INFORMATION TECHNOLOGY Archives

17/10/2024by EOS Intelligence EOS Intelligence No Comments

NVIDIA’s Meteoric Rise: Can the AI Chip Giant Sustain Its Dominance?

NVIDIA has grown exponentially in recent years. The company made significant strides as an early entrant into the AI chip market, becoming the sector’s leading company. In July 2024, NVIDIA’s market cap was US$2.9 trillion, registering 137.1% growth over 2023, making it the world’s third most valuable company behind Microsoft and Apple. As AI development continues its upward trajectory, big tech companies are focusing on developing their AI capabilities more than ever, posing a threat to NVIDIA’s dominance in the AI chip market.

Over the past decade, NVIDIA has evolved from a gaming GPUs maker to a leader in AI and data centers. The company’s early venture into the computing space coupled with continuous development of its cutting-edge technology helped the company solidify its position as the pioneer in the fast-growing AI training and inference market.

According to Mizuho Securities, a Japanese investment and securities firm, NVIDIA holds 70-95% of the advanced AI chip market share in 2024. Despite being the leading firm and major shareholder in the booming AI chip market, NVIDIA started to face rising competition and regulatory scrutiny that challenge its dominance.

Regulatory scrutiny poses a threat to NVIDIA’s market strategy and dominance

NVIDIA’s dominance has caught the attention of regulators worldwide, with antitrust investigations underway in the USA, EU, and China.

The acquisition of ARM, a UK-based semiconductor company, was scrutinized by regulators in multiple countries and was terminated in 2022. This was due to competition and control of key technology. Qualcomm, Google, and Microsoft opposed the deal because of concerns over fair access to ARM’s technology and fair industry practices.

This increased scrutiny may limit NVIDIA’s ability to offer products and services and impact its strategic expansion plans and market dominance.

NVIDIA’s Meteoric Rise Can the AI Chip Giant Sustain Its Dominance by EOS Intelligence

Competitors are increasingly vying for NVIDIA’s AI chip market share

The global AI chip revenue is projected to reach US$33.4 billion in 2024, per the Gartner market report, making it a lucrative space to operate in. Major tech companies are investing in AI chip development to compete and break NVIDIA’s monopoly in the market.

Through partnerships, innovation, integrated solutions, and niche offerings, competitors are shaping a competitive landscape that will continue to democratize and push AI tech forward. As the AI computing industry will see unprecedented growth, NVIDIA’s competitors are positioning themselves to capitalize on the emerging opportunities.

Tech companies are investing heavily in their AI chip development capabilities

The generative AI boom has exposed how much the big tech companies depend on NVIDIA. NVIDIA’s biggest customers (Microsoft, Google, Amazon, and Meta Platform), which account for over 40% of its revenue, are building their own AI chips to reduce their dependency on NVIDIA.

Amazon, through AWS, offers its own AI chips, Inferentia and Tranium, as cost-effective alternatives to NVIDIA’s chips. Google has been using its tensor processing units (TPUs) since 2015 and recently announced its Trillium chip. Microsoft is building its own AI accelerators, Maia and Cobalt, and Meta is building its own AI chips for more efficiency.

Among all competitors, Intel is likely to emerge as a core competitor to NVIDIA in the AI chip market, leveraging its experience in making CPUs and GPUs. Intel is challenging the company’s dominance in the AI processor market with the Gaudi accelerator AI chip, which costs one-third of NVIDIA’s GPUs.

Intel is focusing on edge devices, such as smartphones, that utilize smaller language models (LLMs) as part of its “AI everywhere” strategy.

NVIDIA is dominating the fast-growing cloud data center market. Intel’s approach of not replicating NVIDIA’s business model but leveraging its broader technology portfolio is likely to provide it with a competitive edge and a chance to compete with NVIDIA.

AI processing shift to edge devices challenges NVIDIA’s market share

Another challenge for the company is the shift in AI processing from data centers to edge devices such as laptops, PCs, and phones.

Large companies, including Apple and Qualcomm, are updating their chips to run AI models on these devices with neural processors for privacy and speed. Apple’s latest devices are AI optimized, and Qualcomm’s new PC chip allows laptops to run Microsoft AI services on-device.

For NVIDIA, adapting to this new paradigm will be important in the long run. As edge AI grows in demand, the company must innovate and compete in this fast-changing market to remain ahead of the competitors.

Investor-backed startups are making strides in the AI chip market

Many new entrants and growing companies are also competing in the AI chip market with innovative approaches and niche solutions.

Startups, such as Graphcore, Cerebras Systems, Groq, and SambaNova Systems, are building specialized AI architectures to outperform traditional GPUs in specific AI tasks. These startups are backed by strong venture capital and strategic partnerships, providing them with resources to enhance their R&D capabilities and scale much faster. For instance, Grog, a startup in the AI inference market, secured US$640 million and claims to have developed an AI chip faster than NVIDIA’s at a much lower price.

The surge in capital investment is likely to support startups in developing new AI chip solutions and carve out a niche for customized AI workloads. This way, startups can tap into new customers seeking customized chips for specific solutions.

Amidst the competition, NVIDIA is expected to leverage its early head start in the AI chip business and will likely focus on its core strength of developing advanced chips.

Nvidia’s strategic investment in startups strengthens its robust ecosystem

NVIDIA has created an ecosystem that makes it hard for competitors and customers to switch away. Key components of this ecosystem include strategic investments in startups, software bundling, and partnerships, creating a robust and interconnected web.

NVIDIA’s venture capital arm, NVentures, plays a crucial role in product innovation by investing in startups across various industries.

In addition to financial support, NVIDIA also offers these startups access to its technology and expertise to foster innovation and accelerate product development. For example, NVIDIA Inception, a global program, supports startups by providing technology and marketing support, connecting them with venture capitalists, and giving them access to the latest technical and financial resources.

Investing in promising startups provides NVIDIA with early access to emerging technologies and potential market disruptors. This enables the company to integrate the next big technologies into its products or develop new products that keep it ahead of the competition. It fuels innovation and creates a network of companies that dependent on NVIDIA’s technology, making it hard for them to switch to competitors.

NVIDIA’s seamless hardware-software integration provides a competitive edge

Software bundling is another way NVIDIA strengthens its ecosystem. The company often bundles its hardware with proprietary software, making its products better and more functional. This software is frequently optimized for NVIDIA’s hardware, so customers cannot switch to competitors without losing access to this software. The strategy of bundling often leads to better performance and value for customers, making NVIDIA’s products more attractive.

NVIDIA’s software ecosystem, particularly CUDA (Compute Unified Device Architecture), plays a vital role in its dominance. CUDA only works with NVIDIA’s chips, and over 3 million developers use it to do AI experiments and develop applications. NVIDIA also updates its software annually with new AI chip architectures and software. The company’s continuous innovation ensures its hardware and software are always in sync, so customers stay within the NVIDIA ecosystem.

NVIDIA’s strategic partnerships enable tech integration across sectors

NVIDIA has partnered with companies ranging from tech giants to startups and helps them develop and optimize their software for their hardware. This has created a network of companies across various industries whose products and services are deeply tied to NVIDIA’s technologies.

NVIDIA’s strategy to form partnerships and integrate them into its network of systems and software is beneficial to both parties. Switching to other competitors would incur significant costs and disruptions for customers. NVIDIA’s industry-wide partnerships help it have a strong and integrated ecosystem. For example, partnerships with AWS, Microsoft Azure, and Google Cloud allow NVIDIA to integrate GPUs into the cloud and make their technology available to all enterprises and developers.

In the automotive space, partnerships with Tesla and Mercedes-Benz put NVIDIA’s AI and GPU into autonomous driving, making them rely on NVIDIA AI solutions. Further, partnerships with large enterprises, such as IBM and VMware, to optimize hardware and software make NVIDIA the preferred partner for advanced computing in data centers and AI applications.

NVIDIA’s dominance may lead to increased costs of manufacturing AI chips

NVIDIA’s dominance is likely to significantly impact the world’s largest contract chip maker, TSMC (Taiwan Semiconductor Manufacturing Company), and the entire semiconductor industry.

NVIDIA is TSMC’s key customer, and the latter dedicates a big part of its production capacity to NVIDIA. NVIDIA’s pricing power impacts TSMC’s margins, and if NVIDIA decides to squeeze its suppliers to maintain its margins, TSMC is likely to feel the heat on its profitability. This could lead to capacity constraints for other customers, which will delay their product launches and drive up the prices of AI chips.

An increasing demand for AI chips from NVIDIA and others will drive up the cost of raw materials and components. This cost increase may trickle down the supply chain to end consumers. NVIDIA’s dependence on TSMC makes the supply chain vulnerable to disruptions due to China’s multi-pronged pressure on Taiwan.
NVIDIA’s dominance could drive consolidation in the semiconductor industry

NVIDIA and other companies may diversify their supply chain to mitigate the risks associated with geopolitics, supply, demand, and prices. This could lead to partnering with multiple foundries and geographic diversification. Some semiconductor companies may go for vertical integration to have more control over the value chain.

