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Fis web3 magazine
Fis web 3 magazine
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what's the future of blockchain?
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demystifying decentralization
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Towards 2035: the emerging smart world
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How Tokenization Unlocks Opportunities for Investors and Fund Managers
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HOW YOUR BUSINESS CAN TAKE ADVANTAGE OF NFTs
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Fintechs: Where do you go from here?
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2023: A Big year for tech, in an unexpected way
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Web3: Important Signals in all the Noise
contents
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Your cryptocurrency regulation questions answered
Senior Director, Content Marketing, FIS
Melanie Milazzo
If you’d like to contribute to any of our columns, have feedback or want to connect, please contact:
VP, Marketing Executive, FIS
Laura Osburnsen
The signal in all the noise is around the value that Web3 can deliver: financial and non-financial connections between people and companies on a much greater scale and more efficiently than ever before.
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We define Web3 quite simply, as the application of blockchain technologies to transform and democratize financial and non-financial interactions. Well, I call it simple, but really it’s an amalgamation of exciting technology advancements over the past 30+ years in programming language abstractions, distributed databases and transaction processing, cryptography, cloud computing and even the internet itself. From investing, paying and banking to loyalty and brand, Web3 opens up access and lays a path to more personalized and richer B2B, B2C and even B2B2C consumer experiences.
Web3 technology is no different. So, although the latest round of events has forced startups and incumbents alike to work through these challenging times and review their existing investments in Web3 projects, innovation in this space will continue.
We continue to live in challenging times for the financial services industry and economy as a whole, but throughout history, investments in innovation have always persevered through times like these.
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FIS Marketing
Internal Use Only
Example 1: Very illiquid financial products like private equity funds. Traditionally these have only been available to the exclusive group of high-net worth private investors. Tokenization transforms the existing infrastructure to make it much more scalable, opening this asset class to a much greater population of wealth investors seeking access to these alternative products to diversify their investment portfolios.
Editor's Letter
John Avery VP, Web3, FIS
Web3 is not about cryptocurrencies or crypto assets: it’s the application of blockchain technology to financial and non-financial interactions. Crypto is just one use case among thousands.
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Welcome to our first issue of our quarterly Web3 magazine. Each quarter we’ll bring you news and articles, with both our point of view and that from non-FIS thought leaders – to help you navigate the growth of all things Web3, and what it means for you, your business and your clients.
Are you surprised? Well, there is a lot of news and noise around Web3, so it’s easy to get overwhelmed or confused. But focus on two key points:
Web3 itself becomes an innovative competitive advantage for these companies. Policymakers understand the potential but also have to contend with changing existing laws and regulation. I recently travelled to Washington, DC to meet with Congressional staff, and I was pleased to find a clear understanding of the important differences between crypto assets and the underlying blockchain technology on which they’re based, as well as clarity on the facts surrounding recent challenges in the banking sector (vs. the headlines). As regulators become more pointed on enforcement actions, policy guidance, and even relief, we expect the industry to create more clarity on the differences between crypto and its underlying blockchain technology. That should then be another important catalyst that accelerates Web3 blockchain technology adoption in financial and non-financial use cases. Regulatory progress may take some time to play out for financial use cases, given that just in the U.S. alone there’s more than 110 years of federal financial services law. But this work will influence the Web3 ecosystem for generations to come – this innovation in policy support for Web3 is therefore just as important as the technology innovation. The industry is aware of all that’s going on but still trying to separate the hype from the reality. Our clients are increasingly asking us for Web3 solutions that we’re building. They also expect FIS to remain a trusted partner and provider in helping them navigate this new world. So, whether it’s financial use cases such as tokenized real world assets or non-financial use cases like loyalty, Web3-based solutions are exciting new innovations.
Web3 is all about giving more power and freedom to creators and consumers. However, Web3 doesn’t just enable these innovations by making them more scalable and efficient. It also has a powerful impact on branding, positioning these companies as more interesting and innovative. Just like E*Trade and other online trading brokers did in the late 1990s, companies that embrace Web3 make their clients feel included in the innovation.
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The industry is aware of all that’s going on but still trying to separate the hype from the reality. Our clients are increasingly asking us for Web3 solutions that we’re building. They also expect FIS to remain a trusted partner and provider in helping them navigate this new world. So, whether it’s financial use cases such as tokenized real world assets or non-financial use cases like loyalty, Web3-based solutions are exciting new innovations.
Example 2: The capital markets ecosystem. Capital markets is built on an extremely complex market structure of technology and regulated services. What if you could break down this complicated ecosystem, replace it with more efficient, automated technology, and give the creators of financial products (issuers) and consumers of these products (investors) more choice and greater returns in these transactions?
Example 3: Loyalty. As I write this, TicketMaster just announced a new token gated NFT-based sales experience. If you own an NFT associated with a particular artist, you’ll now get new benefits such as even more exclusive early access to the most desirable concert tickets. Starbucks is another great live example of Web3-powered premium loyalty with its Odyssey program, which is just getting started on its offers of new benefits and experiences for members.
So, welcome to our first issue of our quarterly Web3 magazine, each quarter we’ll bring you news and articles, with both our point of view and that from non FIS thought leaders – to help you navigate the growth of all things Web3, and what it means for you, your business and your clients.
Read more
Stay up to date with what's going on in fintech.
Fintech, crypto and banking – are all coming off challenging years. But the need to innovate has never been more acute.
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2023: a big year for tech, in an unexpected way
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Regardless of where you fit in this puzzle, the need to innovate has never been more acute.
– Jamie Dimon, CEO of JP Morgan Chase
“An inclusive economy – in which there is widespread access to opportunity – is a stronger, more resilient economy. This crisis must serve as a wake-up call and a call to action for business and government to think, act and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."
