Changes in the payment market
Birth and growth of Value Added Network Settlement (VAN)
It is necessary to understand the payment providers of the current payment market in order for virtual assets to settle in the ecosystem in the commercial payment market. What is a value added network (VAN). It refers to a newly constructed communication network by borrowing a communication line from a business operator who owns a line such as Korea Telecom (currently KT), and adding a high level of communication service to it.
The world's first VAN service provider appeared in the United States in 1973, and the era of VAN began in earnest with TELENET service in 1975 and TYMNET service in 1977. VAN allows companies of the same industry to jointly process business through information exchange, and uses a conversion device to exchange information between device devices of different types. It also establishes a joint system between companies and entrusts them to value-added network operators. It is used in that it can increase the efficiency of work by operating it.
VAN has an important meaning in that it not only promotes the high-level use of computers but also provides various means of using information in an advanced information society. Each industry is jointly building and using VANs for the speed, accuracy, and consistency of business contacts. In Korea, a credit card company installs a card payment terminal (CAT) to a VAN company (a business operator that performs credit card payments through a value-added network).It is used to refer to a card payment agency built by entrusting operation and paying service fees.
VAN was created in Korea in the 1980s, when card payments became common, when credit card companies were entrusted with the installation and operation of credit card payment terminals and franchise membership of credit card payments.
The first VAN company to be created is Korea Information and Communication, which is familiar with the brand name Easy Check in 1996. As the credit card payment market grew, it continued to grow by listing on the KOSDAQ in 1998, and after that, Korea Credit Information, Korea Credit Rating, and Korea Value-Added Communication... Many VAN companies have sprung up. The main income of VAN companies is the fee they receive while providing payment information.
There is a flat rate system that sets a fee of 80 won to 160 won per payment regardless of the amount of payment, and a flat rate system that pays fees in proportion to the amount of payment, and credit card companies have been reorganizing into a flat rate system since 2015.
VAN saw rapid growth in the credit card market at the 1886 Asian Games and the 1988 Olympics, and in the 1997 financial crisis, the government expanded its use of loan assets and introduced credit card deductions and a credit card franchise system.
The birth of smartphones and the contraction of value-added communication networks
The biggest reason why VAN companies have been able to develop the payment market as a mainstream is that the payment share of credit cards in the payment market has increased. Credit card share is about 75 percent, and almost everyone has or uses credit cards. However, the era of PVC cards, which was regarded as the epitome of credit cards, will soon disappear.
With the advent of smartphones, credit card areas are included in the convergence platform and furthermore, various payment methods are provided. Simple payment solutions provided by smartphone convergence platforms provide users with benefits of fees that had to be paid to VAN companies because they do not have to pay payment fees, and many companies are releasing simple payments.
VAN companies' growth will fall sharply unless a new payment network is established with an Android-based all-in-one payment terminal because the payment network established by VAN companies is CAT's credit application payment terminal and cannot be paid except for IC and MSR payments. In terms of companies that provide simple payments, there are device companies, platform companies, payment companies, and distributors, and the financial sector also provides simple payments.
As credit card companies and VAN companies were born and grown with the birth of credit cards in the 1980s, the growth of the VANLESS-based APP TO APP payment business will accelerate at this time when smartphones are common.
Growth of O2O Market and Offline Entry of Payment Agency
The rapidly growing APP TO APP payment project means that VAN companies will accelerate their management deterioration. However, VAN's performance in the O2O payment market before entering the era of smartphone's APP TO APP payment is not that bad. This is because the growth of the O2O market has reduced payments through CAT credit application terminals, but PG payments using smartphones have increased.
In other words, the operating loss seen in the value-added communication network business (VAN) of VAN companies is being recovered in the payment agency business (PG). PG was limited to payment agents for online electronic payments on the web (www.), but the O2O market grew rapidly as the Internet's smartphone went offline in the hand, and PG companies, which are the mainstream payments, are paying through VAN companies.
