What is the difference between ARYZE, known payment apps, and neobanks?

I get this question very often, as someone whose work includes telling stories about fintech solutions worldwide that can improve people´s lives and translate, at times, technical jargon into simple words. But before we can understand what ARYZE is and how it compares with known payment apps such as Revolut, Venmo, etc., we need to look at the rise of these services in the first place. Who is their target user? Which needs are they covering, and most importantly, how?

Historically speaking, the financial sector has been one of the most dominant, with huge financial institutions maintaining a monopoly that is very difficult to penetrate. It is not surprising that the oldest banking institution dates back to the time in which banks originated. Monte de Paschi Di Siena was founded in 1472 and still operates in the world. But how can a business manage to survive so long throughout history? The answer to this question is likely connected to the intrinsic nature of money and value for humanity, which transcends time, cultures, and civilizations.

Banking is to me, currently the most fascinating and disrupted industry that we have and it cannot be understood alone without the notion of money and value. When you think about it, banking touches every human on the planet but at the same time, it is reserved for a minority of citizens on planet Earth. There is still a vast amount of unbanked individuals and this is something that we must change in one way or another, and why I am passionate about what ARYZE is trying to do.

Pål Krogdahl, CTO & Banking Industry Technical leader for IBM

Credit risk and banking crisis

One of the factors that cause banking crisis is poor management and credit risk exposure of the banking industry. At least two-thirds of IMF Member countries have gone through banking crisis in the past twenty years. The U.S embraced the principle of a dollar linked to gold between 1789 -1971, this gold standard means the value of the currency is linked to gold as was known as The Bretton Woods Agreement and system. This system was effective in keeping trade imbalances from forming across global economies and kept currencies tethered to something of fixed value. But after President Richard Milhous Nixon ended it, the door was wide open for big banks taking on credit risk as money stopped being backed by real assets like gold, giving banks the opportunity of offering lending based user deposits. Consequently giving birth to the fractional reserve system in which banks hold funds in reserve equal to only a small fraction of its deposit liabilities; the value of such reserves is less than the sum of claims outstanding on those reserves. The aim of the fractional reserve banking is to theoretically expand the economy by freeing capital for lending. Essentially, when you withdraw cash from your bank, you reduce the bank´s reserves and in the same way as money is created when banks issue loans, it is also destroyed as the loans are repaid.

But imposing reserve requirements does not guarantee the convertibility of deposits for the entire banking system. One of the greatest dangers linked to fractional reserve banking is bank runs which occurs when depositors rush to withdraw their deposits, in fear of their safety. This is why many central banks around the world assumed the responsibility of acting as lenders of last resort in their respective economies. The rise of fintechs that worked with traditional banks, to offer a payment solutions emerged after the financial crisis of 2008.

Fine examples of this are Venmo which facilitates digital payments within a social network of known friends and Paypal. However, one of the issues that amplifies the credit risk is that these fintechs hold deposits in regular banks, and these banks use funds to do lending, as fintechs give access to basic banking. At the same time, neobanks such as Revolut appeared in the banking space. Revolut does cloud banking with their own license and they make profits in a similar fashion as traditional banks do by selling banking services, such as loans.

Banking and the digital world

Banks must navigate a complicated space between digital native customers demanding instant gratification and the compliance requirements brought upon them by the intensifying amount of regulations. This heightened consumer expectation for ever-increasing faster response times, along with tailored solutions and secure instant transactions, puts pressure on financial institutions. The ongoing advances unleashed by technology have provoked a gradual but steady shift from an analog world to a digital one, leaving banks with two kinds of customers, the digital native and the digital immigrants. Essentially, this means that on one side, an entire generation was born in the era of omnipresent technology, including computers and the internet. Yet, on the opposite side, some were raised before the digital age and must now adapt. In the same way, digital immigrants have had to adapt to the current technology. The banking industry has been pushed to reshape itself by digital native customers demanding instant gratification and more expedite problem resolution which impacts customer retention for banks, as seen below :

Neobanks capitalize on disappointed customers

The damage caused by the global financial crisis in 2008 and the wave of anger can still be felt even after more than a decade. This results in distrust amongst people. For example, a YouGov survey shows that just 37 percent of the individuals surveyed stated that they trust their banks in Italy. In France, only 27 % of the surveyed individuals have a positive image of banks. In Japan, the same amount of individuals believes that banks act in their customers’ best interests.

This has paved the way for new players in the form of an agile digital-only financial institution referred to as “neobanks” or challenger banks, like the aforementioned Revolut. These are institutions without physical branches, where customers organize their finances entirely via digital channels. Their lower costs mean they frequently out-compete traditional banks regarding the fees they charge customers and in terms of their agility. Nonetheless, customer acquisition is a common hurdle for all consumer businesses, and it remains a difficult task for neobanks with many consumers still finding it difficult to leave a centuries-old bank that it is known and thus inspires trust, in favor of a new fintech start-up that does not count with a solid reputation and trust from the very beginning.