NVIDIA’s dominance and financial muscle may lead to consolidation in the semiconductor industry. Companies lacking financial resources may find it challenging to compete with big tech companies and could potentially get acquired by larger AI chip manufacturing companies.

Companies in the automotive and electronics sectors that rely on semiconductors may face procurement challenges due to supply shortages. This may lead to prioritizing high-margin products and potentially disrupting the availability of lower-margin products.

EOS Perspective

Only a limited number of global players operate in the AI chip manufacturing space, with NVIDIA holding the majority share. Startups and big tech companies are building strategies to carve out their market share.

NVIDIA will likely hold on to its market leadership with a slight dip in market share to core competitors, such as Intel and AMD, in the next few years. However, with its investments in AI R&R and its initiatives to diversify into different segments, NVIDIA might have a chance to recapture lost market share and grab new growth opportunities in the long term.

As the competition in the AI chip market intensifies, we can expect the launch of more affordable AI chips from NVIDIA competitors designed for customized AI applications. NVIDIA, on the other hand, would prioritize performance and reduce the cost of its AI chips. Since the competitors still lag in designing and developing advanced AI chips and often depend on third parties, NVIDIA is likely to capitalize and dominate the high-performance AI chip space.

With the massive and growing AI market, there is plenty of room for competitors and startups to grow even with a small market share. However, regulatory delays, sustainability issues, and unethical AI use can block strategic initiatives, increase the cost of compliance, and create uncertainty for investors and partners. Navigating these challenges will make NVIDIA more resilient and agile. The increased transparency and compliance can open up new partnership opportunities and new markets in regions where compliance is a major concern.

As AI will be the source of value for many businesses, NVIDIA will use its position to diversify by tapping into new markets to reduce its dependence on traditional markets. A potential partnership the company is discussing with OpenAI, a US-based AI research organization, will likely create a pool of new commercial opportunities for both companies to explore and monetize AI-driven solutions in the healthcare, finance, and automotive sectors.

12/09/2024by EOS Intelligence EOS Intelligence No Comments

Neuromarketing: How Brands Are Leveraging Brain Science to Decode Your Desires

Innovative marketing strategies have become highly important for businesses in today’s crowded markets, where there is abundant competition and consumers have a vast array of options. This is why neuromarketing, a concept where brain science meets marketing, has started gaining popularity. Christened “astonishing hypothesis” by Nobel Laureate Francis Crick, it holds great promise for current and future marketers.

Neuromarketing is a marketing strategy that uses scientific methods to understand how consumers’ brains respond to products and advertisements. It measures brain activity and how people subconsciously react to ads, packaging, and products using methods such as electroencephalography (EEG), functional magnetic resonance imaging (fMRI), and eye tracking.

The goal is to uncover the underlying motivations, preferences, and decision-making processes that drive customer behavior. This approach can help marketers and businesses create more effective advertisements, develop products that meet customer needs and wants, and set appealing prices.

The concept of neuromarketing has been around since the 1990s and it gained popularity with the development techniques such as the Zaltman metaphor elicitation technique. This method allows researchers to tap into a person’s conscious and unconscious thoughts by analyzing their metaphoric or non-literal expressions.

Companies are using various approaches to adopt neuromarketing

Neuromarketing campaigns can use numerous approaches to attract customers.

EEGs and fMRIs are becoming increasingly popular

One approach is to use brain scanning techniques such as fMRI or EEG to monitor brain activity and understand how people process information.

An example is the 2011 neuromarketing study by the South Korean automotive manufacturer Hyundai. The company measured brain activity using EEG and identified the design features most likely stimulating a desire to buy. Based on the study, Hyundai also modified the exterior design of its cars.

Another one is the 2011 commercial Yahoo rolled out to attract more users to its search engine. Before launching the US$100 million rebranding campaign, the company tested the 60-second commercial featuring happy people dancing worldwide. The company had people wear EEG caps to monitor their brain activity while watching the ad to gauge its impact. The results showed that the ad stimulated activity in areas of the brain associated with memory and emotional response, suggesting it could effectively grab viewers’ attention.

Similarly, Microsoft partnered with California-based market research company EmSense in 2009 to study the brain activity of Xbox gamers to understand how engaged they are when exposed to 30- and 60-second TV ads versus in-game ads on the Xbox. The study, using EEG technology, showed that the highest level of brain activity occurred during the first half of TV ads promoting an automotive brand. Also, brain activity decreased when the same ad was repeated during Xbox Live in-game advertising. Microsoft incorporated this format to improve the ad’s memorability.

Businesses such as Frito-Lay, a US-based snack manufacturer, use EEG and focus groups to assess consumers’ genuine reactions to new advertisements. In a 2008 ad, they showed a woman pranking her friend by filling her laundry with orange Cheetos. Despite the focus group participants expressing a dislike for the ad, an EEG study revealed that they actually found it enjoyable.

The EEG-based neuromarketing trend will likely gain even more traction, especially with wearable EEG devices becoming increasingly common. In 2011, Tokyo-based multinational conglomerate Hitachi developed a portable, wearable brain scanner that neuromarketing can employ. Users can wear it while performing everyday activities, such as shopping, allowing marketers to study consumer behavior and preferences in real-life settings. This will also help them to develop marketing campaigns aligned with consumer preferences.

Neuromarketing How Brands Are Leveraging Brain Science to Decode Your Desires by EOS Intelligence

Marketers track eyes to identify customer preferences

Eye-tracking technology is another important technique used in neuromarketing. This technology records the movement of a person’s eyes as they view a screen, generating a heat map to show where they focused their attention. This method can be used to compare the effectiveness of different ads.

A 2009 study conducted by Objective Experience, a Singapore-based research firm, found that when people are shown a diaper ad with a baby looking directly at them, they pay less attention to the message. However, when the baby looks at the ad content, people engage more with the message.

Companies such as UK-based Unilever frequently use this method to test how their products perform in-store. In 2016, it partnered with Swedish technology company Tobii to record shoppers’ attention data while browsing products on the shelf using wearable eye trackers. The data was then analyzed to identify the features that drew shoppers’ attention, how they interacted with branding and marketing elements, and their impact on customer behavior. The insights from this study helped Unilever determine the design features that resonate most with shoppers, allowing the company to optimize brand awareness and perception.

Many other companies have also experimented with eye-tracking techniques. In 2017, the Japanese automotive manufacturer Toyota collaborated with Tobii to improve its in-store experience. The study revealed that younger shoppers spent more time on interactive digital elements, while older shoppers focused on textual information. However, it also showed that interactive digital screens generated the most engagement. This study became very beneficial for Toyota. Since consumers, such as automobile buyers, visit showrooms to make a specific purchase, eye-tracking technology can directly impact the sales of such companies.

While Unilever and Toyota collaborated with Tobii on neuromarketing strategies, UK-based pharmaceutical giant GlaxoSmithKline (GSK) has developed an in-house technique. In 2017, it launched a “Consumer Sensory Lab” to test its products using eye-tracking technology. The lab is designed to mimic a real store, allowing consumers to browse and shop while being monitored by eye-tracking devices. This allows GSK to analyze how consumers interact with products on the shelf and what packaging elements catch their attention. GSK’s investment in this technology shows that big players are now considering leveraging neuromarketing for market research and product development.

Packaging, colors, and emotions are essential in neuromarketing

Many companies are using effective packaging and experimenting with color psychology in neuromarketing. In 2009, Frito-Lay partnered with Ontario-based Juniper Park to understand why women were not choosing their products. The company identified that its shiny packaging was generating feelings of guilt in women while snacking. They redesigned their packaging using softer colors and avoided language that might trigger guilt.

Several companies use certain colors as neuromarketing tools to evoke specific emotions. US-based Coca-Cola’s use of the color red is an example. Similarly, brands such as Target and Netflix use red to convey feelings of power, excitement, and passion. Red has also been linked to increased hunger. Many fast-food chains, such as Wendy’s and KFC, use red to increase client engagement.

Many businesses also try to increase engagement by bringing out specific emotions. An example is German auto manufacturer Volkswagen’s 2011 Super Bowl ad, featuring a young boy dressed as Darth Vader trying to use “the force” on a VW Passat. Experts attributed the ad’s success to its combination of nostalgia (Star Wars), empathy (parental love), and humor (Darth Vader’s reaction).

Another example is Frito Lay’s 2018 “Operation Smile” campaign, which featured a series of smiles on the packaging of its potato chips. The campaign was designed to bring joy and happiness to customers and successfully connect with them.

Many brands are redesigning their packages and presentations using neuromarketing feedback, and the trend is expected to continue in the future.

AI integration and emotion AI are the emerging trends in the market

Integration with AI is one emerging trend that is greatly benefiting neuromarketing. As consumers engage in various online platforms, including social media, they leave a digital trail of personal information. This can be accessed by AI programs stored in the cloud.

AI analyzes this data and identifies patterns and customer preferences. This information can then be used to create effective marketing strategies. Netflix, for example, uses AI to power its recommendation engine and suggest shows based on users’ viewing history, completion rates, popularity rankings, etc.

