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africa, alibaba, amazon, Consumer Banking, ecommerce, ipo, Jumia, Market Transparency

Jumia – Africa’s Alibaba and its IPO roller coaster

Feels like a long time since I posted an article on Africa. Every time I research to write about the African Fintech segment, I invariably stumble upon a story that leaves me with one emotion – hope. The youngest continent of the world is all about hope.

AFRICAEcommerce

Africa is a “mobile-first” market, where consumers access the internet from their mobile first. Sub-Saharan Africa has the highest per-capita mobile money accounts in the world. Financial Inclusion has been achieved at scale, that the number of mobile money accounts have gone past bank accounts. Most of the numbers are humble when compared to the China Juggernaut. But the opportunity to scale is immense with over 1 Billion consumers gradually moving to cities by 2050.

One African firm that has captured headlines in recent times is Jumia. In short, Jumia is said to be Africa’s Amazon and is the first African firm to list on the NYSE. They listed on NYSE on the 12th April this year, and saw their share price close 75% higher at close of business. The shares rose from $14.50 at listing to $46.99 in early May and was one of the top 10 performers of IPO’d shares of 2019. So why is an e-commerce player relevant to Fintech?

That seems to be the trend in emerging markets, as firms use e-commerce and lifestyle business models for growth, and throw in Fintech services as value add. Fintech also helps the stickiness and improves margins.

Jumia have launched their marketplace for 14 African markets. As per their SEC filing, Jumia they talk about their payments platform JumiaPay.

“We have also developed our own payment service, JumiaPay, in order to offer our consumers a safe, fast and easy payment solution, whether they shop using a desktop computer or a mobile device. JumiaPay is currently available in four markets”

For this very reason, I am not sure if they should be instead tagged “Africa’s Alibaba”. They also are catering to customers who prefer cash with on-delivery transactions. They had 81 thousand active sellers as of December 31, 2018 and over 29.5 million product listings on the marketplace.

Considering ~450 Million internet users in the continent, there is a huge market to conquer. Jumia claim they are currently the largest marketplace platform in the continent.

They have a competitor in DHL, who have launched an e-commerce platform. DHL’s logistics business has served as a catalyst of growth. They have launched in 20 African countries and are seen as formidable competition to Jumia. Alibaba are also dipping their toes into the African market, but haven’t yet taken a plunge like DHL.

The Jumia IPO day wasn’t just a big day for the firm, but should be viewed as a breakthrough for the continent’s business community, as they join main stream markets.

However, the IPO was shortly followed by a claim by Citron Research that alleged that “the firm was Fraudulent”, and their “shares were worthless”.

Jumia’s shares hit $24 in early May following these allegations. Citron research have a reputation for reports claiming such frauds in the past. Their strategy was to short the stocks and make quick bucks from the price action post the report. This has got them (Citron) into trouble in the past too.

An analyst in Citi came to Jumia’s defence with a detailed analysis of Citron’s claims. The gist of the defence was that Citron’s claims were baseless, and Jumia just had to respond to a couple of several claims with a bit more detailed disclosure.

  • Citi highlighted that it was not uncommon for firms to update their usage statistics before a key financing round
  • Citi suggested that Jumia should highlight the details of their churn, with plans to address it.
  • Several allegations of Fraud by Citron were pushed back by Citi, citing that Jumia had disclosed fraudulent employee activities in its SEC filing. Citron chose to interpret these disclosed incidents as fraud that the entire company and its management were involved in.
  • Several other points on Citron’s report on the growth of the firm were not just baseless, but contradicting to data that showed healthy growth of the firm.

We are going through a period where several emerging markets businesses are growing in stature and an IPO grabbing the headlines every week. These firms need to understand the importance of market transparency and disclosures. As financial services firms advise them with their IPO, they should also provide enough advise on the right framework for disclosure.