For example, if you drink coffee at Starbucks, you used to visit the store and pay through the CAT credit payment terminal (VAN payment), but these days, the younger generation only needs to order in advance and pick up at the store (PG payment). This O2O market originally comes from social commerce, a system in which several people gather to buy products at a low price using social network services.(Social commerce is a purchasing system in which people express their intention to buy a product if they promote a discount for a certain period of time, and the supplier sends the product accordingly) The O2O method has already been deeply established in our lives, as Starbucks example.
Access the homepage of a large mart with a smartphone and purchase the necessary items in advance. You can get your purchases right away if you pay and go to the mart at a reasonable time, and large bookstores also provide a service where you can buy books on your smartphone and visit offline bookstores to take them right away, and buy tickets for performances or field trips on social commerce websites.
As the number of smartphone users increases, the O2O market is still expanding. As the outlook and interest in the O2O market, which combines the strengths of online commerce and offline markets, are also increasing, many companies are serving various solutions and contents aimed at the O2O market, and PG is in charge of payment at this time.
Fintech technology, which provides simple payments for payment by storing cards on smartphones and APP TO APP transfer payments by platform companies, is developing day by day.
A1Pay established a smartphone card simple payment system and APP TO APP payment system
As described above, many paradigm changes are expected in the future payment market amid the expansion of the O2O market. Amid these changes, a payment ecosystem for blockchain virtual assets will also be created.
For the blockchain commercial transaction payment ecosystem of the AOT project, it is actively opening online and offline franchises by developing lightning pay solutions that prepare for the future payment market by providing all VAN, PG, and APP TO APP payment methods.
The franchises to be opened become a payment ecosystem for blockchain as well as food in the future payment market.
My Payment Transmission Instructor to Accelerate Blockchain Payment Ecosystem
The time for a big inflection point is approaching to establish a real economic ecosystem for virtual assets. On July 26, 2020, the Financial Services Commission announced a "comprehensive digital financial innovation plan" and decided to introduce a new industry called Comprehensive Payment Service Provider and My Payment (payment instruction delivery business). My Payment can be seen as a payment and remittance business that greatly lowered the entry barrier (at least 300 million won in capital).
Now, when using simple payments, customers, customers' banks, stores, store banks, and fintech companies go through a complicated brokerage process. My Payment business simply completes the transfer by delivering only "payment instructions" from the customer transaction bank to the store transaction bank. Startups and credit card companies are expected to actively use it.
In other words, it was decided to establish a business that can receive portfolio recommendations through inquiry (MyData) of all individual financial assets with one smartphone app and process asset distribution and transfer (My Payment). My Payment is the same as the payment method of blockchain virtual assets by depositing goods directly from the bank's consumer account to the merchant account when a consumer purchases goods at a franchise store.
In other words, it is an APP TO APP payment that can be charged cheaper than the current credit card payment method. Consumers can pay directly through all accounts, and franchisees can reduce various fees paid to credit card companies. The government plans to introduce a related system for payment settlement to expand its My Payment business. The introduction of My Payment will accelerate the blockchain payment ecosystem by establishing a VANLESS simple payment network of APP TO APP in addition to the current value-added communication network.
A1Pay Payment System for Establishing a Commercial Transaction APP TO APP Payment Network
Looking at the above, it says that users' payment methods will change from cash to PVC card and from PVC card to APP TO APP simple payment of smartphones. Then, how should I prepare the payment network of commercial merchants to become a unicorn company in the APP TO APP payment market? The answer is clear. APP TO APP payment refers to the payment of an app and an app with one pack. Therefore, the application will have to be applied to the payment network of merchants.
With the current CAT terminal, only MST transfer payments of PVC credit cards and Samsung Pay are possible, but it is not possible to cope with the APP TO APP payment market at all. A1Pay is equipped with an Android-based payment terminal and an all-in-one payment solution that supports PVC card to APTO APP payment. The payment database is stored as a blockchain and is strengthening security with a consortium blockchain.