AI also plays a crucial role in facial recognition and emotion detection. AI-driven facial tracking technologies are expected to help marketers understand how people respond emotionally to ad content more efficiently and accurately, helping them to design more engaging and impactful experiences.

Emotion AI, a type of artificial intelligence that analyzes, responds to, and simulates human emotions by detecting and interpreting emotional signals from various sources such as text, audio, and video, is another technological trend expected to benefit neuromarketing. Since this technology can capture and analyze human emotions and body language, marketers can use it to create user-centered and empathetic advertisements.

Sentiment analysis is an example, a tool used by Emotion AI that analyzes human emotions in text. This is often employed in marketing functions such as product review analysis.

An example is a 2018 campaign by the American sportswear giant Nike. The company used sentiment analysis to navigate the controversy surrounding NFL player Colin Kaepernick’s “take a knee” protest. As public opinion was divided, with both critics and supporters voicing their views, Nike partnered with California-based software development company Sentieo to monitor customer sentiments to protect its reputation. They tracked tweets and news related to the campaign before and after incorporating the “#justdoit” hashtag in Kaepernick’s tweets. The analysis also showed that consumer purchase intent improved due to the campaign, which benefited Nike.

Using tools such as Emotion AI is expected to directly affect companies’ profits since it helps them easily identify the customer’s opinion about the brand. It can also be used to detect early warning signs of customer dissatisfaction or frustration. This is expected to enable businesses to address issues promptly and reduce the risk of negative word-of-mouth or online reviews.

There are challenges and concerns about adoption

Though neuromarketing is expected to shape the future of marketing, interested players must address some concerns before taking the plunge. Critics have raised ethical concerns about its morality and the potential for privacy violations. There is also a potential for bias and inaccuracies in the research methods, leading to unreliable conclusions and flawed marketing strategies.

Larger companies with greater budgets are more likely to use neuromarketing leaving smaller players, who cannot afford the cost, at a significant disadvantage. This will widen the gap between these companies, as smaller ones will struggle to compete with larger companies’ marketing and advertising capabilities. Also, consumers may unknowingly choose products influenced by neuromarketing tactics, making it even harder for smaller companies to compete.

Moreover, larger corporations will have the means to invest in research and development of own neuromarketing techniques, further solidifying their advantage. These companies are also likely to keep the research findings proprietary, thereby limiting opportunities for smaller companies to compete.

More research is also needed to bring neuromarketing to the mainstream, especially in areas where real-time responses and feedback are required, such as in-store shopping. Since EEG technology, widely used in neuromarketing, can be compromised by interference from other electrical devices and requires subjects to remain still, it can become difficult to replicate lab-based research conditions in a real-world setting.

EOS Perspective

The marketing landscape has significantly transformed in the past few years. Consumers are now more tech-savvy and take to social media platforms when faced with an unpleasant event. Companies are also aware that negative reviews on online platforms can significantly impact a brand’s reputation within a short time. This can be increasingly managed by employing neuromarketing. Though it is still considered to be in its embryonic stage, experts believe this innovative marketing technique will reshape advertising and consumer-business relationships.

As the number of global mobile users is expected to cross 7.5 billion in 2025, according to a 2021 report by the US-based market research firm, The Radicati Group, neuromarketers are expected to collect real-time data by leveraging mobile devices. This will enable players to capture a more authentic and nuanced understanding of consumer behavior in real-world settings rather than relying solely on laboratory-based or controlled environments.

This real-time data collected using mobile devices can be used to design marketing strategies, product development, and customer experiences that are more tailored to meet consumers’ evolving needs and preferences.

Experts also believe that technological advancements such as brain-computer interfaces (BCIs) can revolutionize the marketing landscape in the near future. BCIs enable seamless communication between the human brain and machines, giving marketers access to consumers’ real-time thoughts and emotions. This is expected to pave the way for ultra-personalization, as companies can tailor their products and advertisements to individuals’ unique preferences and emotional responses.

While there are ethical concerns surrounding its use, the fact that neuromarketing is still in its early stages of development means it has the potential to evolve in tandem with addressing the ethical doubts. As technology becomes more accessible, the key challenge will be ensuring that neuromarketing is used responsibly and ethically.

22/08/2024by EOS Intelligence EOS Intelligence No Comments

What’s Fueling Asia’s Drive to Develop Wholesale CBDCs?

The emergence of Central Bank Digital Currencies (CBDCs) has become a central focus in the global financial space, as it offers the potential for revolutionary shifts in how the world conducts and manages monetary transactions. While much of the spotlight has been on retail CBDCs, wholesale CBDCs are gaining momentum globally. Asia is leading the pack in developing wholesale CBDCs that offer opportunities that may significantly impact the global financial landscape.

Asia is outpacing developed countries in the drive toward wholesale CBDCs

Wholesale CBDCs are digital forms of a country’s fiat currency. Unlike retail CBDCs, only a limited number of entities can access wholesale CBDCs, which are designed for undertaking interbank transactions and settlements. The concept of wholesale CBDCs is similar to currently available digital assets used for the settlement of interbank transactions, with the key differentiation being the use of technologies such as distributed ledger technology (DLT) and tokenization.

Wholesale CBDCs have garnered global interest with central banks. Facebook’s (albeit failed) attempt to launch its Libra cryptocurrency in 2019 was a breaking point for blockchain technology’s use in global finance, eventually spurring the development of wholesale CBDCs. Initially launched as a measure to counter private cryptocurrencies, wholesale CBDCs are fast emerging as a potential disruptor in the fintech space.

Currently, more than 30 countries are researching the use of wholesale CBDCs. Interestingly, about half of these countries are from Asia. The development of wholesale CBDCs in Asian countries has outpaced the efforts of financially strong economies such as the USA and the UK, as these CBDCs offer more tangible benefits to developing economies in Asia than their more developed counterparts.

Several Asian countries have engaged in pilot programs, and proof-of-concept runs to explore the use of wholesale CBDCs to improve the efficiency of domestic large-value transactions and cross-border transfers.

China has been at the forefront of the development and widespread testing of wholesale CBDCs. Several Southeast Asia and the Middle East countries, including India, the UAE, Thailand, and Singapore, have launched pilot programs to explore the viability of wholesale CBDCs and test interoperability for cross-border transactions.

Achieving faster and cheaper cross-border transactions is key to Asian central banks

Growth in global trade has resulted in exponential growth in cross-border transaction volumes. However, these cross-border transactions are faced with challenges. There may be involvement of potential intermediaries, varying time zones, and regulatory frictions that may cause slower settlement. Financial systems such as SWIFT have a stranglehold on the cross-border transaction ecosystem, with many of these transactions using SWIFT messaging to settle payments.

Potential intermediary fees and forex-related charges also lead to increased transaction costs. According to World Bank’s estimates, transaction costs for cross-border transactions may range up to 6% of the transfer value, a significant surcharge.

Removing friction associated with cross-border transactions is a key goal behind Asian countries’ push toward exploring wholesale CBDCs.

A growing interest in wholesale CBDCs is attracting investments in building large-value payment infrastructures in Asia, allowing for faster and more efficient cross-border transfers. Wholesale CBDCs enable central banks to transact directly with each other, removing the involvement of multiple intermediaries and resulting in quicker transaction settlement. This also results in the elimination of intermediary fees to help lower transaction costs.

Technology also adds elements of security and traceability to these digital transactions. It also offers the potential to program them by automating or restricting payments if certain conditions are met.

Challenging US dollar dominance in cross-border settlements offers additional motivation

Several Asian countries are also looking to reduce their reliance on financial settlement systems that involve US dollar reserves. Currently, most cross-border transactions involve the use of the US dollar. Countries with limited forex reserves also face the challenge of outgoing reserves, resulting in potential currency inflation and adding to the already high transaction costs.

Wholesale CBDCs offer several Asian countries, particularly those with limited US dollar reserves, an opportunity to directly transfer the amount in their local digital currencies and eliminate the need for US dollars in bilateral transactions.

Developing Asian economies, such as China and India, with significant cross-border transactions, are looking to promote their CBDCs as a potential reserve currency in the Asian region that would allow cross-border settlement directly in the digital currency. It is also in the interests of countries such as China to develop its CBDC (e-CNY) as a potential alternative to the US Dollar in cross-border trade to mitigate any potential currency-related challenges posed by economic sanctions from the USA and EU.

What’s Fueling Asia’s Drive to Develop Wholesale CBDCs by EOS Intelligence

Tandem development and collaborations offer tailwinds to CBDC projects in Asia

Central banks of several Asian countries are undertaking information sharing and tandem development of CBDC infrastructures to mitigate some challenges associated with CBDC.

Recent pilot projects such as mBridge, launched by central banks of China, the UAE, Thailand, and Hong Kong, have been testing the use of a common ledger platform for real-time peer-to-peer transactions. The launch of several other projects, such as Project Mandala (involving Singapore, South Korea, and Malaysia) and Project Aber (involving Saudi Arabia and the UAE), is laying the groundwork for the widespread implementation of wholesale CBDCs.

Another potential avenue for collaboration includes forming partnerships with central banks to maintain reserves of digital cash to facilitate direct settlement. China, in particular, plans to develop e-CNY as a potential reserve currency alternative to the US dollar.