Source: 2021 ARYZE deck

How is ARYZE different?

Payment apps and digital banks such as Revolut make it easy and simple to open a bank account using your smartphone. It improves the user experience for its customers, mostly youngsters and international citizens, by offering a UK current account or Euro IBAN account and a physical bank card. This card can be used in ATM machines or wherever bank cards are accepted for payments. Its backend, however, operates on legacy systems and is dependant on a fractional reserve model. ARYZE, on the other hand, is building a full-reserve bank so we can run at a fraction of the traditional risk, using regulated cloud-native banking software, interlinked with the world of blockchains and smart-contracts, thus transforming dumb money into smart money by enabling interoperability to the blockchain and making bank IOUS fully programmable.

ARYZE has developed MAMA and MAMA business, a Multi-Asset Modular App that enables users to have unique payment experiences tailored to each user and also include rewards. Similar to how a physical wallet can hold physical cash or coins, MAMA is a digital wallet that will let users receive, send and store Digital Cash. Deposits held in MAMA are fully backed in their preferred sovereign currency and Digital Cash can also be sent to open source blockchains like Ethereum and exist in the form of a “stablecoin” that are backed one-to-one by real underlying Fiat currencies issued by governments.

Reducing credit risk

Whenever users use Digital Cash on a Open Source system ,or transfer deposits directly from MAMA to MAMA, ARYZE collateralizes with assets that are backed by government guarantee. We’re essentially insuring working towards drastically reducing credit risk by placing user funds into central-banks deposits, or through the purchase of short-term government bills and bonds. Next-generation DeFi, or distributed finance solutions require assets that are not extremely volatile and that is where interoperability comes into play.

ARYZE Digital Cash, issued as a stablecoin can exist as a cryptographically secure token, linked to national money that will have the benefits of quick and immutable transactions through distributed ledgers, yet also the non-volatility of fiat currency, providing the best of both worlds. Moreover, ARYZE collateralizes stablecoins by incorporating government risk. Digital Cash is based upon the notion of full-reserve banking. The collateralization method is based upon insuring deposits through short-term government bonds and bills, and through direct deposits into central banks, which reduces credit risk. All deposits in MAMA are Digital Cash and are shown and represented as USD, EUR, GBP in the app.

Video by Robin Gonzalez Kristensen

A unique ´Go-To-Market´ strategy

Using a B2B2C model, ARYZE will create synergies between developing and consuming parties on the platform. ARYZE offers the needed tools for the development of its payment ecosystem and will bring these services to various types of end-consumers. For example, cross-border payments present many implications, such as high costs and delayed transfers that limit an organization’s ability to perform/scale. Through the development of long-term relationships with NGOs and corporations, ARYZE has understood the organizational needs for enhanced internal payment processes.

Source : 2021 ARYZE deck

More flexible and inclusive

While Revolut users can get a free account and order Visa or Mastercard for ATM and online transactions, beyond the user-friendly interface, Revolut´s business model resembles very much that of traditional banks. When you open a Revolut account you still need to prove your identity and upload the corresponding documents in order to gain access to these services by following KYC (Know Your Customer) rules that ensure market integrity and protect against fraud and crime. The same rule applies to companies such as Venmo, which allows for easy social payments between friends. But what happens with those who are unable to prove their identity?

According to the World Bank Group, there are more than 1.1 billion people without ID in the world. Instead of partnering with an external bank, ARYZE will become one, allowing it to set more flexible identification requirements while still meeting the KYC (Know Your Customer) requirements of national authorities. Depending on the ID type, ARYZE will offer tiered financial services, to provide universal basic access whilst maintaining security. We will use locally placed governments, NGOs, and businesses to ID and onboard as many people as possible into our base-level offerings, and will provide opportunities for customers to access higher-level services. ARYZE’s infrastructure will reduce international money transfer fees to near-zero, allowing the lost $48 billion in remittances to reach the digital pockets of migrant workers’ families and boost developing economies.

Multi-Asset Modular App (MAMA)

ARYZE offers a unique product which we like to think of as the Mother of all Payment Apps. This application is ideal for individuals who want to make Peer-to-Peer payments in a variety of digital currencies (stablecoins and cryptocurrencies). The app will feature a Multi-Asset Modular function, send and receive support, as well as a suite of downloadable modules to enhance user experience. Businesses and developers can gain access to a sandbox to build modules that easily integrate with the digital wallet directly. As the modules are built on the same ARYZE platform, these modules also become interoperable (can speak together).