A1Pay is a blockchain-based payment system in which block-based virtual assets provide APP TO APP payment through AOT electronic wallet by establishing a blockchain payment ecosystem, and is the PAYMENT field of the AOT project.
The A1Pay payment system provides a variety of payment methods, ranging from simple payment methods of cards or cash to online payment methods of platform companies (card, QR code gift certificates, mobile phone small payment, virtual assets, etc.).
A1Pay Android All-in-One Payment Terminal
The payment terminal applied to A1Pay's payment system is an Android-based payment terminal that is equipped with a function of a CAT credit application payment terminal. This is because the function of the central arithmetic processing unit (cpu) must be installed in order to transmit payment information to A1Pay's payment system. Currently, the payment terminal in the commercial transaction payment network is a payment network established by a credit card company as a CAT credit application terminal by a value-added communication service provider (VAN) as mentioned above. In other words, it is developed to process the payment of the card as much as it is built by the card company. The CAT payment application terminal reads card information into the IC chip or magnetic magnetic belt of the customer's PVC card and transmits it from the direct circuit (IC chip) to the corresponding card company through bin check through communication.
Therefore, APP TO APP payments other than PVC cards cannot be processed. In A1Pay's payment system, Android-based payment terminals were applied to establish a payment network in the current PVC credit card payment market and the smartphone APP TO APP payment market in the future. Android payment terminals support PVC credit cards and Samsung Pay payments by supporting IC reading and MSR reading, and NFC-based simple payments (Apple Pay etc.) of smartphones and NFC cards (transportation connection cards, etc.) are supported by NFC. It also supports smartphone APP TO APP payments (Kakao Pay, Alipay, WeChat Pay, Naver Pay, Zero Pay, Syrup Pay, Web Card, etc.) based on QR and BAR codes. Commercial transaction payment of virtual assets can also be made through payment, settlement, and sales report in commercial transactions through the APP TO APP payment method of smartphones.
Decentralized Finance (DeFi) Market Growth
Bitcoin, which created the blockchain, is a decentralized digital asset such as Internet of Money, digital gold, and value storage. Bitcoin has been recognized as a digital asset for more than a decade. Bitcoin introduced blockchain technology in terms of no issuer and transparent assets, but Ethereum, which was launched later, is recognized as a way to solve centralized finance due to decentralized smart contract technology.
Ethereum and Ethereum-affiliated projects began to move what centralized finance was doing through automated code, and through growth development from 2018 to 2019, it became the most notable field for investors in the blockchain sector in 2020.
Maker DAO was the first to stand out among hundreds of Diffie projects. MakerDao announced the start of decentralized stable coins in 2017 by issuing MKR coins that maintain the price of its own stable coins and stabilize fees, and established a loan platform that anyone can use through the concept of DAI tokens and collateralized debt (CDP).
Benefits of DeFi
- Decentralization
Traditional financial markets and DPI are not much different in function. The biggest difference between the two is that the traditional financial market uses central institutions such as banks, governments, and insurance companies as the subject of trust, while the automated software and code itself become the subject of trust. Although it cannot be said that central institutions always behave maliciously, what DPI pays attention to is creating an environment in which they cannot act maliciously. It is to block the possibility itself.
Decentralization also plays an important role in the stability of the entire system. Because the system is operated by nodes around the world, not by a centralized database, it is safe from the threat of hacking or system shutdown.
- Permissionless
Unauthorizedness literally means an environment in which anyone can participate. The current financial system is quite closed. In some cases, banks do not open accounts with customers, and in many cases, specific eligibility requirements are required to subscribe to some financial instruments. The World Bank also reported that about 1.7 billion adults worldwide do not have bank accounts, more than 20% of the total population.
Bitcoin and dashes are being used more actively than the country's legal currency in some countries in South America, including Venezuela. In some Southeast Asian countries, including the Philippines, where P2P remittances are developed, remittances using cryptocurrency are spreading beyond complex and restrictive banking systems. It can be seen that the more unstable the financial system is, the greater the potential and accessibility of DeFi.