It wasn’t just financial services either. The Ukraine crisis and Russian sanctions affecting EU energy markets combined with the start of an emerging global shift away from hydrocarbon energy generation has also put extraordinary pressure on the energy sector. Meanwhile, the pandemic reset expectations around many areas of the economy such as working from home versus in commercial office real estate around the world, something that is still playing out in the post-COVID world. One of the key issues is ensuring that digital transformation doesn’t create even greater inequality.
This year is threatening to be a challenging time for the planet. It is expected to be one of the hottest years on record. And while the world deals with the growing climate refugee issue, the uncertainty produced by the COVID-19 pandemic, massive supply chain disruptions and the Ukraine crisis, all have combined to make a global recession in 2023 increasingly likely. Amidst this uncertainty, the economy – specifically fintech, crypto and banking – are all coming off challenging years. While 2022 remained the second largest fintech venture funding year on record, the slowdown in the venture flow we saw in 2021, the seemingly endless wave of fintech layoffs, a few notable closures, the collapse of FTX and the tanking of crypto assets globally along with community banks and credit unions seeing customers move towards more digital competitors, means the year was tough for the entire sector.
Brett King
Jim Marous
Jim Marous and Brett King
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Bottom line: the entire future of innovation hinges on the availability, democratization and deployment of data, analytics, modern technologies and seamless solutions.
That said, outdated technology can't be an excuse for failing to innovate. An organization’s leadership has a direct impact on the ability to create innovation and on the success of innovations already in place. This includes both the top leadership of an organization as well as those in a lower supervisory position. A culture that encourages new ideas and a challenger mindset is now essential. Better utilization of data allows organizations to offer a more personalized and differentiated user experience to keep customers more engaged – whether in the areas of embedded finance, cryptocurrencies or metaverse solutions. Every interaction across these innovations will also provide valuable data, which then helps inform how an organization can better personalize the experience and drive engagement.
The FIS® 2023 Global Innovation Report found that across the world, organizations are increasingly leveraging advances in technology and digital distribution to disrupt legacy business models and become more future-ready. While some of these innovations are iterative – improving upon legacy processes and deliverables – the biggest innovations such as embedded finance, cryptocurrencies and the metaverse will take longer to create value. At least three-quarters of respondents to the FIS survey expected a major or moderate impact from three key innovations including a change in business models, the potential for increased risk and increased competition. Virtually no respondent believed this trio of innovations would weaken customer relationships. Winning organizations are building the capabilities, talent and organizational structure needed for innovation success. The goal is to provide value beyond just products and services, displaying an empathy for customer needs that will strengthen relationships throughout the entire customer journey. The importance of an innovation culture is increasingly understood by leaders across industries. Those who stick with traditional processes will be forced to play catch-up in the years to come. Innovation requires modernized platforms, simplified applications and democratization of data.
Innovation drives the future of business
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The FIS 2023 Global Innovation Report outlined the hurdles to implementing a trio of innovations: the metaverse, embedded finance and crypto. Many respondents across industry verticals mentioned both human and financial resource availability, the lack of technical skills, an outdated infrastructure and uncertain business cases. More often than not, however, legacy leadership and cultures that fight change are at the core of the challenges to the innovation process. They resist the concept of “fail fast and fail often,” which is commonly interpreted to mean encouraging short-term thinking or simply moving from failure to failure as quickly as possible. This style of innovation is instead supposed to encourage rapid iterations, learning from mistakes as companies test, tweak and reset as needed. Organizations that encourage this iterative mindset test as much as possible with their customers, adjusting until an optimal result is achieved. Making mistakes is not taboo; it is considered simply an important component of the innovation process.
Challenges to the innovation process
move forward successfully. The question is, how should these solutions be integrated with existing core capabilities already in place? Despite the perception that core technology providers should be able to deliver all the needed modern digital solutions desired by legacy organizations, it is very tough to support so many specialized digital solutions that change so rapidly. The shift to platform-based business models and an ecosystem set-up provides legacy institutions with various opportunities if they decide to enter into these collaborations. As you would expect, there is not a single right answer. Factors to consider include financial dependencies, brand and reputational aspects, responsibilities of each party, operational dependencies (e.g., level of integration versus separation) and the level of involvement from management. Key challenges for an effective collaboration include cultural gaps, getting the back office “ready” for integration of new solutions and scaling from a technological perspective.
Partnership and collaboration remain key
Organizations in every industry continue to debate what the digital ecosystem of the future will look like. The majority of organizations believe that some sort of partnership or collaboration with specialty third-party providers will be needed to
The foundation of much of the potential collaborative innovation will be the increasing use of application programming interfaces (APIs) that enable the sharing and co-creation of solutions between financial institutions, non-financial players and third-party providers.
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These collaborations will enable the collaborative forces to explore alternative products, methods of service delivery and even revenue models while providing a vastly improved and seamless experience for the end customer.
But where ChatGPT (GPT-3 and 3.5) was based on approximately 175 billion learning parameters, the next iteration of the tech known as GPT-4 is said to be based on much larger datasets. GPT-4 will reportedly be able to perform tasks such as translation and summarization with high accuracy in real time. At some point over the coming months, a generative AI will prove itself to be more accurate grammatically than most of us and will certainly be able to write prose better than most of the population. This is a great illustration in understanding the threat that these early AI models pose, even though they aren’t “sentient” or general AI. These models essentially compress billions of examples of human creativity into a data set and generative algorithm to become a compressed, filtered, natural model of the language of millions of humans collectively.
Trends picking up in 2023 that will be more important in future years
Despite the uncertainty we face this year, we are on the cusp of major investments playing out in specific arenas of long-term investment. These are the trends we feel will take off big time in 2023 and be foundational elements for the next decade or so.