Interoperability and ownership are key challenges to CBDC implementation

While the use of wholesale CBDCs certainly comes forward as a boon, there are challenges in using these technology-driven digital currencies. CBDCs may have varying protocols, and interoperability between different CBDC frameworks remains a key challenge for implementing wholesale CBDCs for cross-border transactions.

Establishing common technical and operational standards is essential to ensure CBDC interoperability. Currently, most pilot programs involve CBDCs with common or similar technological frameworks and rules, which limit the application of wholesale CBDCs to a certain number of compatible entities.

Recent research projects are laying the groundwork for CBDCs’ compatibility with various ledgers and technical frameworks. However, significant testing will be required before compatibility can be established across the Asian region.

Ownership, governance, and regulatory oversight of wholesale CBDC technologies are other key concerns. Doubts exist over who will oversee the transactions and ledger entries, especially for any multi-party cross-border transaction.

Systems must also to adhere to anti-money laundering and counter-terrorism financing regulations. Varying financial laws may also hamper the seamless implementation of these anti-money laundering and counter-threat funding regulations across the region.

Lastly, like any digital asset, CBDCs are also susceptible to cyberattacks.

EOS Perspective

Wholesale CBDCs can potentially change the nature of cross-border transactions across Asia and globally.

We are likely to witness significant growth in test runs and pilot programs by several Asian countries to provide proof of concept for the applicability of wholesale CBDCs in countering the challenges associated with cross-border transactions. We can expect a spurt in CBDC alliances and treaties among countries with significant bilateral and intra-regional trade. Simultaneously, it may result in slightly reduced transaction volumes going through existing cross-border financial systems such as SWIFT.

The next stage of CBDC evolution is likely to coincide with the emergence of pilot programs involving multiple CBDCs with different technological frameworks, creating possibilities for easier and seamless cross-border transactions among banks or countries without any existing bilateral or regional partnerships.

These developments are likely to be aided by the development of enabling technologies such as RegTech (regulatory technologies) and SupTech (supervisory technologies), which could provide the sandbox environment for widespread testing of the CBDC systems, as well as lay the groundwork for potential regulatory systems to manage these infrastructures.

With the bulk of cross-border transactions still being conducted in the US dollar, wholesale CBDCs do not pose any imminent threat to its dominance. The US dollar’s future prospects in this role will depend on whether digital currencies such as e-CNY take off as a reserve currency, which is unlikely, at least in the short- to medium-term.

The overall success of wholesale CBDCs will depend on the level of cooperation that countries across Asia can develop over the next few years.

09/07/2024by EOS Intelligence EOS Intelligence No Comments

Charting the RegTech Journey: Navigating Consolidation

RegTech, short for regulatory technology and often categorized as a subset of fintech, emerged in 2015. The RegTech industry was fragmented, with numerous small players targeting specific niches within the regulatory compliance landscape. However, the recent trend towards consolidation is reshaping the sector. Larger RegTech firms are increasingly acquiring smaller players to expand their offerings and solidify their market positions.

RegTech comprises powerful tools that leverage advanced technologies such as artificial intelligence (AI), automated machine learning (AML), and big data analytics. These technologies streamline regulatory compliance processes, addressing challenges from technology-driven economies, largely through automation. Automation plays a significant role in reassuring regulatory compliance professionals about the effectiveness and efficiency of RegTech solutions.

According to a 2023 report by Corlytics, a Dublin-based regulatory risk intelligence firm, regulatory penalties associated with legal and regulatory enforcement in the financial sector exceeded US$10.5 billion globally. This underscores the escalating pressure on financial institutions to comply with regulations, prompting them to turn to innovative technological solutions. RegTech has emerged as a promising avenue for organizations within the fintech ecosystem to efficiently navigate complex regulatory landscapes while reducing cost and time and improving compliance effectiveness.

Market landscape transformation through investments and strategic acquisitions

Investors increasingly recognize RegTech’s potential, and it remains a bright spot within the fintech ecosystem. Data from UK-based financial market platform Dealogic shows 116 global RegTech deals in 2023 with a total value of more than US$13.5 billion, demonstrating significant investment activity in the sector. Last year witnessed notable acquisitions across various markets, with larger financial services corporations and RegTech vendors acquiring smaller players to strengthen their market position through consolidation.

Key transactions, such as the acquisition of Adenza by Nasdaq for US$10.5 billion in 2023 and Finellix by Stellex Capital for US$176 million in 2022, underline the strategic importance of RegTech solutions for both financial and technology companies.

These developments reflect a broad strategic move to address the escalating compliance costs faced by banks and brokerages in the wake of regulatory reforms such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (simply known as the Dodd-Frank Act). The Dodd-Frank Act, introduced in the USA in 2010 following the 2007–2008 financial crisis, has had a profound impact on the global financial sector. The Act has prompted financial institutions globally to significantly improve their regulatory reporting systems and processes, leading to more extensive adoption of technology solutions. Dodd-Frank and other stringent regulatory measures have significantly increased compliance costs for financial institutions and companies operating in various sectors.

Larger financial services firms and RegTech companies are consolidating to integrate complementary financial solutions and expand their operations. In one such development, US-based automated RegTech player CUBE acquired UK-based counterpart The Hub Technology in 2023 to further boost their automated regulatory intelligence (ARI) abilities to reduce compliance risk and cost.

Consolidation within the RegTech sector aims to empower larger entities to effectively tackle challenges related to anti-financial crime measures, cross-selling opportunities, and regulatory compliance services, primarily among banking and brokerage clients. This strategy aims to diversify revenue streams, broaden market reach, and increase the serviceable market.

Simultaneously, M&A offers small and mid-size RegTech companies a strategic avenue to enhance capabilities, achieve accelerated growth, better competitive market positioning, and maximize value. While acquisitions often lead to integration within the larger corporate structure, there is still room for acquired smaller RegTech companies to maintain a level of independence.

In 2023, Corlytics acquired the UK-based RegTech firm Clausematch to integrate its capabilities into a comprehensive platform for managing the regulatory risk value chain for tier-1 clients. Despite the acquisition, Clausematch maintains its independence and is a strategic partner to Corlytics. It continues to serve existing clients while also extending its services to Corlytics tier-1 clients, including 14 of the top 50 global banks. This autonomy can be instrumental in fostering partnerships that are essential for scaling up and achieving sustainable growth in the ever-changing fintech regulatory ecosystem that demands agility and continuous innovation.

The appeal of RegTech’s one-stop-shop model

The concept of a one-stop shop model in the RegTech industry, facilitated by consolidation, appeals to businesses seeking streamlined and comprehensive compliance solutions. In the evolving financial market landscape, clients are increasingly preferring to consolidate their RegTech solutions under a single provider rather than engaging with multiple vendors. This demand stems from the desire for streamlined processes, reduced administrative burden, cost savings, and seamless integration of services.

RegTech companies can meet this demand and improve the overall customer experience by offering comprehensive end-to-end solutions and value-added services. In 2023, Muinmos, a Denmark-based RegTech company, saw substantial revenue growth as more clients flocked to the firm. This surge was attributed to Muinmos’ comprehensive platform, which manages the entire onboarding process, spanning from KYC/AML procedures to risk assessments and regulatory classification.

Through strategic acquisitions of smaller RegTech firms with specialized solutions, RegTech solution providers can further enhance their offerings, capitalizing on the trend for integrated solutions and establishing a competitive edge in the market.

Partnerships with smaller firms provide larger companies in the RegTech sector with advantages such as accelerated time-to-market and the opportunity to serve as a testing ground, paving the way for potential future acquisitions.

RegTech startups joining forces

Many RegTech startups are partnering to provide a broader range of regulatory solutions to their clients by enhancing their platforms and adding compatible services from other partners. This forms a robust entity with expanded capabilities to compete with established players.

In November 2023, Flagright, a German-based startup specializing in AML compliance and fraud prevention, formed a strategic alliance with Regtank Technology, a Singapore-based RegTech services provider. This partnership underscores their joint commitment to developing an advanced transaction monitoring solution for fintech companies using AI/ML algorithms. Additionally, these partnerships are likely to help startups reach more customers across various geographies, solving risk and compliance challenges for more businesses.

The double-edged sword of consolidation

For existing and emerging RegTech companies, consolidation presents a double-edged sword. As larger players consolidate and dominate the market, there may be fewer opportunities for investment in smaller, emerging RegTech startups. Investors may perceive greater risk in backing smaller players when larger, more established firms offer similar or more comprehensive solutions. This could lead to a concentration of investment in a few key players, potentially stifling innovation and diversity in the market.

Consolidation impact on the RegTech investment landscape

With fewer startups and a more prominent role for established players, the overall number of investment opportunities in RegTech may slow down in the short term. This could lead to a shift in focus from rapid innovation to the successful integration of acquired technologies as larger players seek to leverage their expanded capabilities and market presence.

Challenges faced by small firms and emerging startups

Consolidation within the RegTech sector could heighten entry barriers for new and smaller firms. Small companies are likely to face resource constraints compared to their larger counterparts. They may struggle to match the scale of investment, R&D capabilities, and market reach of consolidated firms, potentially limiting their ability to innovate and expand their market reach.