In these countries, payments using mobile devices are already more active in real life instead of remittances through banks, but this is still an environment that is managed and supervised by fintech companies or telecommunications companies. The virtual asset industry has long sought to bring in the excluded population from the financial ecosystem, which will be closer with the development of DeFi.
- Personal information protection
Transparency and censorship resistance also have many advantages in terms of personal information protection. Compared to the numerous qualifications of the existing financial sector, users of DeFi do not have to disclose personal information.
While central institutions have so far demanded too much personal information, the DeFi ecosystem can selectively disclose the desired level of personal information to the desired party.
Today, personal information is not a matter to think about in terms of simple privacy. The global data market is growing to about 250 trillion won this year, and the commercialization of personal information is expected to accelerate. Identity information service using DeFi is also a field that can be widely applied in the near future.
- Efficiency
In a centralized environment, eventually a person must determine and confirm all transaction processes. Although some automation has been achieved with the introduction of fintech technology, it is difficult to compare it with DeFi based on smart contracts. While the current financial sector charges an average of more than 5% for cross-border remittances, less than 1-2% is set in the DeFi environment. Defi also has excellent efficiency in terms of speed. In general, inter-country remittances through banks take one to two days, while in the DeFi ecosystem, all transactions are completed within 10 minutes and financial activities can be continued through free and easy procedures anytime, anywhere.
- DeFi's various applications
The number of DeFi services that began to appear at the end of 2018 has increased to hundreds worldwide and is being used in various fields such as landing, staking, decentralized exchange (DEX), derivatives, wallets, identification, predictive markets, and insurance. In the meantime, various dApps have been introduced by various companies, but there are not many practical applications. DeFi has led to a lot of favorable responses in the blockchain industry by improving the inefficiency of the financial system, and has grown rapidly in a short period of time due to the large influx of users who understand the blockchain.
As of the first quarter of 2020, about 3% of the total Ethereum distribution, or 3 million Etherm, is deposited in the DeFi Project. The value of Ethereum (ETH) deposited in the entire DeFi market over the past year has grown from about 200 billion won in July 2018 to 400 billion won and 1.3 trillion won in 2019 and 2020, respectively. It has increased by about 1,000% over two years.
- Lending a mortgage
The virtual asset mortgage service is a service that receives certain virtual assets as collateral and loans other virtual assets or legal money. Major coins such as Bitcoin and Ethereum are often used as collateral. Even if you don't have money to invest in virtual assets right now, you can take out loans with existing coins as collateral to participate in the market again and aim for leverage effects, so it is in the spotlight among investors. From the perspective of the exchange, it is possible to attract new customers by directly operating loan services.
The world's largest virtual asset loan platform is Compound, Maker SCD (Maker SCD), and dYdX. According to "LoanScan," which provides cryptocurrency loan data, the amount of cryptocurrency loans made in these three places over the past year is about $1.29 billion (about 1.44 trillion won). In addition, the market has continued to grow since 2017, when data aggregation began, and in February, loans increased about three times compared to January. The size of loans grew even during the downturn in the virtual asset market, but more loans are believed to have occurred in the booming market that took place during the month of February.
As the market grows, more and more lenders and exchanges operate services together in Korea.
Most cryptocurrency loans are made automatically through blockchain. On the liquidation date, it is set through Blockchain Smart Control to automatically liquidate from collateral assets regardless of the customer's will. Since it is made on the system without an intermediary, this type of loan belongs to the decentralized financial service, DeFi. On the other hand, the case of becoming a broker on an exchange and conducting a loan service is called a centralized finance (CeFi) service. Although loans and liquidation are not automatic like DeFi, each exchange has set up its own strategy to quickly secure users, and it has put forward its own strengths.
- Staking
Staking means depositing cryptocurrency in the blockchain to contribute to data verification. Most blockchains pay rewards when participating in staking. In the PoW consensus model, including Bitcoin, it is in the same context as verifying data through mining using computing power and paying block rewards as compensation.