Generative Pre-trained Transformer, or GPT, is the most disruptive form of AI-based natural language processing that we’ve seen evolve in just the last few years. It is one of a set of generative models that the company OpenAI has pioneered. ChatGPT, the latest iteration in language-based processing algorithms, has been talked about globally the last couple of months, especially with more than one million users experimenting with the tech and the recent news that Microsoft is in discussions to take a $10 billion stake in the team that created it and is already in plans to integrate ChatGPT into Office, search and other products.
The impact of GPT and AI-generated creativity
This generative model can be applied to artwork, diagnostics, customer service, even more complex systems like protein models or the periodic table. We can extrapolate new paradigms from these models beyond human capabilities even with these early generative models. What comes after this will logically be something beyond our current capabilities as humans.
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the cloud matures
More than half of Enterprise IT will move to the cloud over the next few years, according to Gartner. The European Commission is pursuing a “Green Cloud” initiative to define data center energy management standards as the demand for cloud computing rises also. There’s also a growing concern that on-premise solutions will continue to perform below required levels when it comes to cybersecurity, whereas cloud solutions are building better “immune” responses to such threats.
China’s launch of their e-Yuan Central Bank Digital Currency (CBDC) has been a point of contention for many U.S.- and EU-based legislators over the last 12 months, but we can expect China’s moves to strengthen their CBDC program to accelerate this year. China has an almost decade-long head start over the U.S. when it comes to their CBDC program, and in addition, they are investing heavily in new cross-border banking and trade platforms that are designed to circumvent the likes of SWIFT, Mastercard and Visa. The crypto winter has given central banks around the world a much-needed breather to get back to more centralized digital money pursuits instead of simply having to react with regulation and legislation for the Wild West atmosphere of the crypto market. While the FED has yet to make a formal decision in respect to issuing a U.S.-based CBDC, they’re definitely in consultation with industry as a result of the widening gap between the U.S. and China in this respect.
Crypto winter just means CBDCs get a chance to catch up
In 2023, we expect both Apple and Meta to release new augmented reality smart glasses for the developer market (and early consumer market adoption). While many debate the need for fully immersive virtual worlds in the metaverse, we will have a new consumer electronics space race start for dominance in the AR field. Tim Cook has said that it won’t be long before we wonder how we survived without AR smart glasses.
Metaverse goes augmented
– Tim Cook, CEO of Apple
“Zoom out to the future and look back, and you'll wonder how you led your life without augmented reality. Just like today, we wonder how did people like me grow up without the internet. And so I think it could be that profound, and it's not going to be profound overnight…”
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is the co-publisher of The Financial Brand, the owner and publisher of the Digital Banking Report and the host of the top-five banking podcast, Banking Transformed. As an author and recognized industry futurist and authority on disruption in the financial services industry, Marous has spoken to audiences in over 50 countries on how individuals and organizations must respond to the digital transformation of financial services. is an author, world-renowned futurist and media personality. He hosts the world’s number one fintech radio show and podcast, Breaking Banks, which has 6.5 million listeners, and is the founder of the mobile start-up, Moven.
While 2023 is going to be a challenging year, and while there has been a slowdown in venture capital investment in emerging technology and areas like fintech and crypto, traditional players should not see this as a reason to take the foot off the gas pedal. The pandemic revealed that many institutions were grossly underprepared for the digital demands that will be commonplace over the next few years. This simply means now is the time to close the gap in innovation between new market entrants and incumbents. Now is not the time to relax. There will be many new innovations threatening the leading sectors and corporations over the next few years with entirely new sets of competitors and innovation requirements emerging, too. Innovation needs to be part of your organization’s DNA now more than ever, and that requires ongoing commitments and investments in technology, people and experiences.
2023 is not the end of the fintech and crypto boom times – it’s just a chance to catch up for those who started slow.
Jim Marous Brett King
Stephane Wyper, SVP, Venture Investments, FIS
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Fintechs have been facing a turbulent time, from dwindling venture capital funding to bank failures, and an unpredictable economic climate. To survive, you need to focus on getting more out of your investment, and drive profitability and scale while navigating a rapidly changing regulatory environment.
Here’s what you need to focus on:
1. Be incredibly disciplined with the investment dollars you have
Don’t take the investment for granted. There’s an appetite from companies to look at how they can extract more from the investment they have so far. Can you optimize resources and investment dollars? You need to make sure the funding you’re spending adds clear value to where the business needs to go. We’re in a period of market correction. The last decade saw an influx of capital that helped support rapid growth in the startup ecosystem. Lots of investors came to the table willing to fund startups. This caused many companies to lose focus on the fundamentals of what’s important, what’s really driving profitability, and scale. Today, startups are looking at the need to reduce the valuation of their company. It’s a sort of call back to reality. And they’re also looking to hedge potential risk by essentially spreading engagement across multiple bank partners or merchant partners, and not being dependent on only one partner.
Today, you need to prove that there's a viable business. One of things I saw before was almost this notion of customer acquisition at any cost where there's an ability to continue to fund to acquire new customers. And that essentially allowed some companies to lose sight of the importance of building a business that is viable and services the customers you already have today. The question is, “how can I enhance those relationships with existing customers? How do I grow those customers?” This also means looking at what additional features and functionalities will allow you to capture more of that customer share.
2. Focus less on new customers and much more on deepening the relationship with the customers you already have
There’s a mind shift towards taking a more conservative approach to growth. You need to focus not just on building a business that will continue to grow, but on building a business that is viable, which means deepening your relationship with existing customers and having robust technology. One of the elements that factors into this is the importance of regulation and compliance. It’s going to be critical to align with the new regulatory environment and the increased focus particularly from US regulators.