Opportunity for small vendors due to consolidation

Consolidation could create gaps in the market for specialized RegTech solutions catering to unaddressed regulatory needs within the RegTech industry. Consolidation efforts in the RegTech sector mainly target large tier-1 clients, including large banks and other financial institutions. However, there are potential gaps and opportunities in smaller businesses across non-financial verticals that require tailored regulatory solutions. This would likely prompt smaller companies to carve out niche areas of specialization within the evolving RegTech landscape.

Specializing in particular regulatory domains, industries, or technological niches allows smaller firms to distinguish themselves as providers of specialized solutions. This makes them appealing targets for acquisition or partnerships by larger players, driven by the ongoing consolidation trends in the RegTech sector.

EOS Perspective

Traditionally, many RegTech companies evolved as single-point solutions for specific regulations. The market is witnessing a shift away from multi-point solutions that address specific issues and moving towards modular solutions that offer flexibility and can be reconfigured to address diverse problems and industry verticals. This shift is likely to drive further consolidation as regulated entities seek mature, cost-effective solutions tailored to their needs.

Conventionally, RegTech solutions have primarily targeted large enterprises with significant budgets. However, we are witnessing a notable shift, as small RegTech companies are now offering affordable compliance solutions tailored to small and medium-sized enterprises (SMEs) as well. This shift is driven by the recognition of unique regulatory challenges faced by different sectors, such as healthcare, insurance, and energy. This recognition prompts small RegTech players to tap into opportunities arising from the growing demand for industry-specific RegTech solutions. This trend reflects a broader movement within the RegTech industry towards democratizing access to compliance tools and addressing the specific needs of diverse business sectors.

With venture funding slowing down due to the economic downturn, a rise in M&A activities is anticipated in the coming years. Due to the time-consuming nature of decision-making around procuring RegTech solutions by regulated entities, major RegTech players are expected to focus on developing and offering sticky RegTech solutions to ensure stable and recurring revenue growth. Consequently, this trend is likely to drive further consolidation within the large RegTech sector, as evidenced by Corolytics’ acquisition of ING SparQ RegTech and Clausematch in 2023, followed by a substantial investment from Verdane, an investment firm, in April 2024. This investment is poised to accelerate Corlytics’ M&A activity, signaling a shift towards the emergence of technology partners that provide unified platforms by integrating solutions from multiple firms through consolidation.

13/06/2024by EOS Intelligence EOS Intelligence No Comments

The Rise and Fall of Cue Health: Market Lessons and Implications

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Cue Health, the portable COVID-19 test maker, reached its zenith during the pandemic’s peak, securing investments and contracts from both government and private sectors. The company was lauded for its user-friendly, rapid-response COVID-testing kits. At its peak, Cue Health’s products were seen as game-changers, with the potential to revamp the healthcare sector by providing accurate at-home diagnostic results within minutes. However, sales of these testing kits plummeted before Cue Health could diversify and establish other revenue streams, leading to a series of layoffs and, ultimately, the shutdown of its operations.

As the public focus shifted away from the pandemic, so did the demand for testing. For Cue Health, the COVID-19 test was essentially their sole product, and this decline in demand marked the onset of turbulent times.

In the past few years, Cue Health struggled to maintain its market position and technological edge, focusing on restructuring and streamlining its operations. The company engaged in talks with potential investors and stakeholders, which did not materialize. It also implemented several cost-cutting measures to remain afloat amid financial turbulence, but these were insufficient to counter the broader economic challenges that Cue Health faced. Its share prices declined steadily, and several rounds of layoffs followed.

The final blow came when the FDA issued a warning letter and a safety alert on May 10, 2024, asking users and healthcare providers to discard Cue Health’s product. The FDA discovered unauthorized changes made to Cue Health’s COVID-19 testing kits. This ultimately led to Cue Health’s winding down operations and filing for bankruptcy in May 2024 after laying off all its employees.

Cue Health’s business failures: A look at three critical oversights

Absence of recurring revenue streams: The company’s COVID-19 testing device was a one-time purchase, and it did not need any consumables or refills. This prevented the development of a recurring revenue model, such as subscription-based services or ongoing product sales, which is essential for financial stability and sustained revenue stream. Dependence on the one-time test kit sales implied that once its demand subsided, there was no consistent income to support operations.

Top-heavy business model: Cue Health employed many individuals in leadership positions, a common mistake that start-ups tend to make. This resulted in high salary costs, even amidst financial turbulence, eventually leading to several layoffs.

Moreover, the company struggled with financial management and strategic planning. Efforts to engage with investors and stakeholders did not yield results, further compounding the company’s financial crisis.

Narrow focus: Cue Health’s business model heavily depended on a single product, the COVID-19 testing kit, which nearly constituted its complete product portfolio. This singular focus left the company vulnerable to the declining demand for COVID-19 testing kits, and it was not able to pivot quickly to diversify product offerings. Moreover, the company was also unprepared for post-pandemic market realities, which led to its decline.

Cue Health’s wind down: Repercussions for diagnostics sector and investors

Regulatory and compliance implications: Cue Health’s regulatory challenges highlight the critical need for compliance and transparency in product modifications. Consequently, other companies in the diagnostics and medical devices sector may now encounter heightened regulatory scrutiny by the FDA. To stay afloat and avoid similar pitfalls, these companies must invest more in compliance, ensuring all products meet regulatory and quality standards. This could result in better overall product quality and safety across the industry, although at a higher cost to the device makers.

Industry lesson: Cue Health’s trajectory – from swift growth to sudden downfall – serves as a case study for industry players to understand the risks associated with over-reliance on a single product and the importance of portfolio diversification. Companies operating in the diagnostics sector should leverage the company’s experience to reevaluate business strategies and enhance risk management practices.

Investor sentiment: Cue Health’s downfall, despite the substantial funding and a successful IPO, could lead to more cautious investor behavior and diminished confidence in healthcare start-ups, particularly those with a singular product focus. For future investments, investors may demand more scrutiny and rigorous due diligence. Consequently, companies may be pressured to build diversified product portfolios and more sustainable business models to mitigate risks associated with market fluctuations and regulatory challenges.

EOS Perspective

Cue Health’s shutdown highlights the volatility and unpredictability of the MedTech sector, underlining the importance of regulatory compliance, portfolio diversification, and market adaptability. While innovation and growth are imperative for staying competitive in the diagnostics sector, striking a balance with robust financial planning and risk management practices is equally important.

For other diagnostics companies, Cue Health’s downfall serves as a cautionary tale, emphasizing the importance of building sustainable business models that can withstand market fluctuations and external pressure. For investors and stakeholders, it accentuates the requirement of stringent due diligence and risk assessment for high-stakes investments in emerging health technologies.

Despite Cue Health’s closure, its journey is important. The company leaves behind a legacy of innovations, diagnostic tools, and resourceful healthcare delivery models. Other diagnostics companies can build on Cue Health’s technological foundation, learning from its experiences to navigate the complex healthcare technology landscape.

06/06/2024by EOS Intelligence EOS Intelligence No Comments

Denmark – A Trailblazer in Digital Health Innovation

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The COVID-19 pandemic has spurred the need to embrace new digital tools and technologies within the healthcare sector. There has been a significant increase in the use of technology to provide care, resulting in improved health outcomes. In Europe, Denmark has made significant progress and is at the forefront of the digital health transformation with a 99% digitalization rate. Over the last few years, Denmark has strived to digitalize further its healthcare infrastructure, testing and leveraging technologies such as AI and robotics to implement them at full scale across the country. In this transformation, the Danish digital health system can be a source of valuable lessons, uncovering various opportunities it presents for health tech companies.

Demark’s digital health: Harnessing power from a robust public infrastructure

Denmark’s healthcare system is among the most expensive worldwide, with 10% of GDP allotted for healthcare expenditures and 90% publicly funded through taxes. The health infrastructure is highly digitalized, with almost 99% of healthcare communication done electronically.

The national e-health portal, Sundhed.dk, launched in 2003, plays a key role in Denmark’s digitalization, offering a comprehensive platform catering to both healthcare professionals and citizens alike. Sundhed.dk provides safe and secure access to an individual’s personal health records (from hospitals), medication information, vaccinations, laboratory results, appointments, and referrals. The portal is user-friendly and is regarded as one of the superior models for public healthcare information exchange worldwide.

Over the last 20 years, the Danish government has supported and invested in various digital health initiatives, rolled out several IT services, and strengthened its digital healthcare infrastructure. In 2007, the country introduced E-record, through which individuals can access their medical information from EHR systems using the Sundhed.dk portal. The government also launched Shared Medication Record, which has records of patients’ prescriptions, details of the doctor who prescribed the medicines, and information pertaining to where the medications were picked from. During the COVID-19 pandemic, the “My Doctor” app was introduced to facilitate video consultations between GPs and patients. These digital initiatives contribute to improved care coordination and increase the patient’s trust in the system.

