Digital Assets Payment Industry Research Report August 2020 ANALYSTS TokenInsight Research [email protected] TI Research TokenInsight.com [email protected] Find, Create, and Spread Value in Blockchain. RESEARCH Executive Summary ① The global payment market continues to grow, and it is expected that the market revenue will reach US$2.7 trillion in 2023. At the same time, with the development of technology, players with a technology background in the payment ecosystem may change the industry. ② There are obvious existing pain points in the payment industry, including high transaction fees, ineffcient cross-border transfers, poor interoperability of different networks, and hidden security and privacy risks under the operation of centralized institutions, leading practitioners to explore new solutions. ③ The emergence of blockchain technology has brought new ideas to solve the pain points of the payment industry. Centralized payment institutions, including banks, have begun to explore blockchain technology. Such explorations are focused on B2B payments, trade fnancing, and cross-border transfers. ④ There are many payment projects among decentralized blockchain projects. There are 16 projects with payment functions in the top 100 projects by market capitalization. The development of projects in the feld of cross-border transfers is relatively mature, and many projects are positioned to provide services in various payment scenarios. ⑤ Ripple and Stellar were established early and are currently the most mature projects among payment projects. They are the big players in the feld of cross-border transfers. The two have clear target about solving pain points occurred in the industry and have developed solid ecosystems, including cooperative relations with many traditional fnancial or technology giants. ⑥ Some payment projects issue physical cards for users to use digital assets for daily consumption. Among such projects, Crypto.com is developing good and is able to reach high community popularity and wide global infuence. ⑦ The market demand for digital assets has provided room for the development of payment protocol projects that support digital assets' value circulation. OMG Network is a representative project in the payment protocol on Ethereum. ⑧ Alchemy Pay proposes the concept of aggregate payment that supports fat currencies and digital assets simultaneously, providing technical support and services for various payment scenarios. The project's development is relatively early, but its offine layout is strong and it has an experienced team. The project's subsequent development is worth looking forward to. tokeninsight.com 2 RESEARCH Content Industry status and development trends Payment Industry System 4 Overall development of the payment 5 industry Industry pain points Blockchain solutions Blockchain transformation of centralized 10 institutions Blockchain projects overview 11 Blockchain project analysis Ripple, Stellar 13 Crypto.com 15 OMG Network 16 Alchemy Pay 18 Comprehensive comparison 20 tokeninsight.com 3 RESEARCH 01. INDUSTRY STATUS AND DEVELOPMENT TRENDS 1.1 Payment Industry System In the traditional payment industry, the payment system is mainly composed of commercial banks, clearing institutions (Card Network), third-party payment institutions (Gateway), merchants, and users. Commercial banks often occupy a dominant position and have absolute dominance in cross-border settlement and fnancial trading. With the development of the internet and mobile payments, the importance of data, traffc, and user experience has become increasingly prominent. As a payment intermediary connecting merchants and users, the business scale of centralized third-party payment institutions with a non-fnancial backgrounds is growing day by day, and a relatively stable competitive landscape has been formed. Commercial banks rely on traditional fnancial positioning and professional capital management capabilities to continuously optimize their payment business, while payment giants, which have huge traffc, continue to consolidate their industry position and improve business types. The two cooperate in developing a mature payment ecosystem. ‣ Representative institutions in the payment system Source: TokenInsight China USA Commercial Bank Clearing Institutions Third-party institutions Commercial banks, clearing institutions, and third-party payment institutions form a complete payment system. The third-party payment institutions connect the merchants and users by providing money-collecting services and payment services respectively. Then they transfer the obtained transaction information and capital fows to the clearing institutions for processing. The clearing institutions connect multiple commercial banks to verify transaction information and settlement. In addition to being connected to third-party payment institutions through clearing institutions and obtaining cash fows from them, banks also directly provide capital services to users and enterprises. Other service providers offer software and hardware support for the payment system composed of commercial banks, clearing institutions, and third-party payment institutions. tokeninsight.com 4 RESEARCH ‣ Payment Industry System Source: DongXing Securities, TokenInsight Regulatory Authority Supervision Fund Fund management management services Commercial services Enterprise Users Bank Transaction verification Clearing Institution Information Settlement transfer Collection Payment service Third-party service Merchant Users Payment Institution Service provision Technical Channel Service … Service 1.2 Overall Development of the Payment Industry With the development of technology, challengers from the feld of technology have emerged into the traditional payment industry led by banks and fnancial institutions The development of technology has made the traditional payment industry undergo a cashless transformation. The rise of e-commerce not just divided the traditional offine sales market but also provided a strong foundation for the rapid development of internet payment. As the traditional fnancial institution, banks have accumulated many advantages over years due to their well-established systems, standardized business processes, and large-scale customer volume, which help them maintain absolute market dominance in transactions such as cross-border settlement and international trade. However, they lack suffcient fexibility in connecting users with merchants, and managing the relationship between the two. tokeninsight.com 5 RESEARCH Simultaneously, technology companies and social platforms have massive amounts of data and traffc, which are naturally suitable for providing end-to-end connections between users and merchants. The user's requirements for payment convenience and payment speed provide opportunities for the development of technology companies in the payment industry. At present, the third-party payment giants, including Alipay, Paypal, Tenpay (WeChat Pay), etc , all have a technological background. In some countries, third-party payment institutions have replaced banks and become the frst choice for the public’s daily payments and transfers. The payment market continues to grow and the ecosystem continues to improve The payment market has shown continuous growth in recent years. Clearing institutions such as UnionPay and Visa have realized the integration and interconnection between different commercial banks, which has promoted the development of the banks’ payment services. In the other hand, while third-party payment institutions have squeezed the market for bank payment services, they have also brought a lot of cashfow to banks, the three closely cooperate to form a payment ecology. With the strengthening of the payment ecosystem and the introduction of the concept of open banking, many technology companies have been gradually introduced and become new roles in the payment ecosystem. For example, ride-hailing software platforms such as Uber and Didi can be directly binded to user accounts for automatic payment (Push Payment). The steady growth of the market and the ecosystem's expansion provide space for new players with a technological background. ‣ Growth of global payment market Source: McKinsey&Company; TokenInsight Global payment revenue (US$ trillion) 3 2 1 0 2009 2011 2013 2015 2017 2018 2023(Expected) Transformation of payment system, diversifcation of payment services and optimization of payment products In addition to cooperation with technology companies, banks have been continuously using technology to improve their payment systems. The emergence of digital assets puts forward the demand for the upgrade and construction of existing payment systems. Banks and clearing institutions will transform their systems' technical architecture to adapt to the changes brought by digital assets. The development of digital assets will also bring new players to the payment industry in the future. In addition, third-party payment institutions continue to use their own technology and traffc advantages to enrich payment services, optimize payment products, and explore new payment methods that may be developed in the future. tokeninsight.com 6 RESEARCH User experience becomes the core of industry development As the differences in the technical competitive advantages such as transaction speed and transaction convenience becoming smaller and smaller, user experience has gradually become the core of enterprise competition in the payment industry. It will also become an element of differentiated