3. Build technology that’s scalable and robust
Stephane Wyper
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I separate that from what's called decentralized finance, which is the financial application of Web3. At FIS Impact Ventures, we’re looking at how you rebuild the traditional banking payment infrastructure in a decentralized way using blockchain technology. We’ve started testing whether we should be investing in that space because it's highly volatile, highly fluid. The third part of Web3 is the Metaverse, which is the experience layer. That’s a view on how all of us will interact within a digital environment. It’s the evolution from browser to app to VR to AR, and now to the Metaverse, which is truly a more immersive and engaging experience. But the question there for banks and others is, “What will my services and my experience look like in that environment? How do I think about identity? How do I think about providing a consistent customer experience that bridges with more of the traditional channels that customer engage through?”
Looking at the long-term viability of Web3
So, where does that leave investments in Web3? The latest round of events in the fintech and banking space has forced startups and incumbents alike to review their existing investments in Web3 projects.
Another crypto cycle
As for crypto, I've spent the last ten years in this kind of venture investment space, and I think this is the fourth cycle of crypto that I've been through. There have been technology advancements that have come from each of those cycles. So to some extent, I've become a bit cynical on some of the end of world predictions that we see playing out.
Web3 is an evolution of the internet. Web 2.0 saw the rise of social platforms like Facebook and Google that control a lot of the way we use the Internet today. Web 3 is a decentralization that creates more autonomy in individuals. I think we're still very early on. Innovation in this space will continue. But you need to look at the long-term viability of technologies like Web3, and how quickly that will happen.
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This ability to have more flexible options to try and tackle the changes we’ve been seeing is really important for corporates. As an investor, the hard work comes really after the investment is made. Sometimes, corporates tend to forget the importance of creating the right internal discipline to make sure we’re delivering on the value that we promise we can provide as a strategic investor.
There’s a difference between looking at crypto as an asset class and purely from an investment return perspective. It's another asset class that you can invest in, in addition to other more traditional forms of investment. Over the last five or ten years, a larger number of retail investors chose to use cryptocurrency because of the growth that occurred. We’re in a period of correction. Some of this comes back to the need for increased regulatory oversight. Hopefully, we’ll see some stabilization. But I think crypto is here to stay as an asset class. We just need to run through Winter and wait for Spring to come. Corporates like us need to think about all the changes that are taking place in the market, from cryptocurrency, to Web3, and the investment pullback. It points to the need for corporates to have more options for how you engage with startups.
At FIS, from a venture investment perspective, we’ve been looking at it as not having only one way to engage with startups. We take multiple approaches. We invest in startups directly and we can invest in venture capital funds; we can build startups with what we call venture studio partners. These are startups that exist outside of FIS. And we can look at more focused R&D efforts.
John McNaught, VP of Product Management, FIS Enterprise Strategy
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NFTs are unique digital assets revolutionizing the way we look at digital ownership and authenticity. Ultimately, they can represent anything (ranging from artwork to collectibles to virtual real estate). NFTs are stored on the blockchain in a way that ensures their one-of-a-kind nature and non-interchangeability. Unlike cryptocurrencies, NFTs cannot be subdivided and are not interchangeable. Each individual NFT is unique with no other version available ever.
Web3 is the so-called third evolution of the internet. Web1 was focused on consumption, allowing users to read information that was available on websites. But it was not interactive, in that users were unable to contribute information to the sites. As Web3 and the digital world continue to evolve, businesses are looking for new ways to capitalize on the latest trends and innovations to engage with their customers and communities. One of the most exciting developments in this space is the emergence of a so called “community economy.” Non-fungible tokens (NFTs), one of the building blocks for Web3, represent a promising opportunity for businesses to leverage the power of blockchains and are a powerful tool for those looking to participate in the community economy. Here, we’ll take a look at the benefits of NFTs and how to take advantage of NFTs.
WHAT ARE NFTs?
The most widely known application for NFTs to date is for art, collectibles and consumer experiences like concerts and sporting events. Most businesses will start their NFT journey with basic collectible offerings to test out the technology and gauge levels of interest among their customers. However, well-known brands are exploring how to use NFTs to extend their reach and revenue in more complex ways, too. The concept of “tokengated commerce” allows businesses to specifically tailor an experience for a customer that has a requisite NFT (or NFTs). For example, a retailer could create an NFT that grants the owner exclusive access to a new product line or discounts on future purchases. What the user sees on the brand’s website could be different depending on their specific combination of NFTs.
HOW BUSINESSES CAN USE NFTs
Web2 enabled interactivity by allowing users to read and write information which, in turn, allowed platforms like Facebook, YouTube and Airbnb to flourish. Web3 evolves still further, so users can read, write and own information. Users don’t need to hand over their data to third-party companies to be able to interact with broader communities.
John McNaught
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Smart contracts can also require a royalty payment to be made back to the watch manufacturer each time it gets sold in the future, opening up the possibility of repeatable revenue streams rather than single-event commerce. Furthermore, smart contracts could enable a set of experiences for the consumer that can be controlled by the brand long after the initial purchase. For example, the new owner of a secondhand watch could gain exclusive access to brand content, even if they did not purchase their watch directly from the manufacturer. Traditional loyalty programs are being disrupted by new digital ways to engage with consumers. NFTs can be used to incentivize and reward loyal customers, perhaps for referring new business or reaching spending thresholds. This encourages engagement with the brand, but also opens up a new community of those that have been rewarded with the same or similar NFTs. The community engagement goes a step further when the NFTs become desirable and are traded between consumers, all under the original umbrella of the brand.