Denmark – A Trailblazer in Digital Health Innovation by EOS Intelligence

Unraveling the blueprint: Denmark’s digital health success story

Well-formulated digital health strategies address the needs of patients and healthcare workers

Many countries develop digital health strategies, which are frequently focused solely on technical aspects, steering away from addressing the actual needs of patients and healthcare professionals. Moreover, these policies often function as plain vision documents with no clear description of action plans or the roles and responsibilities of various stakeholders.

In contrast, Denmark’s digital health strategy is well-formulated and primarily focused on addressing the needs of patients and healthcare workers. It provides a clear vision of how digital technology can help meet their needs. In addition, the strategies highlight the importance of cross-sectoral collaboration, detailing focus areas and specific initiatives that must be jointly executed. For instance, it clearly mentions how the health and education sectors should work together to promote digital health literacy.

Denmark’s well-crafted digital health policies are a cornerstone of its successful digital health transformation. Since 1999, the country has been updating these strategies every four years, ensuring ongoing review and modernization of its digital health infrastructure.

Governance models aid in the speedy integration and implementation of digital healthcare tools

Denmark follows a regional governance model instead of the top-down approach, controlled by the state (national) government. The states and municipalities are responsible for developing and implementing their own health IT solutions in alignment with the national strategy.

Further, the government has established several steering groups to aid in implementing and disseminating digital health initiatives for rapid digital uptake. For instance, Connected Digital Health in Denmark, a cross-governmental organization, manages, coordinates, and ensures the implementation of various action plans mentioned in the national digital health strategies.

In addition, the government also regularly engages in public-private partnerships to boost its digital capabilities. The country’s strong governance is considered one of the critical success factors for the digital health transition.

Common IT standards help in effective healthcare data exchange

Many countries have deployed digital health technologies; however, integration remains sparse, resulting in a fragmented digital landscape. Integrating patient information siloed across multiple healthcare segments is crucial for establishing a high-quality digital health infrastructure. The adoption of common IT standards helps facilitate this data exchange and integration.

Denmark has been using these standards since 1990 for electronic health data communication as well as improving workflows between public hospitals, general practitioners, private healthcare entities, specialists, laboratories, and home care services. The early development of these standards significantly increased electronic communication within the healthcare sector, contributing to the high level of digitalization of the Danish healthcare sector.

Strict testing protocols ensure digital health tools are user-friendly

The user-friendliness of digital technologies is considered one of the major factors for early e-health adoption. Denmark undertakes several initiatives to ensure that digital health tools and technologies are user-friendly and easy to use. For instance, the country collects feedback from healthcare stakeholders about their experience with various digital health solutions, checks if they are user-friendly, and uses the input received to develop new solutions.

The country has also implemented strict testing protocols for telehealth solutions by evaluating their performance on mobile devices and testing the products with a range of end users, including the elderly and people with disabilities.

Government’s focus on educating and training healthcare stakeholders helps them to use digital tools effectively

Denmark educates and trains healthcare workers to use digital tools appropriately. According to a 2020 Deloitte report, nearly 76.8 % of Danish clinicians mentioned that they are well-trained and supported in using digital health tools and solutions.

Local governments and hospitals in Denmark collaborate with tech professionals to provide support, education, and training on using digital solutions such as EMRs, telemedicine platforms, and shared IT standards for healthcare data exchange. Digital health literacy of front-line healthcare workers is one of the core objectives of the country’s digital health strategy.

Unlocking opportunities: Denmark’s digital health sector for health tech companies

According to Statistics Denmark, the percentage of the Danish population aged 75 or above is expected to double from 7.8% in 2017 to 14.4% in 2047. In addition, the country faces a severe labor shortage, with projections suggesting that by 2035, Denmark might have a shortage of 14,500 healthcare workers. These factors are expected to put increased pressure on the Danish healthcare system.

In order to tackle these challenges, Denmark’s government continues to invest in advanced innovative technologies and digitalization strategies. In 2018, the country launched a digital health strategy titled “A Coherent and Trustworthy Health Network for All: 2018-2024”, aiming to modernize the healthcare infrastructure further. Under this initiative, the country aims to expand telemedicine solutions, increase virtual care visits, and automate the administrative and clinical workflows within the Danish healthcare system. This initiative is creating opportunities for startups and companies offering health tech solutions in the areas of telemedicine, video consultations, remote patient monitoring, hospital automation, and diagnostics.

Danish government seeks to expand telemedicine solutions for various segments of the patient population

Denmark has been using telemedicine services since 2012, beginning with home monitoring solutions for Chronic Obstructive Pulmonary Disease (COPD) patients. The country seeks to further expand the rollout of telemedicine solutions for patients with COPD, chronic diseases, heart failure, comorbid conditions, and pregnant women facing complications. In December 2023, the government of Denmark invested about US$72 million to expand telemedicine solutions for these patients, offer digital rehabilitation courses, and increase the number of virtual consultations through GPs.

Various governmental organizations in Denmark have been looking to partner with companies providing innovative remote monitoring and virtual care solutions to facilitate home treatment.

For instance, in 2021, in collaboration with the local government, Trifork, a Denmark-based digital health company, developed a telemedicine solution called Telma for severe COPD patients. The solution provides COPD patients with medication, measuring tools, and devices to track pulse and oxygen levels at home. The Telma app transmits this data in real time and facilitates communication between healthcare professionals and patients through video consultations, thus lessening the need for frequent hospital visits.

Similarly, in 2022, two Denmark-based health tech companies, Copenhagen Center for Health Technology (CACHET) and Cortrium, forged a research collaboration to develop a novel technology to monitor a patient’s heart rhythm remotely. This allows heart failure patients to receive prompt medical care without visiting a hospital.

The Danish government is also looking to provide telerehabilitation services amidst the rising mental health issues across the country. In 2021, the government established the Centre for Digital Psychiatry to develop, test, and implement several nationwide digital services. In March 2023, the Center initiated a research project with Monsenso, a Danish mobile health company, to provide personalized digital treatment for patients with depression.

A rise in telemedicine programs catering to various segments of the patient population is expected in the forthcoming years. This surge in demand fuels the growth of companies offering telehealth solutions nationwide.

AI presents several opportunities for innovation and collaboration within the healthcare segment

Denmark actively seeks to integrate AI into its healthcare system, especially in diagnostics, presenting numerous opportunities for AI-based health companies to thrive. The country has established research and innovation centers across the country focusing on AI for uses such as identifying at-risk stroke patients, helping radiologists interpret scans, and assisting in other diagnostics.

In 2021, Denmark established the Radiology AI Test Center (RAIT) to accelerate the development and implementation of medical AI applications in the country. Through RAIT, private companies can test and validate their AI-based technologies in Denmark. For example, in 2021, through the RAIT program, several Danish hospitals in Copenhagen partnered with US-based imaging AI startup Enlitic to evaluate an AI-based algorithm to read chest X-rays. Similarly, in 2023, RAIT partnered with Cerebriu, a Denmark-based health tech company, to use AI to improve MRI imaging of the brain.

Investments in advanced digital technologies modernize healthcare infrastructure

As Denmark endeavors to digitalize its hospitals, ample opportunities arise for companies specializing in robotics and mobile health to improve hospital and clinical workflows, among other areas.

Some steps have been taken to digitalize hospitals. For instance, the Centre for Clinical Robotics (CCR), a research and innovation center for healthcare robotic technology in Denmark, aims to leverage robotic technology for various hospital processes, such as food service, cleaning, medication dispensing, clinical sample collection, etc.

Another interesting instance is the pilot project between Systematic, a Denmark-based software company, and physicians at the Aalborg University Hospital. Systematic has developed a communication platform called Columna Flow Clinical Tasking, which facilitates direct communication among the physicians at the Aalborg Hospital. The solution offers a real-time overview of the patients, including their medical conditions and the workload of hospital clinicians on duty. This empowers physicians to prioritize patients and efficiently allocate tasks during peak hospital hours.

EOS Perspective

The Danish health system is poised for an even more profound digital transformation in the coming years, aiming to improve patient accessibility and convenience. Denmark’s healthcare market is already highly digitalized, which provides a robust foundation for further digital transformation and innovation.

Home care and telemedicine, health data interoperability, AI-based diagnosis, healthcare automation, personalized medicine, and preventative health are likely the key focus areas for the next phase of digital health transformation.

Further, the country is looking to elevate patient care through its super hospital program, which involves consolidating smaller hospitals into larger, higher-capacity units. The aim is to provide superior medical care at lower costs. Technology will play a key role in improving healthcare delivery and patient outcomes in these hospitals, with applications across logistics, clinical decision support tools, diagnostic tools management, and patient engagement, among other areas.

These initiatives can be expected to make the Danish health system even more robust. The system is expected to move from a doctor-centric to a patient-centric care model, where patients would be actively involved in taking care of their own health. The country’s meticulously crafted digital health strategies, well-established digital infrastructure, and technology-proficient population lay a solid foundation to usher in the next wave of innovation.

As Denmark persists in its commitment to build a healthcare system fit for the future, there are abundant opportunities for health tech companies to thrive and drive innovation within the Danish healthcare industry.

21/03/2024by EOS Intelligence EOS Intelligence No Comments

Digital Therapeutics: The Future of Healthcare?

