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Bitcoin & Blockchain, Blockchain, Consumer Banking, DX Exchange, security token, wall street

DX Exchange Security token model could democratise Wall street

2019 is the year of the Security tokens. We have had several ebbs and flows in the Blockchain industry over the last few years. Events of the past 18 months especially have shaken the industry into some serious introspection.

Revelations around the lack of controls and regulations around capital raising models have brought the industry into serious disrepute – in such a fashion that the merits of the Blockchain framework have been challenged. Being a passionate student and a commentator of the industry, I still believe, the model is intact, its the controls around it that have failed to stop human greed from causing havoc.

On the brighter side though, security tokens were seen as the bail out for the industry in many ways. Towards the end of 2018, there were a lot of talks that the model has merits, and as soon as the year opened, we have had the news of DX Exchange platform launch.

The DX Exchange platform allows bluechip stocks traded in NASDAQ on Blockchain using security tokens – this would cut out the middlemen, and when rolled out across markets, would save Billions. The disintermediation that the model brings to the table, will also put several business models dependent on Wall street at risk.

Why is this a better model than an ICO? Is this just another hype? Is this a perfect model that will create the new inclusive Capital markets?

I believe, ICO was the wrong start to the right journey. Being an early stage Venture Capital investor, I understand that valuing a startup is more of an art than science. There are very few data points. So when a business that has no way to value itself goes on Blockchain, the intrinsic value behind the tokens will be challenged by the traditional financial services industry.

Blockchain purists will argue that the new capital markets driven by Blockchain wouldn’t need traditional financial services principles AS-IS. However, what we are trying to do with Blockchain is a massive change in the way we exchange value, and that can only happen by collaborating with the incumbents.

If value has to move from traditional markets to the Neo Market, it can’t happen without key stakeholders in the traditional markets understanding the value of the Neo Market and embracing it. Security tokens can make that happen.

DX stressed that its digital stocks are classed as derivatives — with the underlying asset being equity of 10 Nasdaq-listed firms — and that its platform is regulated under the European Union’s Mifid II directive

CNBC News

With Security tokens, the problem of intrinsic value is resolved. When you have a token that’s valued based on an underlying stock – most people who understand derivatives will get it. Of course, the tokenisation process, the exchange, its participants, operational details of managing transactions will have to be regulated and audited regularly to ensure that the security token industry gains credibility.

In doing so, we would have created a disintermediated Neo market on the Blockchain, but still largely within a traditional financial ecosystem. That is the first step, and I believe the right step for Blockchain in Finance.

Will there be scams? There will be – for sure. But I believe the worst of these scams are behind us, and with controlled progress, the Blockchain industry should see the adoption that it was meant to.

I am really hopeful that there will be a day when Mangoes from my farm in India and Buckingham palace will both go on Blockchain, and I will be able to trade some equity in the palace with Mangoes.

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

Challenger Banks, Consumer Banking, crowdcube, Crowdfunding, monzo, neobanks, unicorn

Monzo – London’s latest Unicorn sets sight on Global expansion

It doesn’t get bigger than Monzo and its CEO Tom Blomfield for London/UK Fintech. After grabbing headlines over the past 12 months, the end of 2018, saw Monzo achieve the status of a Fintech Unicorn.

Monzo went on Crowdcube (UK’s largest crowdfunding platform) for the funding round in 2018, when the raise of £10 Million closed in under 10 Minutes. As crazy as it sounds, and despite being sceptical about the valuation, part of me still likes to think that it was a well deserved milestone for Monzo.

The end of 2018 brought more luck to Monzo, especially to Tom Blomfield. He was awarded the prestigious OBE for his services to improving competition and driving inclusion in Financial Services. I don’t entirely agree with the financial inclusion angle, but hey, the leadership he has shown at Monzo makes him the poster child of Fintech in the UK.

“An OBE is a Queen’s honour given to an individual for a major local role in any activity such as business, charity or the public sector. OBE stands for Officer of the Most Excellent Order of the British Empire”

Monzo was founded in 2015 initially offering prepaid cards and moved on to a current account when they got a banking license in 2018. The Banking license meant that upto £85,000 of depositors money is insured by the UK’s Financial Services Compensation Scheme.