By making ownership a requirement to access the benefits, the brand creates a sense of exclusivity, individualization and community for their most dedicated customers. The possibilities for tokengated experiences are only just starting to be explored and could end up replacing cookies as a means for firms to use brand to personalize their relationships with consumers. NFTs can also be used to prove authenticity of physical products, which is particularly relevant in the luxury goods market. For example, a watch manufacturer could create an NFT that represents ownership of a specific watch. NFTs can also be used to provide a record over time. For example, when the watch was last serviced or if it was sold to someone else.
The average consumer participates in 15 consumer loyalty programs, but actively uses fewer than half. With interest in crypto, digital assets and Web3 continuing to grow, it’s worth exploring how NFTs applied in a loyalty context can help you increase customer engagement.
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Consider how these brands are adopting NFTs to build customer affinity:
Nike opened registration for Swoosh,
a blockchain-powered meeting space that provides members with access to specialty products and events. Through this initiative, Nike can create a community of members and offer unique and exclusive experiences, while also building brand loyalty.
a combination of their current rewards program with an NFT platform. This allows customers to earn or purchase digital assets to unlock exclusive experiences and rewards. By implementing NFTs, Starbucks can create a more exclusive and personalized rewards program for its customers.
Starbucks introduced Starbucks Odyssey,
submitted a patent application for a system that tracks digital media assets in video games using NFTs. This allows Sony to create a more robust system for tracking and managing digital assets in its video games, while also providing proof of ownership for players.
Sony
is letting creators connect their digital wallets to sell NFTs directly from the platform. This allows creators to monetize their work and provides users with a new way to engage with digital content.
Instagram
is a move-to-earn app that allows users to walk, jog or run to earn crypto tokens. Users purchase and swap sneaker NFTs with different attributes that enable the optimal earning strategy for the individual.
STEPN
NFTs generated $1.95 million in sales, with more than three million of its avatars circulating in the marketplace. By implementing NFTs, Reddit created a new revenue stream and provides users with a new way to engage with the platform.
Online message board community Reddit's
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The emergence of community economies represents a new era of customer engagement and loyalty. By adopting NFTs, businesses can create unique and exciting experiences for their customers, generate new revenue streams and build communities of loyal fans. Whether through exclusive access to products, limited edition digital assets or simply rewarding loyal customers (and being able to identify them), NFTs offer businesses a powerful new tool for engaging with their customers in a meaningful and impactful way.
All these examples point to the individualization of NFT applications. In some cases, the users don’t even need to know that their experience is Web3 at all. Because the technology is still in its nascent phase, there are still endless avenues to explore and opportunities for customization.
Customization and brand development are key
Even within industries, there are different ways to look at NFTs. For example, NFTs can be used in the travel industry to:
1. 2. 3.
Create personalized experiences such as travel points awarded in the form of NFTs travelers can redeem for their choice of awards. Provide unique travel vouchers that can be distributed to commemorate a traveler’s journey, miles flown or countries visited, and redeemed for flights, hotels and other travel-related services. Offer specific travel and in-airport discounts.
4. 5.
Give users the ability to sell or trade their NFT if they don’t value the perks and buy one which is more aligned with their habits. Prove the authenticity of certificates used in travel such as vaccination certificates, personal identification documents or travel insurance.
Andrea Blinkhorn and Anatole Baboukhian
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The industry is still very new, and we are seeing a lot of experimentation as the technologies evolve. A key challenge for policymakers is to learn more about crypto technology and its real-world applications. Improving this understanding will enable them to develop regulations that are future-proof and appropriate to the different crypto use cases.
Cryptocurrencies are spreading worldwide with 10,043 tradeable cryptocurrencies as of July 2022. As crypto continues to evolve, so does the regulatory landscape. While more regulation could help stabilize a notoriously volatile crypto market, some believe new regulation would hinder innovation. To learn more about some of the most pressing issues regarding crypto regulation, we turned to Andrea Blinkhorn, head of Public Policy (Americas) and Anatole Baboukhian, head of Crypto and Web3 Public Policy (Global), both from the FIS Government Relations team. Here are their answers to our questions.
Does a global regulatory framework exist for crypto and digital assets?
Only partially because the existing framework today is fragmented. There are some rules that apply to some aspects of crypto and digital assets, but they are not harmonized across the different U.S. states. There are also aspects that are not currently regulated. Part of the challenge is that “crypto” means many things, as the underlying technology can serve a wide range of different use cases. So, there can’t be a one-size-fits-all regulatory framework for all types of crypto and digital assets.
Anatole Baboukhian Head of Crypto and Web3 Public Policy (Global), FIS
Andrea Blinkhorn:
Andrea Blinkhorn Head of U.S. Public Policy
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What challenges do regulatory agencies face?
The industry is moving very fast, so it is challenging to develop regulations that can keep pace with all the latest developments in the space. The regulatory framework for crypto must be technology-neutral and primarily focus on use cases with future-proof and proportionate rules. As such, this framework will consistently offer the necessary guardrails for users and the right space for innovation without being quickly outpaced by fast technology developments. One of the overarching questions is whether the existing regulatory framework is appropriate to regulate crypto use cases or if there is a need for an entirely new framework. For example, can tradeable cryptoassets fit in the commodity category or the security category (as currently discussed in the U.S.), or should they be regulated as new types of assets (as currently discussed in the EU)?
The key priorities for policymakers and regulators are: Regulatory oversight and definitional issues Consumer and investor protection Illicit finance Financial stability Stablecoin issuance and reserve requirements Tax reporting and defining transaction thresholds International cooperation
What are the key topics that crypto regulators are focused on today?