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Although the COVID-19 pandemic seems to be done with its rampage, many people still opt to access all kinds of services, including healthcare, from the comfort of their homes. As this trend is expected to continue, the global digital therapeutics market, with its projected growth at a 20% CAGR from 2022 to 2035, is one important sector healthcare firms should focus on right now.

Digital therapeutics (DTx) are digital health interventions or software applications that are clinically validated and designed to treat or manage medical conditions. They can be used alone or in conjunction with traditional medical treatments.

The Digital Therapeutics Alliance categorizes DTx products into three types: disease treatment, disease management, and health improvement.

Examples of DTx include a solution to manage chronic musculoskeletal pain developed by Kaia Health, a biotechnology company in New York. This motion analysis tool assesses and guides patients’ progress during physical therapy and tailors treatment to individual requirements.

Similarly, Clickotine from Click Therapeutics, a company also based in New York, uses AI to help people with nicotine addiction. This solution offers a personalized plan fully integrated with eight weeks of nicotine replacement therapy, including options such as gum, patches, or lozenges. It tracks critical aspects such as daily cigarette counts, craving triggers, craving times, etc. A trial study conducted by the company in 2016 claimed that 45% of Clickotine users were able to quit smoking.

Adoption of DTx is taking off amid increased investments

The commercial development of DTx started around 2015 and, since then, has grown into a global market of considerable size. The total value of global DTx start-ups was estimated at a whopping US$31 billion in 2022, according to a 2022 report published by Dealroom, an Amsterdam-based firm offering data and insights about start-ups and tech ecosystems, in partnership with MTIP (a Swiss-based private equity firm), Inkef (an Amsterdam-based early-stage venture investment firm), and Speedinvest (an Austrian early-stage investor).

The number of people using DTx solutions is expected to increase over the next few years, according to a 2022 report by Juniper Research, a UK-based research firm. The study found that there were 7 million DTx users in the USA in 2020, a number expected to rise to around 40 million in 2026.

This increase can be attributed to the fact that DTx solutions are highly accessible and distributable due to an increase in the use of smartphones. A 2021 report published by Pew Research Center, a US-based think tank, found that 87% of Americans owned a smartphone in 2021, compared to 35% in 2011. With this, more people will be able to access medical care without having to spend more on hospital visits.

DTx applications have also been attracting numerous investors owing to the applications’ cost-effectiveness, ease of distribution, and better accessibility. According to the same 2022 report published by Dealroom, global venture capital funding in DTx witnessed a fourfold increase in 2022 compared to 2017.

All these studies reveal that, despite certain challenges, the DTx applications hold the promise of developing into a practical and affordable means of treating illnesses and conditions that impact large numbers of people.

Regulatory pitfalls present a major roadblock to DTx adoption

One main challenge DTx companies face is the regulatory environment. All DTx products must comply with the regulations of regional agencies such as the FDA, HIPAA, HITECH, etc.

Many US firms initially faced regulatory obstacles and payer resistance around product reimbursement. Before 2017, the US FDA classified DTx solutions as a SaMD (Software as a Medical Device) and, therefore, made them subject to risk assessment (low, medium, or high). Due to this, DTx solutions needed premarket approval and rigorous clinical trial results to get approval.

This has improved with the introduction of the Digital Health Innovation Action Plan by the FDA in 2017. According to the new plan, the FDA will first consider the company producing the solution. If the producer has demonstrated quality and excellence, it can market lower-risk devices with a streamlined premarket review. Post-market surveillance and data collection are also done to evaluate product efficiency.

Similarly, in the EU, DTx is controlled by national competent authorities and governed by the European Regulation on Medical Devices 2017/745 (MDR). However, no specific framework indicates the evidence required for assessing the performance or quality of DTx solutions or their production standards. This means that the member states may interpret the dossier requirements differently, leading to a fractured regulatory environment.

The COVID-19 pandemic has provided companies with some regulatory flexibility, leading to an increase in venture capital funding. In 2020, the federal government in the USA issued a new rule allowing healthcare practitioners to treat patients across state lines, including the use of digital medicine. This can increase access to healthcare, especially in rural areas, and physicians will be able to offer timely care to their patients traveling in a different state.

The FDA has also loosened regulations during COVID-19, particularly for mental health products, with the Digital Health Innovation Action Plan. This was to ensure that patients received timely care even from their homes while reducing the burden on hospitals. It waived certain regulatory obligations, such as the need to file a 510(k) premarket notification during the COVID-19 pandemic. The 510(k) is a submission indicating that a new medical device is similar to something already approved by the FDA (a predicate device) to ensure safety and efficiency. However, finding suitable comparables can be highly challenging in the case of DTx, which is dynamically evolving. This can result in misunderstandings or overlooking of critical aspects of these solutions, leading to uncertainty and delays in the approval process. The waiver of this regulation offers DTx companies some relief in the future.

Digital Therapeutics – The Future of Healthcare by EOS Intelligence

Patient health literacy is a hurdle in the adoption of DTx solutions

A survey by the National Assessment of Adult Literacy (NAAL) in 2003 has shown that only 12% of Americans possess proficient health literacy skills, making them able to find and understand information related to their health. This lack of awareness among patients can also impede the ease of applying DTx products.

Patient experience is also crucial for the acceleration of DTx adoption. Older patients unfamiliar with using technological gadgets can find it difficult to adopt DTx solutions. However, a 2022 AMA survey has shown that 90% of people over the age of 50 in the USA recognize some benefit from digital health tools.

Similarly, a survey conducted by the Pew Research Center in 2021 indicated an increase in the use of smartphones and the internet among older people in the USA, driven by the pandemic. Older adults are using technological applications for activities such as entertainment, banking, shopping, etc., even after the pandemic, a 2021 survey by AARP Research, a US-based NPO, shows. This indicates that there is scope for an increase in adoption.

Many companies are now trying to increase patient involvement by using gamification, aiming at patient groups for whom DTx use is likely to be more challenging (e.g., older population, children). DTx developers include game-like elements or mechanics into a DTx solution, such as tasks, rewards, badges, points, and leaderboards. An example is US-based Akili Interactive’s EndeavorRx, a prescription DTx aimed at enhancing attention function in children with ADHD aged 8 to 12. It uses an interactive mobile video game to assist children in improving their attention skills and adjusting to their performance levels. The game’s sensory stimuli and motor challenges also help kids multitask and tune out distractions.

Payer reluctance affects many DTx products

Although the number of DTX products on the market increases, payers’ reluctance to cover their costs to the patient can also slow down adoption. The coverage of DTx solutions is limited, even when they are FDA-approved. Only 25% of payers are currently willing to cover prescription DTx solutions, according to a 2022 survey by MMIT, a Pennsylvania-based market data provider, which involved 16 payers.

Akili Interactive’s EndeavorRx is one such solution facing insurance coverage issues. Elevance Health (previously Anthem) denied coverage for EndeavorRx, deeming it medically unnecessary, while Aetna, another insurance provider, considers it experimental and investigational.

A study released by Health Affairs, a health policy research journal, in November 2023 has shown that only two of the twenty FDA-approved prescription DTx solutions on the market have undergone rigorous evidence-based evaluation. This means that no authoritative results indicating the benefits of these solutions for various population demographics are available, making many payers skeptical of their medical claims.

DTx offers solutions for managing multiple conditions

Over the past few years, several prominent players have emerged in the DTx landscape. Around 59% of the DTx market is concentrated in the North American region and 28% in Europe.

Top players, such as Akili Interactive and Big Health, both US-based firms, focus on offering products for managing mental health illnesses, mostly management of anxiety, depression, and stress, according to a report published in 2023 (based on data until September 2022) by Roots Analysis, an India-based pharma/biotech market research firm. With about 970 million people suffering from mental health conditions globally (according to the WHO), the potential user pool is enormous, offering growth opportunities for DTx solutions developed to address mental illnesses and, over time, driving the growth of the DTx market as a whole.

Many top companies also focus on solutions offering pain management and treatment for chronic conditions such as diabetes, obstructive pulmonary disease, and musculoskeletal disorders. An example is US-based Omada’s pain management solution, Omada MSK. This application guides patients through various customized exercises and records their movements, which are then assessed by a licensed physical therapist (PT), who can make recommendations for improvement. It also has a tool that utilizes computer vision technology to help PTs virtually assess a patient’s movement and range of motion, allowing them to make necessary changes in the therapy.

Similarly, several DTx solutions on the market now focus specifically on diabetes, which affects around 537 million adults globally. Some top companies focus on the previously unmet needs of conventional methods, such as weight management or preventing prediabetes, to help with overall diabetes treatment. US-based Omada’s solution, Omada Prediabetes, comes with a weight scale pre-connected to the app, and the weight is added to the app as soon as the patient steps on the scale. A dedicated health coach assesses the patient’s weight, creates a customized plan, and monitors the patient’s progress. In other similar DTx solutions for diabetes, an app can also give insulin dose recommendations based on the patient’s blood glucose levels.

DTx can serve in a range of other conditions, including major depressive disorder, autism spectrum disorder, and multiple sclerosis, to name a few.