I am hopeful that Jumia has sailed through the initial blips post IPO, and I genuinely hope they become Africa’s Alibaba. Good times ahead for Africa.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

alibaba, Bitcoin, Blockchain, Cryptocurrencies, Blockchain, BofA, china, ibm, patents

IBM and BofA lead Blockchain patents tally – but do patents matter?

patent-cartoon

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I must credit the research behind this post to Keir Finlow Bates. Keir is an entrepreneur based out of Finland, where he runs a Blockchain research company. I recently came across his research report on the Blockchain patent market.

It was refreshing to see that the report was published on LinkedIn and free for everybody to access and benefit from. It had good coverage, understandable trends, a few obvious names at the top, and a few disappointing stats too. Keir had spent three days researching on Blockchain patent information on ‘google patents’ and compiled the statistics in his report.

Before we get into the findings of the report, I just wanted to discuss the question, “Do patents matter at all?”. I believe, the answer is “It depends”.  It depends on your willingness to defend them – if you are the patent holder.

With 97% of all patents, the costs are not justified. The inventor spends the money filing the patent, but do not reap any benefits. 50% of patents are expire as inventors do not pay the maintenance fees. So why file a patent at all?

Patents make sense if your product is extremely complex and hard to develop, and if the costs of defending the patent is affordable/justified. It also helps with perception (that you own the product IP), and posturing (that you will defend it).

However, defending a patent takes years, and costs millions of dollars. So it may not necessarily be an option for a startup with a differentiated product and shallow pockets. It may also not make sense if the invention’s life span is relatively shorter. By the time the patent battle is fought in courts, the life of the product would be over.

Patents are often very narrowly defined, and getting around them shouldn’t necessarily be hard work for a smart competitor/imitator. In a conversation with a startup CEO I met recently, she revealed that she wasn’t so fond of patenting her product. She reasoned that she had to give away a lot of information about her product during the patenting exercise, that it makes it easier for a competitor to create a close enough version of it.

In the case of Blockchain, I feel, patents are a KPI to mark industry and thought leadership than protecting IP. Apart from a handful of architectural improvisation in Blockchain, innovation has been largely incremental.

Another point to ponder is that, Blockchain is a technology that knows no boundaries. As there are several Blockchain friendly island jurisdictions, patenting within major jurisdictions like the US, Europe or China may be meaningless. However, the race for getting on top of the patent list is still on.

Patents

Source: Keir’s report

Coming back to Keir’s analysis, one key dimension I missed on it was China. It’s no news to us that China is racing ahead of the rest of the world in patenting its inventions with most emerging technologies like AI, Blockchain and Quantum Computing.

A research on patent databases Patentics and Incopat about a year ago, identified that Alibaba was leading the Blockchain tally, even ahead of IBM. Of the top 36 companies with at least 20 Blockchain patents, about 50% of them were Chinese firms including BAT.

Keir’s analysis was performed on Google patent, which supposedly includes China Patents – but the data in the report indicates otherwise. The key takeaway from the reports are that,

  • Bank of America leads the tally with 60 filed and 24 granted patents in the US.
  • IBM had over 200 filings and 16 granted patents, and continue their investments in Blockchain R&D.
  • Challenging the big names, Chainfrog really stole the thunder, with over 16 filed and 4 granted patents.
  • Apple, Google and Goldman Sachs disappointed with 0, 1 and 2 granted patents to their names respectively. However, it may be a calm before the storm for these leading brands.

One key point stands out for me. Is the system of patenting fundamentally broken? If I spent two years of my life creating a complex product, addressing a huge market, I should be able to patent it, and defend my patent. Cost shouldn’t be a barrier to defend my work.

Instead of raising the innovation bar for competitors/imitators, the patenting system has perhaps raised the cost bar for inventors to defend their IP.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

alibaba, amazon, china, Consumer Banking, digital banking, hongkong, Payments, tencent

$41 Trillion in Mobile payments – China tech target digital banking

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$41 Trillion was the size of China’s mobile payments market in 2018. It is perhaps counter-intuitive when the payments market is more than three times the size of China’s GDP ($12 Trillion). That’s because GDP is based on value creation, not on transaction volumes.