There is a perception from some policymakers and financial institutions that crypto is a scam and used by criminals to bypass controls and sanctions in the traditional financial and payment systems. To prevent this, regulation of the sector is perceived a key priority to stop illegal activities using cryptocurrencies. Beyond this very defensive narrative towards crypto, the industry broadly urges policymakers to clarify the applicable regulatory framework. Putting parameters in place that offer consumers some protection of their financial investments would help legitimize the industry further and foster confidence in the offerings. Regulations provide a safer and more secure environment for consumers and businesses, which in turn can drive further adoption. The key challenge for policymakers is to provide clear guidance that would provide the necessary guardrails without hampering innovation. The crypto industry is pushing for regulatory clarity as much as financial institutions want to know how and where crypto fits into traditional offerings. Without clarity, there could be a sense of hesitation about going down that road, eventually impacting adoption. Regulatory clarity will give companies the confidence and space to explore and offer consumers further safety and security.
Why is there a push for consistent regulation in this space?
Anatole Baboukhian:
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What are the main things to know about the future of crypto regulations?
It is key for the industry to educate policymakers and explain how digital assets are here to stay. There’s more work to be done to explain the use cases and the opportunities that a decentralized technology can provide to existing problems. As we move forward, we’ll see a convergence between traditional financial institutions and the crypto industry to integrate decentralized features to existing infrastructures, for example, with stablecoin settlements and DeFi products increasingly offered by traditional players.
It’s very important to stay informed, learn more about the underlying technology and its use cases and take part in educational initiatives for policymakers and traditional players. It’s crucial for businesses entering the crypto space to adopt an open-minded and proactive approach with regulators. To do this, the first step is to understand how their business is regulated and what value they want to bring to the market.
How can companies stay abreast of crypto regulations as the market evolves?
The financial services industry is looking closely at what it means to operate in a decentralized world when regulations and the traditional financial and payment systems have been built around centralized models. As explained earlier, regulatory clarity is critical for the industry. Instances of “regulation by enforcement,” as we’ve seen recently with the SEC for example, is not providing a clear and reliable environment for both the crypto industry and the financial services industry to operate in this space. Key priorities for the two industries are: • Reducing fragmentation in the regulatory environment • Encouraging consistent implementation of AML standards • Promoting responsible innovation
What are the crypto policy goals for both the financial services and crypto industries?
To facilitate this convergence, the applicable regulatory framework must be clear and adapted. Another thing to note, as each jurisdiction is working towards regulatory clarity at domestic level for crypto today, the key future challenge for regulators will be with international cooperation to make sure applicable rules are fairly harmonized and enforceable across different jurisdictions.
Joseph LaMonte, Sr Director, Product Management, Leveraged Infrastructure, Web3, FIS
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The total value of retail and institutional investments held by financial institutions reached US$112T at the end of 2021, according to Boston Consulting Group (BCG) – that’s 117% of the World Bank’s estimate of 2021 global GDP. How those trillions of dollars are invested greatly impacts how individuals build wealth and save for retirement. It affects how investors and the most prominent financial services organizations operate. Additionally, equity funding to wealth tech startups hit a new record of $18.9B in 2021, nearly tripling that of 2020. That funding continues to flood into tech-driven artificial intelligence (AI) and blockchain technology. This year’s FIS Global Innovation Report revealed that most executives are hiring and incorporating digital assets into their strategies for 2023. Specifically, 50% of financial services firms are hiring for Web3 expertise.
When people hear the terms blockchain and tokenization, their minds immediately think of cryptocurrencies. But the events that transpired in 2022 are concentrated in the market structure for crypto as an asset class and not the broader digital asset technology space.
Demystifying the terms behind the technology
The tokenization of real-world assets to use Web3 technology can unlock a world of opportunities for investors and fund managers. They just need to know where to start.
When people hear the terms blockchain and tokenization, their minds immediately turn to cryptocurrencies. In today’s world, volatility is another buzzword linked to the crypto asset market, and it’s no wonder people paused after the significant loss of value in some cryptocurrencies in the second half of 2022. However, it’s important to know that the events that transpired in 2022 are concentrated in the market structure for crypto as an asset class and not the broader digital asset technology space. Investors and fund managers have a real opportunity to leverage similar technology in new, innovative ways. To expand, let’s start by demystifying the key terms blockchain, Web3 and tokenization.
Joseph LaMonte
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The blockchain has three significant characteristics: it’s a type of distributed ledger, decentralized and immutable. On the blockchain, data can be simultaneously stored and accessed across multiple nodes and that data isn’t controlled by a single administrator. Additionally, since it’s immutable, cryptographic algorithms that reinforce the blockchain make it so that once a block is added, it’s nearly impossible to alter. The blockchain serves as a single source of truth since all the information stored there is practically tamper-proof, resilient to attacks, fully accessible and isn’t controlled by a central authority. Because of this, blockchain technology is proving to be exceptionally valuable wherever there is a demand for high-data security and data sharing.
Blockchain
When we think of the web today, we’re in the era of Web2. It’s the social media revolution where anyone can consume and create content, but the ownership of that content belongs to the “big guys” like Facebook, Twitter and YouTube. Unlike Web2, where we have no control over our data, where it’s stored, who it’s shared with and how entities monetize it, Web3 is decentralized. Chris Dixon, a partner at a16z, describes Web3 best as “the internet owned by the builders and users, orchestrated with tokens.” This means the network runs on millions of computers worldwide and hosts decentralized apps (dapps) that run on blockchain technology. In Web3, every time users and builders participate, they accumulate tokens where you can either hold onto your earnings or exchange them against fiat currencies.
Web3
Tokenization is not a new concept, but its execution using blockchain opens a world of possibilities to create, record and transfer assets and value. Essentially anything that has value can be tokenized including securities, real estate, commodities, art, physical goods, collectibles and intellectual property. Tokenization unlocks liquidity for illiquid assets and enables the digital transfer and management of these real, “off-chain” assets in the digital world.