They saw tremendous growth in 2018, when they acquired ~1 Million users, but only 20% of them used Monzo as their Salaried account. The strategic direction that Monzo wants to take (to make money) would be in saving money for its customers (charge commissions), and creating financial dashboards for customers.

As they set sight on accelerating their growth at the back of their funding round in 2018, Tech Cruch recently reported that, they may be going for the US market next. Gone are the days when UK firms took a conservative approach of capturing Europe before going after the US market – which is generally considered a higher risk proposition, atleast by investors.

They have also ensured that corporate governance is taken care of as growth continues. On that note, they have managed to get Gary Hoffman as chairman. Gary is the former Barclays vice-chairman who steered Northern Rock through its emergency bailout during the financial crisis.

Amongst Neobanks in the UK, Revolut have certainly got the throne for the time being. But Monzo are in striking distance. So its onwards and upwards for Monzo and Tom. Well done and Happy New Year!!

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

Consumer Banking, Small Business Banking

Australia’s neobank Volt goes live and competitor Xinja lands restricted licence

As 2018 rolled to a close, news hit the wire that the second neobank in Australia, Xinja had been awarded a restricted banking licence from the local regulator. Earlier in 2018 Volt had claimed line honours for restricted licence number one.

Both banks are two of the more high profile players in what is swiftly becoming a crowded space. Banking Tech’s ‘who’s who’ of Australian neobanking counts a total of 11 in the space, including Volt and Xinja. Heavy going for a country of only 24.6 million people.

Most banks, Xinja and Volt included, are going after mortgages as part of their go to market strategy. To date only Tyro and Judo are attacking the SME space. And while mortgages is certainly fertile ground, as banks tighten up on lending, neobanks aren’t the only ones to notice this and want in on the action.

This week a report in the Australian Financial Review suggested Australia’s non-bank home lending sector was making very good housing hay under a scorching Australian sun. Thanks to bank pull back and a heady appetite for risk, the shadow lending sector is said to be ‘growing market share among owner-occupiers at four times the rate of their mainstream banking rivals.’ This will be further competition and pressure on the nations fledgling neobanks, as they come to market in 2019.

But they are forging ahead nonetheless, Volt especially. In a blink and you’ll miss it press release that hit newsrooms just before Xmas, Volt reported it had switched on its Temenos core banking platform. There is no question this caps off a rather successful 2018 for the Volt team.

What will 2019 bring Australia’s challenger banks? Most likely acquisition headwinds, as the rubber hits the road post the relatively easy gets – licensing and tech. While both are by no means a feat to be diminished, it figures that in today’s friendly licensing market, a solid and experienced product and compliance team would be hard pressed to fail on both of these fronts. What Volt has proven (and executed on) is that the edge here is indeed your speed.

Can customers be lured away from Australia’s tech savvy major banks, or the increasingly flexible and price competitive shadow lenders? If mortgages are your game, that is going to be the billion dollar question for Australia’s neobanks.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

AI, Consumer Banking, investments, Regtech, robo regulators, SEC

Regtech Rising – How far are we from Robo Regulators?

Since the AI boom, there have been several stories about people losing jobs. Repetitive jobs are the ones that are most suited for robots to take over. So would there be a time when we get to tell the Regulators “You are Fired”?

Regtech had a phenomenal year 2017, with global funding reaching $1.1 Billion across 81 deals. And the first half of 2018 alone saw funding go past $1.3 Billion across 36 investment deals (KPMG Research). Thanks to an avalanche of regulations that banks had to comply with from PSD2, GDPR, MiFID2.

KPMG Research

Since the 2008 financial crisis, banks have paid $321 BILLION in fines

 CB Insights

The SEC allocated $1.78 Billion to employ 4870 who were making sure Banks were compliant. Now, with the rise of AI across the regulatory value chain, the efficiencies to be had are immense with intelligent automation. 

With an ocean of regulatory text to go through, and with several regulatory alerts to monitor on a regular basis, AI would be the way forward. I remember my Barclays days when there were several vendors claiming to make regulatory reporting easier through a workflow solution.

