Understanding Fintech, Blockchain technology and Cryptocurrency

Innovative, forward-looking, new technology or even disruptive – these are the terminologies we hear every day when Fintech, Blockchain Technology and Cryptocurrency are mentioned. They are becoming gradually part of our daily life and it looks like they have become the new craze in many sectors of the economy, such as financial services and IT.

New entrants are leveraging technology to deliver services in more relevant and convenient ways to consumers and businesses, hence disrupting the traditional financial services landscape. Even if the use of mobile apps is embedded in the average Mauritian’s everyday life, and the country already provides services such as digital insurance and mobile banking among others, the concepts of Fintech, Blockchain technology or Crypto currency (the most famous one being the Bitcoin) are still vague in a lot of people’s minds. Created in collaboration with Harel Mallac Global.

FinTech - Financial technology

Financial technology is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. Fintech includes any technological innovation in the financial sector, including financial literacy and education, retail banking, investment and crypto-currencies.

Some of the most active areas of Fintech innovation that are relevant to the Mauritian context include or revolve around:

  • Cryptocurrency, and digital cash
  • Blockchain technology
  • Smart contracts: computer programs are used to automatically execute contracts between buyers and sellers. (In the case of e-commerce websites for example.)
  • Insurance: Uses technology more and more to simplify and streamline the insurance industry
  • Cyber-security: Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and Fintech are interlocked

Outside Mauritius, Fintech is already embraced to the full extent.  In many European countries, for instance in Cyprus, Fintech is actively used in the trading environment whereby anyone can trade on stock exchanges, commodities market using regulated sophisticated secured online platforms that are linked with brokers, banks and other relevant parties. With simple clicks on your computer, you can order your trade, see it executed and recorded in your account within minutes.

“New entrants are leveraging technology to deliver services in more relevant and convenient ways to consumers and businesses, hence disrupting the traditional financial services landscape.”

Who uses Fintech?

The number of users of Fintech will only grow. Trends toward mobile banking, increased information and data and more accurate analytics and decentralization of access are creating opportunities for B2B companies and their clients and B2C small businesses and their consumers to interact in unprecedented ways. For example; as an individual, do you use mobile apps such as “Juice” or “Orange Money”? Do you pay your rent and other bills, check your account’s balance or transfer your employees’ salaries by making use of Internet banking? Do you shop online? If yes, then you’re using Fintech.

Blockchain technology

In simple words, blockchain technology is a distributed ledger technology (DLT) that maintains records on a network of computers, but has no central ledger. This ingenious system allows digital information to be distributed but not copied.

These distributed ledgers can be opened or restricted according to the number of people who are eligible to access the information. The presence of an irrevocable trail of all the transactions that have ever been made and the fact that the blockchain database is not stored in a single location makes attempts of hacking or fraud unsuccessful.

“The presence of an irrevocable trail of all the transactions that have ever been made and the fact that the blockchain database is not stored in a single location makes attempts of hacking or fraud unsuccessful.”

Blockchains offer a chance to work at lower costs with greater regulatory compliance, reduced risk and enhanced efficiency. According to a survey report by the World Economic Forum, “10% of global gross domestic product [will be] stored on blockchain technology by 2025.”

Cryptocurrency

Cryptocurrency is a medium of exchange, created and stored electronically in the blockchain, using encryption techniques to control the creation of monetary units and to verify the transfer of funds. The most commonly known cryptocurrency is Bitcoin. This digital currency created in 2009 offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.

  • There are no physical bitcoins, only balances kept on a public ledger in the cloud.
  • Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.
  • Despite its not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies such as Ethereum.

Today, the portfolio of Crypto currencies can be counted in thousands. New Cryptocurrencies are being created on a regular basis backed by a certain technology and this keeps this emerging market constant hyper active.  Details of available listed Crypto currencies can be viewed at https://coinmarketcap.com/

How does it work?

Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network, also known as “miners” are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins approaches 21 million. One bitcoin is divisible to eight decimal places (100 millionth of one bitcoin), and this smallest unit is referred to as a Satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.

About the Regulatory Sandbox Licence (RSL)

In its quest to become the blockchain hub of the Indian Ocean, Mauritius has issued an open call for innovators to take advantage of the country's new Regulatory Sandbox License (RSL) issued by the Economic Development Board (formerly known as the Board of Investment). The RSL allows companies operating in areas such as financial, medical and communications technology to start operating despite the absence of a formal legislative or licensing framework.  It is meant to be a temporary licence until formal legislations are introduced to govern the new sectors or services. Modelled after similar approaches employed in Australia, Singapore and the UK, the RSL is open to all innovators, but there's an emphasis on attracting blockchain innovators across all verticals. The expectation is that completed projects will help drive domestic and cross-border commerce and eventually expand into a smart city concept that links to other hub cities. Since launching in November 2016, the RSL has fielded numerous project proposals, with most under the fintech umbrella.  To date, five RSLs have been issued. International observers maintain that the successful positioning of Mauritius as a FinTech hub depends on the effective collaboration among regulators and promoters, and unambiguous messages to the stakeholders.