Tokenization
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Digitization is known to increase speed, convenience and accessibility. Add those benefits to the use of blockchain technology and you have operational efficiencies that include smart contracts and programmable actions to automate processes and reduce time and operational costs. Using blockchain to tokenize real-world assets means they can be recorded, stored and managed digitally in an unchangeable and distributed way. Because of the management efficiencies driven by smart contracts, operational costs are lowered such that minimum ticket sizes for investments can be reduced, democratizing access to otherwise, which creates new opportunities for investors and fund managers.
Benefits of asset tokenization
For investors, asset tokenization can deliver easier access by reducing minimum investment amounts. This helps attract a wider range of investors and thus builds and taps into larger pools of capital to provide deeper liquidity, efficient price discovery and the potential to use investments as collateral. Additionally, tokenization allows investors to increase their investment breadth with a broader range of asset classes including private equity, private debt, real estate and more. When blockchain technology and asset tokenization collide, fund managers can benefit from smart contract automation to unlock efficiencies such as streamlining back-office processes, faster transaction times and instant payments.
Tokenization opens new opportunities for investors and fund managers
Tokens can be traded 24/7, with records updating within minutes. They’ll also benefit from efficient and transparent asset processing and the resulting cost efficiencies that unlock a wider set of institutional and retail investors. The compliance process is also streamlined because, with blockchain, fund managers have controlled visibility to external parties and can code restrictions into the tokens themselves such as who can hold tokens and when they can be traded to reduce the burden on internal administrators.
Looking forward, tokenizing real-world assets using Web3 technology will continue to grow and better connect disparate pools of issuer and investor capital. In addition, stablecoin use cases will start to take shape in B2B payments and other value transfer use cases that are inefficient and slow today such as cross-border flows between businesses. Finally, established administrators, custodians and brokers will continue building out the pipes connecting digital assets into their services for fund managers and wealth managers – not just for crypto, but for all digital assets. Those who focus on future opportunities, adapt quickly and listen to market needs will thrive in the next wave of blockchain-driven innovation. By engaging with technology, institutions have the opportunity to be active participants in the innovations of tomorrow.
What’s in store for the future of institutional adoption?
Brett King, Author and podcast/radio show host
Towards 2035: The Emerging Smart World
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It’s hard to think that the mobile phones of the late 20th century just made phone calls or allowed you to text. Today, application capabilities along with cameras, accelerometers, hi-fidelity displays, GPS, massive storage capacity, etc., all add up to an advanced mobile computing platform that also allows you to make phone calls. Mobile phones surpassed PCs in November 2016 as the world’s primary device for internet access, something that previous generation mobile phones couldn’t even do. The moniker “smartphone” is a good proxy for the differences we’re going to see between the industrial world of the 20th century and the smart, AI-powered world of the 21st century. Over the next decade or so, technology is going to change every aspect of the way we live our lives. So, what is the transition to the autonomous, smart economies of the future going to look like? ChatGPT, deep learning, generative AI and robots “taking our jobs." ChatGPT, the AI-based, natural language chatbot, has taken the world by storm.
In just two months, from its launch in November 2022, ChatGPT saw 100 million users subscribe to the platform – the fastest-growing consumer application in the history of the internet. There are dozens of jobs at risk from future AI technology that algorithms like ChatGPT hope to usher in. NY Times columnist and Nobel Prize-winning economist, Paul Krugman, wrote this about the era that ChatGPT is today shepherding.
Over the next decade or so, technology is going to change every aspect of the way we live our lives. Will AI have the power to disrupt or improve humanity?
– Paul Krugman, NY Times “Does ChatGPT Mean Robots Are Coming for the Skilled Jobs?”; Dec. 6, 2022
"It is difficult to predict exactly how A.I. will impact the demand for knowledge workers, as it will likely vary, depending on the industry and specific job tasks. However, it is possible that in some cases, A.I. and automation may be able to perform certain knowledge-based tasks more efficiently than humans, potentially reducing the need for some knowledge workers."
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While dozens of jobs are likely to be replaced by AI over the longer term, in the meantime, advances in artificial intelligence will lead to the creation of a wave of new jobs and companies: AI-assisted doctors, lawyers, bankers and even artists, working in tandem with AI to provide better outcomes for customers, differentiation amongst competitors and, of course, greater margins. Yes, new jobs are being created: AI whisperers who understand the nuances of crafting the best prompts in ChatGPT, Midjourney or Dall-E to get the optimal output and results. Overall, the smart world will create a whole new class of employment that is based around AI integration.
In the next decade, robotic process automation will smooth out organizational deficiencies. Autonomous transportation systems will whisk widgets from automated factories to our doors. Digital identities and passports will incorporate our sequenced genome, medical records and a link to our digital twin in the metaverse. A personal, AI-based agent will assist us with everything from longevity and extended health span to our individual carbon footprint through to cryptocurrencies, CBDCs and our vault of digital assets. As our economies shift into the Augmented Age, which will be based on four key disruptive themes – artificial intelligence, experience design, smart infrastructure and healthtech – governments will begin to tout their investments in artificial intelligence and next-generation infrastructure as a competitive national advantage. Every modern economy is already making a significant shift towards carbon neutrality and sustainable energy systems. But just as climate-resilient infrastructure will be a significant driver of investment in the 2030s and beyond, even more so will be investments in autonomous city-level infrastructure. From improvements in national healthcare, education, transportation, food security, water and air quality, waste management and recycling to general improvements in government and civil administration, the 2030s will bring a wave of retooling our economies with machine-based intelligence. Why?
