Unsurprisingly, Web 3 was one of the most prominent topics at Money 20/20 in Amsterdam this year. As a frequently featured headline topic, it was apparent that Web 3 is truly changing how technology and data are used, which is leading a wave of disruption and innovation across the globe.
We know that financial institutions, regulators and the broader financial ecosystem are already adapting to new digital assets, which was a message carried throughout the event. The advancements of Web 3 will impact how companies engage with their clients, the services they provide and what value their clients extract from their services. Financial Services firms will need to understand the trends and get to grips with the impacts Web 3 will have on their businesses.
There were 4 clear Web 3 themes that were consistent throughout the conference – it will be critical for firms to get ahead of these in order to remain relevant.
1. Web 3 is here but the industry doesn’t fully understand it yet
There was consensus that Web 3 is going to have a real impact, but it remains still quite intangible to many, particularly end customers and those outside of the Web 3 bubble. Across the financial services landscape, there was no common agreement on what Web 3 means for the industry. Despite this, banks and corporates realise it is important and are proactively investing in hiring the right people to develop strategies for how to realise the opportunity before they are left behind.
There was clear alignment regarding the timeframe for Web 3 adoption with expectations that it will be widespread in the next five to ten years. However, the exact end state of Web 3 and the impact on financial services remained somewhat vague with more questions asked at Money20/20 than were answered. As always, where there are more questions than answers, there is clearly opportunity to become a leader and shape the future, rather than just following the trend.
2. Regulation is needed, and fast – and it must be activity based
The challenge of regulating Web 3 has not been underestimated by industry bodies. But as with all regulation, there is a need to balance the requirements of the consumer with the demands of market participants, while critically with any emerging technology, not stifling innovation.
The unique governance structure and global reach of Web 3 oriented companies means that ‘player based’ and localised regulation will not fit the bill when it comes to Web 3. It will be necessary for a regulator to properly assess and address the service provided by a creator economy that works collaboratively across geographic boundaries. For example, decentralised finance will continue to be limited until regulation can catch up. And it will need to be considered at a global level, not region by region. The problem with this, however, is that historically financial services has not been comfortable with de-marketisation.
These ‘common standards’ will be key, particularly as crypto regulation is developed over the next 12 months. Leading Asian and UAE markets were shared as examples of where more advanced regulation is in place, but it was acknowledged that Europe is already addressing this gap. The FCA referenced their crypto sprints, which have already begun and will continue being run throughout the summer, and also the Markets in Crypto Assets Regulation (MiCA) coming from the European Commission, which could be in place as early as 2023.
3. Web 3 can enable choice and economic freedom
It is widely known that Crypto has had its share of issues, caused by hackers, scammers and its general volatility. But the industry is trying hard to put this reputation behind it, focusing on some of the real positives coming from these innovations. In particular, it can provide choice and solutions to communities that would otherwise be underserved by traditional financial services.
Examples that were shared at Money 20/20 include Crypto being used in Venezuela to evade a corrupt government, and Argentinians turning to Crypto whilst their government erodes the currency. Digital assets give consumers more choice – and they require little more than a mobile phone in hand and a digital wallet setup.
The next step to provide more mainstream choice to consumers requires infrastructure build to enable interoperability between banks and the digital ecosystem. These ecosystems must be open and inclusive, working best when building out from small use cases. Example success stories shared at the event included ANZ launching AUS $ stablecoin and JP Morgan Onyx, where tokenised assets were offered initially to existing clients.
This transition to complete choice and economic freedom for consumers won’t happen overnight. There is still not a blockchain available that is ready to allow Crypto and stablecoin to be used for payments with high transaction volumes. However, we believe that over time the market will get there.
4. The opportunity for partnerships is huge
"Put the market and clients first and find partners that might not look like you"
Market disrupters have grown quickly and are offering new and exciting propositions to the market. In turn, they are looking to incumbents to help them to scale. The incumbents have a strong position, backed by licenses and a large client base, yet might be able to pivot, innovate and take advantage of the shift to Web 3 more quickly through working with the disrupters. Partnerships can be mutually beneficial for all players if they can step back, consider the services they are offering to their clients and come up with solutions that meet their needs. Watch this space!
To maximise the value of Web 3 technologies, you will need to have a balanced and comprehensive understanding of its implications on the world of finance. Understanding how they can impact your business will be critical to stay ahead and take advantage of the changes.