by PayPal, it now has 300 million users, and rich personal data about people’s • Green Dot provide seamless, in- and social payments is a serious financial spending habits for use in predictive terconnected financial service sector. China’s Alipay gives its marketing. That data may soon be worth 870 million users access to wealth man- more than the currency itself. Consumers services. Financial in- agement services, loan applications, and pay twice: first with money, then their stitutions and payment credit scores—and issued half a billion personal data. WeChat and Alipay drive providers are integrating dollars in Chinese loans in 2020. Face- China’s advanced fintech economy with book’s new WhatsApp Pay has 400 mil- a network of merchants that accepts chat with tech platforms and lion users in India. Apple and Goldman payments, blurring the lines between e-commerce to acquire Sachs created a credit card for iPhones payments to friends and stores. As U.S. more customers and and Apple Watches. Uber Money will and European Union regulators debate build a bank for its drivers. Amazon is whether to keep big tech out of finance, fend off competition. exploring a checking account service to expect more stringent regulation in the go with its existing branded credit card. wake of data breaches, privacy concerns, This year, Google will launch GooglePlex, rampant fraud, and antitrust claims. Are a banking app integrated with Google platforms becoming banks? Or are banks Pay—creating a single app to pay busi- plugging into platforms? Either way, rad- These apps blur the lines between sending money nesses and peers, manage savings, and ical digital transformation is happening to a friend versus to a store. conceivably even apply for loans. across the financial services industry.