Ethereum, which appeared in 2015, was planning a transition from the beginning to PoS.
And with the rise in 2017, various PoS projects began to emerge. After about one to two years of development, they launched the mainnet at the end of 2018, and the staking market, which was represented by EOS, Tron, and Neo until the first half of 2018, has grown rapidly since then, resulting in professional staking and node verification companies.
Representative steak companies include Stake.Fish, Stakeewithus, and Cosmos, and they also provide steak services on centralized exchanges such as Binance, Coinbase, and Coinone.
- Derivative
Derivatives of the DeFi ecosystem are not diverse. Recently, pairs such as Bitcoin (BTC) and USDT were unveiled as ways to link tokens, not ERC-20, but most of them are margin transactions using high-magnification leverage.
Representative derivatives projects include dYdX and bZx.
The reason why DeFi's derivatives are still very limited is probably because of the gap between the real economy and the DeFi system. Among the derivatives of the traditional financial sector, stocks closely related to real assets such as agricultural products and raw materials are mainly related, and it is not an easy field to introduce them into the DeFi environment.
- Stable Coin
Cryptocurrency has always been pointed out that it cannot serve as a stable value repository due to high volatility. However, not all cryptocurrencies are highly volatile. Stable coins, which are pegged to existing legal currency, have secured low volatility like legal currency and have the advantage of decentralization of cryptocurrency at the same time.
In the early days, stable coins were mainly used for trading pairs on exchanges or international remittances. However, with the growth of the DeFi ecosystem, the use and form of stable coins have rapidly expanded.
If most of the early stable coins held legal currency as collateral, there is a clear difference in that the stable coins of the DeFi ecosystem use cryptocurrency as collateral. Typical stable coins include USDT, TUSD, USDC, DAI, Reserve, Synthetics, and WBTC.
- Tokenization (STO)
STO, which began with the idea of tokenizing and dividing real assets, was one of the biggest issues in 2018. As major cryptocurrencies, including Bitcoin, are partially incorporated into the traditional financial market, they are growing rapidly in anticipation of the re-evaluation of the blockchain of existing financial and regulatory institutions.
In the early days, the STO market was in the spotlight for being able to invest in various assets at low fees without physical and time limitations if ownership is divided by distributing real assets such as luxury goods and real estate.
The prevailing opinion was that expensive cars and artworks, which were difficult for ordinary people to participate in, were also more accessible when distributed by token, but there was a limit to developing into global services due to regulations and definitions on different securities between countries.
Representative asset tokenization projects include Securitization, Polymath, and Melonport.
The existing credit card service structure was provided by establishing a network between credit card companies, customers, and merchants through PG companies and VAN companies. As a result, the commission burden of franchisees is incurred, and PG and VAN companies receive this fee and rebates it, and credit card companies and franchisees incur commission charges, which are reflected in consumers.
However, smart payments connect sellers and buyers directly from financial institutions (card companies, banks, etc.), can easily handle the "tip" system or the "online" payment system, all transaction details are transmitted through app services, and merchants can settle payments smoothly. As direct transactions with financial institutions are possible without going through existing PG or VAN companies, credit card companies can also relieve the burden from the 'fee' that they were obligated to pay to PG and VAN companies. By minimizing the role of intermediary, sellers have the effect of reducing fees and can again provide buyers with other benefits such as freebies and points.
AONE TOSS (AOT) CeFi
Online and offline franchise infrastructure is naturally formed as AOT Coin's project to establish a blockchain payment ecosystem. It provides a settlement solution through an electronic wallet to merchants so that the formed payment price of merchants can be linked to various platforms. Various revenue resources are created through the payment platform provided to franchisees, and revenue resources are refunded to AOT coin holders. Rewards are paid in a staking method in which holders with AOT coins deposit them as CeFi products.
It is an electronic wallet provided by AOT that proves the holder's stake through daily staking and rewards are paid according to the proven stake.
Platform-linked projects that are revenue sources for Reward include AOT mortgage lending and AOT crowdfunding.
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