And why AI Can Help

When I was at PwC, we started exploring solutions like IBM Watson for regulatory and legal language parsing. Regtechs were getting more and more intelligent, and with the amount of capital that was flowing into this space, they had to. Thanks to those efforts, there are several players to proactively identify and predict risks.

As more innovation happens in this space, ease of use moves on to automation, and automation to intelligent automation. We also have started to see regulation specific solutions. Many of them existed in their simplistic form before, but they now come with better technology. Open banking has had a few focused Regtech solution providers like Railsbank. Droit provides post trade reporting for OTC transactions as per MiFID 2.

The SEC’s proposed 2017 budget is $1.78 BILLION

 CB Insights

This trend can further go up the value chain, and apart from serving banks, technology could serve regulators. Regulators have to parse through tonnes of data, use pattern recognition, NLP and predictive analytics to identify breaches proactively. Regulatory sandboxes help, and with more innovative firms looking at automating regulatory activities, Robo-regulators are not far away.

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

Consumer Banking, One97, Payments, paytm, unicorns, WealthTech

One97 – From selling Astrology services over the phone to a Global Fintech Unicorn

Screen Shot 2018-12-03 at 9.26.18 AM

A glance at the infographic with the top global Fintech unicorns[1] (as of Q3), fired several thoughts. Gold and bronze position to Chinese born giants, Ant Financial and Lu. The top seven Fintech unicorns that could fit their balloons which reflect their relative size in USD, included no European born companies. The US gave birth to four out of the seven Fintechs, which still operate mostly locally – Stripe, Coinbase, Robinhood, and Sofi.

One97 with a $10bil valuation, sitting right in the middle, was the only one that I honestly didn’t recognize with a blink. Once I started looking into the entity, I realized that a visit to New Delhi is long due. India is where One97 Communications operates. It is the leading mobile internet company offering mobile content and commerce services to millions of mobile consumers. Vijay Shekhar Sharma is the founder of this Unicorn which was launched in 2000!

One97 is endorsed by international big brand name investors:

  • Alibaba Group and Ant Financial (AliPay), own 40% of One97 shares.
  • Japan’s SoftBank became a shareholder in May 2017, injecting $1.4 billion in One97 for a 14.2% stake.
  • Berkshire Hathaway invested $356 mln in One97 (3%-4%) on the 28th October 2018, which brought the valuation up to $10bln[2].

One97 Communications is the mama of the flagship Paytm, born in 2010. This is the brand name that we all recognize.

PAYTM, at a glance

Paytm is a leading payment solutions provider to e-commerce merchants using a semi-closed wallet, approved from the Reserve bank of India.

Paytm started off in 2010 as a prepaid mobile and recharge platform and added a data card, postpaid mobile and landline bill payments.

In 2014, it launched the Paytm Wallet, and the Indian Railways and Uber added it as a payment option. It continued into E-commerce with online deals and bus ticketing.

In 2015, Paytm broadened its services with use-cases like education fees, metro recharges, electricity, gas, and water bill payments. It also started powering the payment gateway for Indian Railways.

In 2016, Paytm launched movies, events and amusement parks ticketing as well as flight ticket bookings and Paytm QR. It later launched rail bookings and gift cards. Paytm in India is considered the pioneer of QR based mobile payments.

In 2017, Paytm became India’s first payment app to cross over 100 million app downloads. It launched Paytm Gold, a product that allowed users to buy as little as ₹1 of pure gold online (₹ the new Rupee sign as of 2010).

It also launched the Paytm Payments Bank and ‘Inbox’, a messaging platform with in-chat payments among other products.

In 2018, it started allowing merchants to accept Paytm, UPI and Card payments directly into their bank accounts at 0% charge.

It also launched the ‘Paytm for Business’ app, allowing merchants to track their payments and day-to-day settlements instantly.

The company also launched two new wealth management products – Paytm Gold Savings Plan and Gold Gifting to simplify long-term savings. And an Indian robo-advisor. Paytm Money with various mutual fund products.

It also stepped into gaming with a mobile games platform Gamepind.