Let me explain it with a crude example. A couple of weeks back, two of my friends and I went into a sports shop in Chislehurst, and bought a cricket bat for £240 for the summer. We knew we were going to share the costs at £80 each. I paid the shopkeeper £240, and then my friends paid me £80 each.

While the value created/exchanged in this case was for £240, payments happened for £240+£80+£80 = £400. GDP is calculated based on the £240, and payment volumes would account for £400.

In the initial days of my discussions about China Fintech, I would often praise China’s Fintech businesses as perhaps the largest in the world. China is doing Trillions in mobile payments, and the US is still groping its way towards $200 Billion. Purely from a size perspective China is light years ahead, but the business models there are different.

Fintech is used as a business model by lifestyle firms in China and broadly Asia. Fintech is not their core value proposition, at least it is not until they onboard a few million customers. Their core lifestyle business is then augmented by Fintech services for their customers, and that makes their life style business stickier.

I have touched upon this in detail in one of my previous posts on how lifestyle businesses have evolved into Fintech heavy hitters in Asia. And payments is the lowest common factor between ecommerce/lifestyle businesses and financial services. Therefor, firms like Alibaba, Tencent, Grab and Bykea have integrated payments to their core service offering.

However, the Chinese tech giants have identified that it was time to upgrade from payments into banking. Earlier this month Alibaba, Tencent, ZhongAn and Xioami were granted a virtual banking license in Hong Kong.

Alibaba applied for a banking license for its Ant SME services, which is a subsidiary of Ant Financial. Tencent and Xiaomi did a Joint venture to go for the banking license. Xiaomi is the fourth largest mobile phone manufacturer in the world with over 120 Million smart phones in 2018.

When Amazon began offering lending to its SME base, there were headlines that they would soon go for their banking license. However, the trend these days is that the East would lead and the West and the rest would follow. Now that China tech giants have upped the ante with a banking license, would the US peers respond? Watch this space.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

alibaba, apple, apple card, Consumer Banking, credit card, Payments, techfin

The battle of Fintech is over, the battle of TechFin is about to begin

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Jack Ma famously called Alibaba and their tech giant peer group – TechFins, declaring their intention to sneak into financial services. Banks were too focused on their battle with Fintechs then, that they perhaps were blindsided by the rise of TechFins. The first quarter of 2019 has been eventful, with major headlines from big tech firms like Facebook, Apple and Alipay.

Over the past few years, since the Fintech boom has been afoot, talks of Fintechs vs Banks have been rife. But only when China saw leap frog moments in its payments landscape, via, Alipay and WeChat, did the industry (both banks and Fintechs) pay any attention to the big tech giants. I have always said that the Tech giants had two big advantages.

They have what the banks don’t have – agility in innovation, and they have what the Fintechs don’t have – Massive Customer base (and their data).

The challenge in exploding into Financial Services for the tech giants was that, it was non-core to them. However, the evolution of Fintech use cases, and the seamless integration of these applications into consumer’s routine, have made them almost invisible. So, all the tech giants had to do was pick use cases where they could be mostly invisible – payments was a low hanging fruit.

Two weeks ago Barclays and Alipay announced their partnership. Alipay will now be available with several merchants across the UK, and allow for seamless payment experience for half a million Chinese residents, tourists and students in the UK.

“Barclaycard, which processes nearly half of the UK’s credit and debit card transactions, today announced a new agreement with Alipay, the world’s leading payment and lifestyle platform, which will allow retailers to accept Alipay transactions in stores across the UK “

The partnership is for UK retailers to accept Alipay payments without replacing their existing point-of-sale system. Alipay users on the other hand will enjoy the benefits of the seamless journey that they have at home.