The DTx landscape is rife with development

The DTx business landscape has recently seen many developments, from acquisitions to product launches. One of them was Big Health’s acquisition of Limbix, a California-based DTx firm, in July 2023 to bolster its portfolio, including SparkRx, a treatment for adolescents dealing with depression and anxiety. Similarly, in June 2023, Kaia Health launched Angela, a HIPAA-compliant, AI-powered voice-based digital care assistant, to serve as a companion and guide, enhancing the physical therapy experience for patients.

In another development, BehaVR, a DTx company headquartered in Kentucky, and Fern Health, a digital chronic pain management program, merged their companies in November 2023 to create a novel pain management DTx solution that addresses both pain and fear caused by chronic diseases. With this merger, they launched RealizedCare, an app designed to offer a comprehensive solution that collaborates with health plans, employers, and value-based providers to treat a range of behavioral and mental health conditions. This solution provides clinicians with immersive programs specifically designed for in-clinic use. It is initially focusing on chronic pain.

Bankruptcy of Pear and lessons for the industry

However, the most shocking development in the DTx market was the bankruptcy of Pear Therapeutics in 2023. The remains of this once-prominent company were purchased by four other companies for a total of US$6.05 million at an auction. Pear was a big name in the industry since its inception in 2013. It introduced numerous products such as reSET, reSET-O, and Somryst for treating substance use disorder, opioid use disorder, and chronic insomnia, respectively. It was also the first company to receive FDA approval for a mobile app aimed at treating substance use disorders.

Though the company announced layoffs of nearly 20% of its workforce in November 2022, its management expressed optimism about the company’s growth and reduced operating expenses in the third quarter. But in April 2023, the company filed for bankruptcy.

The demise of Pear has opened the eyes of industry experts to the challenges faced by DTx players. Certain issues were unique to Pear itself, such as the comparatively higher prices of its products and the focus on treating challenging conditions such as substance use disorders. However, the bankruptcy of Pear also brings attention to the obstacles that can be faced by any other DTx company. One crucial roadblock is that physicians and payers still approach these products with caution. Additionally, achieving profitability for DTx might be challenging for all types of players, particularly for small start-ups lacking substantial market influence. The bankruptcy of Pear and the challenges it faced can be used by budding DTx companies as a road map as they navigate this complex sector.

EOS Perspective

DTx is all set to revolutionize the medical industry, with a 2020 McKinsey report suggesting it could potentially alleviate the global disease burden by up to 10% by 2040. Given the impact of emerging treatments on stakeholders, pharmaceutical and healthcare companies should consider expanding their portfolio to include DTx solutions.

With telehealth companies seeing good growth in the pandemic and post-pandemic years, an increase in investment can be expected as they are uniquely placed to support prescription DTx. With the growth of the digital health industry, prominent telehealth providers may also choose to acquire DTx businesses or create their own in-house DTx solutions.

Read our related Perspective:
 COVID-19 Outbreak Boosts the Use of Telehealth Services

An increase in industry M&A activities can be expected in the next few years, with growing incidences of chronic illnesses, improved technology penetration across all age groups, and a maturing market. Big names such as Bayer, Novartis, and Sanofi are also entering into partnerships with DTx companies, indicating a bright future for the sector.

Mental health and behavioral therapy are great fields to branch out for companies starting in the DTx landscape, especially in this post-pandemic era. Demand for such services is likely to be sustained, considering the National Institute of Mental Health Disorders estimates that one in four adults in the USA suffers from a diagnosable mental illness, with many suffering from multiple conditions.

Similarly, diseases such as diabetes, cancer, heart, and respiratory ailments are on the rise. Healthcare companies can effectively address these medical areas through the use of DTx applications, providing personalized care for patients. This approach has the potential to manage not only chronic conditions such as diabetes but also terminal illnesses such as cancer.

Many DTx players will likely focus on areas with unmet needs, including pediatrics and metabolic disorders. With seven DTx-based diabetic management solutions already receiving 510(k) clearance as of December 2022, it can be expected that more products addressing the treatment gaps might flood the market.

The DTx industry is gradually maturing and has been receiving significant investments in recent years (US$8 billion in 2022). While experts view it as a profitable market, hesitation remains, particularly following the bankruptcy of Pear Therapeutics.

Nevertheless, due to the COVID-19 pandemic and subsequent lockdown measures, technology adoption among older adults has increased significantly. Hence, strategic investments in DTx by pharmaceutical and healthcare companies, taking into account market conditions, can expect to establish a stronger presence in this industry in the future.

EU Push the Maritime Operators to Boost Cybersecurity by EOS Intelligence

23/11/2023by EOS Intelligence EOS Intelligence No Comments

Commentary: EU Push the Maritime Operators to Boost Cybersecurity

Cybersecurity in the maritime sector is of critical importance as sea routes accounted for about three-fourths of the EU’s imports and exports in 2022. The new Network and Information Systems Security Directive (“NIS2 Directive”) aiming to strengthen cybersecurity is expected to enter into force from October 2024 and will impact maritime companies with more than 50 employees or an annual revenue of over €10 million. The NIS2 directive, which will replace and repeal the NIS directive, expands the scope to cover a larger number of companies in the sector as it includes both medium and large-size companies.

Companies may feel burdened by strict NIS2 requirements

To comply with the new requirements, the companies would need to make cyber risk management a focal point for every business strategy and make cybersecurity measures a part of day-to-day operations. NIS2 adoption will not only demand additional investment but also change the way the business is done.

Increase in cybersecurity investments

A total of 156 entities in the water transport sector were subject to the NIS directive in July 2016, as it focused mainly on large enterprises. Under NIS2, this number is likely to increase to 380. In particular, the number of port and terminal operators covered in NIS2 will increase significantly. A senior IT executive from Port of Rotterdam indicated that while NIS covered only a few port stakeholders (~5 companies), more than a hundred companies would need to comply with NIS2.

European Commission indicated that the companies already covered under the NIS directive would need to increase their IT security spending by 12%, while for the companies that were not covered previously but would be covered under the NIS2 framework, the IT security spending would need to be increased by up to 22%.

Frontier Economics, a consultancy firm based in Europe, estimated that the costs of implementing the NIS2 regulation in medium and large enterprises across the water transport sector would be about 0.5% of the total annual revenue across the medium and large water transport companies, which amounts to more than €225 million per year.

Enhancement of OT security

The advent of digitization has resulted in rapid convergence of operational technology (OT) with IT systems, leaving critical OT infrastructure vulnerable to cyberattacks. OT helps monitor and control mechanical processes, making them particularly important for the safe operation of ports and other aspects of the maritime sector.

ENISA, the European Union Agency for Cybersecurity, indicated that from January 2021 to October 2022, ransomware attacks on IT systems were the most prominent cyber threat facing the transport sector and warned that ransomware groups are likely to target OT systems in the near future. NIS2 imposes stringent requirements for critical infrastructure entities, including maritime companies, to beef up cybersecurity from the perspective of both IT and OT.

Traditionally, maritime companies have considered cyber security primarily in the context of IT systems, but now there is a higher focus on OT cybersecurity, and the NIS2 is going to ensure investment momentum in this space. For instance, the Maritime Cyber Priority 2023 report indicated that over three-fourths of the respondents suggested that OT cyber security is a significantly higher priority compared to two years ago.

While NIS2 adoption may seem taxing, benefits are likely to follow

Like any new regulation, the adoption of NIS2 comes with additional costs and implementation hurdles, however, the consequent benefits are likely to outweigh the challenges.

Harmonization of cybersecurity requirements

In August 2023, a senior executive from Mission Secure, an OT cyber security solutions provider, indicated that maritime operators would welcome stringent cybersecurity standards. The maritime industry operates on thin profit margins, making it difficult for companies to invest more in cybersecurity than competitors. Implementation of NIS2 would set cybersecurity standards harmonized across the EU and thus level the playing field in terms of spending on cybersecurity while reducing the risks and losses associated with cyberattacks.

Improved competitiveness

A 2020 study by ENISA suggested that the EU organizations’ cybersecurity spending is, on average, 41% lower than of their US counterparts. NIS2 is expected to drive the necessary investments in cybersecurity.

Moreover, given the international nature of the maritime industry, the adoption of the NIS2 directive will help the operators keep up with similar cybersecurity regulations around the world. For instance, Australia reformed the Critical Infrastructure Protection Act in 2022 to address the evolving cyber threat landscape. The UK, while no longer part of the EU, is in the process of revising the cybersecurity regulation for critical infrastructure operators in line with NIS2.

EOS Perspective

Upon implementation of NIS2, maritime operators will need to invest in more effective cybersecurity requirements, potentially increasing costs in the short term. Despite this, the increased investment will result in a more secure and resilient industry in the long run, and companies that are able to invest heavily in security are going to gain a competitive advantage over those that are not able to do so.

Digitization and connected technology in the maritime sector are evolving faster than its ability to regulate it. Hence, the maritime sector should view NIS2 as just another measure to elevate the cybersecurity framework. Companies need to be agile and flexible to adapt to the evolving cyber threat landscape.

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