The 2030s: Infrastructure goes smart
By early next decade, we’ll be asking our doctor if they have confirmed our diagnosis with AI, the ultimate second opinion. We won’t really have call centers like we do today; for most remote customer service interactions, we’ll chat with a next-generation ChatGPT conversationally, and we won’t care that it’s not human as the service will be bespoke, personalized and exceptional.
If not, it won’t be able to compete. The movies we watch and the books we read will be enhanced by algorithms with huge chunks of film and prose generated from a script written by AI.
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At a market level, competition will be defined by operational efficiency, which is only possible with higher and higher levels of automation. Elon Musk is famous for saying that “the best part is no part” in defining a key element in his design teams’ innovation strategy. In governments of the future, the best government will be an autonomous government that has reduced the need for human capital in pursuit of the most efficient resource management and capital utilization possible with public funds. Of course, there will be plenty of spending related to climate mitigation and energy reform alone, but the push for more efficient government will be a key element of the emerging smart world.
Over the last 300 years, however, it has become clear that if you bet against technology, you lose every time. When it comes to AI, the incentives for deploying this class of technology are already clear. While there are questions on the ethics and viability of AI enhancing or replacing traditionally human roles in society, there are fewer questions on the motivations of AI investors and creators. is an author, world-renowned futurist and media personality. He hosts the world’s number one fintech radio show and podcast, Breaking Banks, which has 6.5 million listeners, and is the founder of the mobile start-up, Moven.
Man with machine or man vs. machine?
While AI has tremendous disruptive potential for labor markets, the short-term trend will be for corporations and employees looking to enhance their productivity through the use of AI. For the next decade, we can likely split the world into two camps: those who use AI to enhance their usefulness and those who fight against the impact of AI on traditional roles by the same set of technologies. We know this because, since the time of the Luddites, this is how the world has been divided.
Adaptability individually means we need to align ourselves with AI as an emerging force in our careers, markets and corporations. If not, the economic risk will be increasingly acute the smarter our world becomes.
Demystifying decentralization
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DLT is ushering in a new era of financial infrastructure. To understand what’s so exciting about DLT, just compare the opposites: traditional databases run by a single administrator and the public DLTs that power Bitcoin, Ethereum and most of the world’s crypto currencies.
Whether you’re creating new payment networks, building Web3 apps or establishing ownership in the metaverse, decentralized technology (DLT) seems to be everywhere these days.
View the infographic to learn more
Nancy Carter, Senior director, Product Management, FIS
What's the future of blockchain?
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Blockchain has the potential to enhance the capabilities of applications that utilize internet of things and artificial intelligence by enhancing security, transparency and accountability of data. By helping organizations address some of the stability and scalability challenges inherent to IoT and AI, blockchain brings new value to business offerings.
Looking ahead, the question for organizations to consider is not whether blockchain works – it’s how blockchain will work for them. Following are five things to be aware of when evaluating how blockchain technologies can benefit your organization.
Startups and legacy organizations are approaching blockchain differently and can benefit from collaboration. While legacy organizations are attempting to fit blockchain into existing operations, startups are taking a bigger picture approach and experimenting with new applications of the technology. Together, they can leverage each other’s strengths and drive more rapid change and adoption.
1. Merging technologies
Blockchain’s influence extends beyond finance to virtually any industry involved with recording and overseeing the exchange of assets or information. Real estate and the legal field are just two of the many industries exploring the benefits of blockchain, and 81 of the top 100 public companies are incorporating blockchain technology into their products.
2. greater influence
3. different approaches
The regulatory environment is shifting rapidly to address new threats and issues that arise as blockchain takes hold. For example, the General Data Protection Regulation (GDPR) applies to personal data stored or transmitted on a blockchain platform, but it does not define how the data is protected, who the data controllers and processors are and who is liable for data breaches.
4. regulatory considerations
Blockchain poses a threat to financial institutions because it gives consumers the opportunity to access specific financial services without them. But institutions that engage blockchain can streamline their services, provide better transparency and greater fraud protection – and offer access to the cryptocurrency opportunities consumers are interested in. To take a deep dive into the world of cryptocurrency, check out our recent webinar series, FIS Perspectives.
5. disintermediation is a threat
Nancy Carter
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Aside from financial services and cryptocurrency exchanges, the potential use cases for blockchain span any industry or business requiring instant, secure and traceable exchange of assets or information. According to Gartner, blockchain could generate as much as $3.1 trillion in new business value by 2030 and will support the secure global movement and tracking of $2 trillion of goods and services annually by 2023.
Applications of blockchain in other industries
Supply chain management Blockchain can offer full visibility into a product’s status and location at any moment in time, improving coordination between all entities involved in the supply chain and enabling more efficient delivery.
Healthcare services Blockchain-based medical records can increase patient privacy and ease access to healthcare by facilitating a secure exchange of sensitive data between providers.
Criminal justice system Blockchain could be used to improve the integrity, security and transparency of criminal records for better coordination among all parties involved in law enforcement.
Government elections Since entries cannot be changed once they are submitted, blockchains could be used to bolster security in elections by preventing the duplication of voting records. Some countries are already exploring the possibilities; Indonesia used blockchain verification in their 2019 elections.
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Contacts
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©2023 FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties’ marks are the property of their respective owners.
FIS is a leading provider of technology solutions for financial institutions and businesses of all sizes and across any industry globally. We enable the movement of commerce by unlocking the financial technology that powers the world’s economy. Our employees are dedicated to advancing the way the world pays, banks and invests through our trusted innovation, absolute performance and flexible architecture. We help our clients use technology in innovative ways to solve business-critical challenges and deliver superior experiences for their customers. Headquartered in Jacksonville, Florida, FIS ranks #241 on the 2021 Fortune 500 and is a member of Standard & Poor’s 500® Index.
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