The other key event of the last couple of weeks has been THE APPLE CARD. If you haven’t yet heard, good for you and I suggest you google at your peril. But atleast for me, the social media reaction was a bit too overwhelming. My take on the announcement –

THE GOOD

  • Secure card numbers – many of us have faced credit card frauds, but most of us wouldn’t have thought of getting rid of the card details from the face of the card.
  • No fees – Really? Is there a catch? I still can’t believe that. Especially on international transactions.
  • User experience in staying on top of expenses, card balance, interest etc.,
  • Data privacy – Apple have declared that they would stay away from customer data

THE BAD

  • Cashback of 2% is underwhelming. Many providers, including Amazon offer better benefits.

THE UGLY

  • Plastic cards? Let’s all go back to the cave. For how long are we going to hang on to plastic credit cards? That was perhaps the most disappointing thing about the launch for me. And the worst part is, the card only supports chip and pin and won’t support contactless.
  • No Android compatibility – of course, they have always been a closed ecosystem.

Irrespective of the disappointing aspects of the card, I believe, Apple has rocked the boat, and banks are feeling the heat. They are cash rich, know how to create digital+physical products, have a brand following, and can disrupt payments in a bigger way, if they chose to.

With IBM entering the remittance market through World Wire, Facebook testing out Whatsapp payments, Alipay entering the UK market in a big way, and Apple’s recent announcement, the Penny should have Dropped for the banks. And the realization should hit them that Fintechs were more of a distraction, the real battle has just begun.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

alibaba, ant financial, australia, Blockchain, InsurTech, state farm

Insurtech Front Page Weekly CXO Briefing – Blockchain not dead in insurance

Blockchain insurance

The Theme last week was Incumbents on customer engagement.

The Theme this week is Blockchain not dead in insurance. Blockchain, or cryptocurrency is dead for many investors, but it is still a promising future for insurance.

For more about the Front Page Weekly CXO Briefing, please click here.

Incumbents embracing InsurTech is a common theme in our posts. This time, it’s about customer engagement.

 

Story 1: Ant’s Alipay uses blockchain to process health insurance claims in seconds

Extract, read more on Ledger Insights:

“Alipay is processing health insurance claims within seconds using a blockchain system, state-owned Securities Daily reported yesterday.

Alipay runs a free health insurance product as part of its rewards system. When users pay offline with AliPay, they earn bonus points towards the health insurance product. The plan is run with one of China’s largest life insurers Taikang Insurance. Within a month of launching in April 2017, 13 million people had signed up for the rewards program which amounts to 11% of Taikang’s online users, according to Asean Today.”

Ant Financial is the Fintech arm of Alibaba and is known for its exploration spirits. They tried to launch a mutual insurance project in October this year, but was compromised due to a rumored and undisclosed conflict of interest. One fails, keeps going with another. They certainly still have faith in blockchain.

 

Story 2: State Farm turns to blockchain for subrogation

Extract, read more on Digital Insurance:

“State Farm is working on a blockchain application to assist in subrogation, leveraging open-source software and in partnership with at least one other insurer.

The company’s goal is to establish whether blockchain technology can make subrogation more efficient, in particular by preventing repetitive transfers of funds back and forth between insurers.”

Subrogation is a relatively new field for applications of InsurTech and State Farm is getting a first-mover advantage.

 

Story 3: Australia: National Transport Insurance Partners on Blockchain for Food Safety Trial

Extract, read more on Cointelegraph:

“Australia’s National Transport Insurance (NTI) has announced it will trial a blockchain system to improve supply chain integrity for beef exports abroad. The trial was reported by local transport industry magazine Fully Loaded ATN on Dec. 10.

NTI will reportedly be partnering with BeefLedger, an Australian “integrated provenance, blockchain security and payments platform,” which combines blockchain with Internet of Things (IoT) technology to bolster product credentials across the supply chain.”