Just a glance at the Economic Times under One97, is sufficient to realize how it continues to make the headlines:

Paytm registers 600% growth in UPI transactions in 6 months

Now, you can pay LIC premium through Paytm

One97 Mobility Fund, the ecosystem play

While One97 Communications is the proud mama of Paytm, they have launched a $100M fund that invests in early stage mobile companies  – the One97 Mobility Fund (OMF). Their portfolio currently includes:

  • Paytm
  • TheMobileGamer – Publisher of mobile social games for South East Asia reaching out to over 500M mobile users.
  • Ciqual: enables Mobile Operators to improve their data services through customer insights.
  • RainingCloud Technologies: develops AppSurfer (previously known as DroidCloud), a platform enabling Android access across multiple devices like non-android phones and PCs.
  • Dexetra: focuses on Artificial Intelligence around personalized Search and Mobility.
  • Plivo: a cloud telephony solution which helps enterprises and service providers setup, manage and run their own private or public telephony clouds.
  • IImjobs: A job portal run focused on mid-to-senior level placements.
  • CRAFTBY PRODUCTS: Engrave is an India-based design collective engaged in the pursuit of creating lifestyle products with fine craftsmanship.
  • Santa Claus Couriers: is an Indian eCommerce platform
  • MobiSwipe Technologies: allows merchants to use Android mobile phones or tablets as Point of Sale.
  • Zepo Technologies: helps small business owners to setup their online shop.

Why One97?

197 was the telephone directory number in New Delhi. Vijay Shekhar Sharma launched a call center selling Astrology services over the phone, which he named as One97. Eighteen years later, One97 Communications is the 4th Fintech unicorn on the global marketplace. An Indian mobile internet company which has earned the liking of international large investors and which acts like an ecosystem.

[1] Included in the Redefining Financial Services newsletter

[2] Source: https://www.cnbc.com/2018/08/28/reuters-america-update-3-berkshire-hathaway-takes-stake-in-indias-paytm.html

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your 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

Image Source

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.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

 

agriculture, Blockchain, Consumer Banking, crop insurance, emerging markets, farmers, financial inclusion, india, insurance

Could Blockchain help the dysfunctional crop insurance sector in India?

At the Singapore Fintech Festival last week, the Indian Prime Minister Narendra Modi, delivered an amazing key note speech with Financial Inclusion at its core. During the speech he touched upon several of his achievements, including Aadhaar. In the last 4 years, he claimed the banked population in India has gone up from 50% to almost most of the country.

Modi speech 1

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I am a big fan of Modi. He has managed to achieve some major milestones with Aadhaar and meaningful steps for a country where 70% of its population still earns from agriculture. However, in times of natural disasters, in a country dealing with 1.3 Billion people, one ambitious and dedicated leader can only do so much.

Earlier this month, my home state in India, and some of the neighbouring states were hit badly by a storm named Gaja. Gaja in the regional tongue refers to Elephant. In my state, the most hit districts were the most fertile parts, that are called the delta region (of the river Cauvery). On top of human casualties (33) and about 75,000 being relocated, the storm hurt farmers massively.

coconut trees

Image Source – Whatsapp

Many farmers in the delta region had moved from cultivating paddy to coconuts as paddy is considered water intensive. This farming tactic has heavily hurt them, as coconut trees took 10-15 years to grow, and the damage caused by the storm was to their decade of hard work – which were not insured.

I come from that part of the world, and had the privilege of going to school and University with many, whose parents were farmers. One of them sent me texts post the storm, this is the summary.

Tall coconut trees were just twisted and broken right in the middle. Wind speed seem to have been around 100 kmph. Interior delta regions don’t get exposed to this level of winds. Usually Only the coastline takes the brunt.

People weren’t prepared and seem to have been caught by surprise. The last time something similar happened in the interior areas was in early 50s. But back then this area primarily had paddy cultivation.

Years of effort in tending to them (coconut trees), watering them.. at least for us it was just additional income. For many farmers we know, the 10k or 15k INR, they get out of these coconut farms every month is their only income.

I understand, this is not a weather news channel – so back to crop insurance and Blockchain.

So what has been done by the Modi government for Crop insurance?