The MAMA app will be tailored to each user in a similar fashion to which each Netflix dashboard is unique, drawing data and suggesting content to that individual user based upon his previous interests and choices. Another interesting and advantageous feature of ARYZE´s aforementioned B2B2C strategy, is that it seeks professionals from all over the world to develop modules for the MAMA (Multi-Asset Modular App) banking application, this is done through collaborating with different associations, such as the Fintech Philippines Association, The Emerging Payments Association, other fintech associations worldwide  and universities.

A good example of this is ARYZE´s collaboration with Faculty of International Business Studies at Utrecht University of Applied Sciences, located in the Netherlands, where ARYZE is assisting in building a fintech lab at the IBS faculty, and providing different fintech tracks within the honors program for highly ambitious students.  By supporting universities, ARYZE helps to build the next generation of fintech professionals. Students from different faculties will also learn to apply their newly gained knowledge and skills by developing modules that can be integrated within the ARYZE app.

Early Design Prototype for Illustrative Purposes

MAMA helps NGO´s make the best out of their funds

ARYZE has a partnership with Isobro, the Danish branch organization of NGO´s and thus has a great understanding of their specific challenges. Non-governmental organizations working internationally face many implications in their daily practices when it comes to utilizing money. Within their organizations, a large amount of cross-border payments is needed to be made to get resources to local projects. In this process, significant money-losses occur due to high fees and many intermediaries. On top of that, NGOs face the extremely slow flow of money through different silo systems that are unable to work together efficiently. When money urgently needs to reach certain projects, traditional banking services stand in the way of making this happen.

But how can NGO´s transfer digital cash with the MAMA app ?

Let´s say an NGO needs to buy equipment for one of their local projects. First, we onboard the NGO as a corporate client which will give them a dashboard where they can manage all their different employees and the amount of money that is sent to the wallet of each employee. This means the money becomes available to use locally. Then the local equipment supplier can download a corporate version of our app with a connection to the NGO that wants to transfer money to that account. By this time, we have already done a lot of our KYC onboarding process by knowing that there is a legitimate reason for this client wanting to be onboarded on our MAMA app. The local supplier will get the transferred money of the NGO without any losses in fees.

Morten Nielsen, ARYZE CFO
Source: Canva Premium

MAMA Business helps Mom and Pops shops

According to a Global Market report by the Business Research Company, Asia Pacific is the largest regions in the global convenience, mom and pop stores market, accounting for 53% of the market in 2020. Africa is the second largest region accounting for 15% of the global market while Eastern Europe is the smallest region in the global convenience, mom and pop stores market. In the United States, Mom and Pops small businesses account for  54% of all small businesses. These type of businesses have to pay high fees for transactions and often have many administrative costs. MAMA Business can help these shopkeepers modernize their stores to keep their businesses competitive. One of tens of thousands of small businesses in the US have now fallen victim to the economic shock of the coronavirus pandemic and the same story repeats itself around the world, so cutting down on unnecessary high costs to stay afloat is more important now than ever for Mom and Pops shops.

The MAMA Business app can benefit Mom and Pops shops in several ways, but the following are the biggest advantages it offers:

  1. Fast KYC and onboarding
  2. Zero fee payments
  3. Minimum creation and annual fees

The increased cost of regulatory compliance, specially KYC (Know your customer) and AML (anti-money laundering) compliance regulations affects profitability for small businesses. KYC processes are very analog, requiring a lot of manual work and time spent during onboarding with siloed data, captured through emails and papers. ARYZE offers uncomplicated KYC and fast onboarding as well as zero fee payments, minimum creation and annual fees. Moreover, it provides a Multi-level KYC approach that is inclusive and adaptive. Basically, when users reach their transaction limits, they are asked to increase their KYC level by uploading relevant identification documents. Users can also level-up by association with a known corporate MAMA account, such as being on a company payroll or being a contractor or freelancer. 

Source: 2021 ARYZE Deck

This tiered approach, combined with the association with corporate users, will enable ARYZE to provide basic financial services to the largest number of people and organizations possible, with opportunities to expand their access by meeting additional KYC requirements when they can. Furthermore, the multi-asset modular aspect of the MAMA Business app works as a Go-To mechanism that will allow for integrations with third party apps through APIs, for example a store owner can easily keep track on whether receipts are paid for by integrating its MAMA Business app with service providers that help customers in this area and many others as well.

Another area where small business owners could potentially benefit from the multi-asset aspect of the Mama Business app is integrations with Peer-to-Peer lending platforms, because , unfortunately the traditional lending ecosystem isn’t set up to support mom and pop shops given that they are not as attractive to banks as other type of businesses. For instance, they have an average credit score that in the US is 30 points lower than other businesses. Also, their monthly revenue is $35,000 less on average and their time in business tends to be nearly two years less than non-mom and pops, reducing their chances of getting funding from traditional lenders.

To learn more about ARYZE, crypto, blockchain, and tokenization, check out our blog or visit our website.

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