Both NTI and BeefLedger are not well known in the InsurTech community. And the alleged application is not insurance-centered. However, it’s a trial involving trans-border business, origin tracing and liability monitoring. It can be enlightening for insurance, if it pans out.

2018 is a very bad year for blockchain enthusiasts, but on the bright side, we might have entered post-bubble era just like the early 2000s. With less hype, expectation and more commitment, blockchain can still find its appropriate values.

Image Source

Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.

Check out our advisory services(how we pay for this free original research).

To schedule an hour of Zarc’s time for CHF380 please click here to send an email.

alibaba, amazon, china, Consumer Banking, ecommerce, Payments, techfin

Amazon vs Alibaba – the clash of the mighty techfins in numbers

We may have to soon rename ourselves as Daily Techfin. We have been focusing on the breaking of banks and their resistance to the Fintech avalanche, while Techfins have been slowly but surely capturing the FS world. Lots of numbers coming your way – so be warned.

eCommerce-Success-750x381

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Money 2020 opened up in China, Hangzhou – the home of Ant Financial – for the first time this year. China is really were Fintech is happening at scale, and just by sheer numbers, the West look dwarfed. This is largely driven by the growth of Alibaba and Tencent.

Alibaba did $31 Billion in sales on Single’s day, and Amazon had its best sales in history through the 2018 thanksgiving period with 180 Million transactions.

Amazon haven’t announced exact sales revenues, but using Statista’s average online transaction size in 2017 of $81, their total sales could have been $15 Billion.

That just shows the scale of China vs rest of the world. Also, the total ecommerce sales number on Cyber Monday in the US was $7.9 Billion, that is just about 25% of what Alibaba achieved.

While the US Ecommerce market is set to reach $630 Billion by 2020, China’s is projected to be around $1.7 Trillion. Its fascinating to see how these two giants compare against each other in the ecommerce space. But, by Alibaba (Ant’s) own admission ecommerce and payments are just a foot in the door.

Some of the metrics discussed at Money2020 in China this year for different financial services that Ant offered were the following:

“1+N” – Onboard the customer with 1 QR-code – as payment technology. Cross sell marketing, training, cash management, loans, insurance etc.

“310” –  These are their KPIs for SME loans: 3 minutes for processing application, 1 second for monies in the bank, 0 manual work.

“212” –  Their KPIs for Insurance claims – 2 minutes for processing application, 1 second for review, 2 hours for insurance settlement to the account.

Stats Source here

This is only managed by cutting edge technology used with alternate data on consumers, to model their behaviour and assess risks in real time. I had already written about how Amazon helped an SME I knew, with a loan decision on the same day. Ant are just doing it better.

Now who is winning the battle? Amazon definitely have the global advantage. As of 2017 they had 2 Billion visitors per month, whereas Alibaba was at about 900 Million visitors per month. But that doesn’t necessarily translate into Financial Services that are provided by these firms.

In 2017 the number of Alipay users were 400 Million compared to Amazons 33 Million users, and as of September 2018, there were 520 Million Alipay users. Comparing transaction sizes is almost meaningless, as Alipay is light years ahead.

And all this with just 55% internet penetration in China (vs 78% in the US), with Alipay conquering 54% of China’s mobile payments. If payment services that the largest Techfin in the West does, is about 10% of that of the largest Techfin (of the East), it should give a perspective of what it means to other ancillary Financial Services such as lending, insurance etc., And if that is the comparison between the US and China, UK and European Fintechs perhaps won’t even come close.

I must confess that, I started this article wanting to just talk about Alibaba, China and Money2020. But when I started to look at the startling number differences between Amazon and Alibaba, I had to make it more of a comparison (although there is not much of a comparison).

An American friend of mine who recently visited China, mentioned that going to China felt like visiting the future. With the numbers that I have managed to dig out, China does feel like Wonderland when it comes to Fintech, thanks to its TechFins.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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