In January 2016, Prime Minister Narendra Modi launched a revamped crop insurance scheme, his government’s flagship scheme for farmers, the Pradhan Mantri Fasal Bima Yojana (PMFBY).

How does the insurance work?

The premium is subsidized for farmers who own less than two hectares of land. Insurance coverage is for two aspects,

  • Yield protection, which protects the farmer from a lower yield
  • Weather linked insurance that covers for disasters and other weather irregularities

The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated. In essence – a very manual process.

The insurance is mandatory for farmers who take loan for their needs. For the rest of the farmers it is not.

crop insurance

Image Source

What has happened to the Crop insurance industry since then?

These were the key findings,

  • Number of farmers covered has increased by 0.42%.
  • Premiums collected from farmers has gone up by 350%
  • Claims paid out have increased marginally. But time taken to pay claims is already hurting farmers.

Points one and two clearly highlight where the monies are going – insurance providers are having the last laugh – at the cost of the farmers.

Also, If one season fails, and farmers  didn’t get their claim money in time for the next season, they don’t have funds to buy seeds for the next season. So timing of the release of claim money is critical.

There are several other issues with the current process that include lack of transparency, errors in setting yield thresholds, poor awareness amongst farmers, complex criteria and documentation.

What could we do in future?

Well, we seem to have got a silver bullet in Blockchain. I have written about how Blockchain can help crop insurance before, but will revisit some of those points again. In an Indian context, this is how I see it working.

  • Every farmer has an Aadhaar, so use the biometric identification.
  • When a farmer opens a bank account, make it compulsory to get them on an insurance
  • Explain the criteria, payment schedule and agree on thresholds and how they could change.
  • Create a simple data driven smart contract to list the criteria that would trigger a claim – without the farmer having to claim.
  • Source the required information on weather and soil dampness from satellite data
  • When there is a natural calamity, automatically trigger the claim, in near real time, using self executing contracts.
  • Last but not the least – have strict guidelines for crop insurance firms profit margins.

This would still need state/crop level data on yield thresholds, which is apparently decided by the local authorities post every season. But apart from that data point, most other information can be automated. The customer (the farmer) should have a frictionless experience.

They don’t have to understand insurance, they just need to know they are protected and taken care of when disaster strikes. Blockchain can create that trust in the process.

Once the confidence in the system comes back, number of farmers enrolling for the scheme will easily go up.

During the Singapore Fintech festival, Mr.Modi mentioned how Blockchain was a hot trend amidst VCs. If he had advisors for his financial policies, who were half as good as his PR team that wrote his speeches, the nation should soon see some relief from its dysfunctional financial services.

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

 

Consumer Banking, Payments, The Tech in FinTech

Capital One Keen on Coupons – acquires Wikibuy

Outside of airports, reward schemes and shopping discounts with credit card schemes are notoriously bad and difficult to use. Right now I could not tell you a single discount my Amex entitles me too – maybe Hertz or some obscure wine delivery company? Zero idea. But do I love a discount – heck yes!

As you probably know with online shopping, there is always that trade off when it comes to discounts – the effort you have to put in to finding those coupons online. On a day to day basis, I hardly bother, but as I’m travelling right now, and metaphorically bleeding Euros, my care factor is on the increase. So every time I book something I’m up for investing 10 – 20 minutes on the coupon code hunt. You do get lucky – I landed a 25% discount on a food tour in Rome just the other day, completely by chance – finding an active code on a food bloggers website. But friends – this is ‘needle in the proverbial online haystack’ stuff, and not exactly my idea of how to spend a night in Rome.

Why compromise your dinner plans or leave these things to chance when they could be completely systematised and algorithm-itised? Many people don’t, enlisting the help of companies like Honey. The very clever browser extension automatically finds and applies coupon codes at the checkout with a single click. It has over 10 million users. It’s also becoming a serious contender in the loyalty space, having launched a cashback program Honey Gold. Who knows what it could do next.

So it should be of interest to those in the payments/loyalty space to hear that this week Wikibuy, a 4 year old coupon code start up similar to Honey was acquired by American bank Capital One. According to Tech Startups the product will remain separate to begin with, before ‘potentially integrating with its digital offerings.’

Why would a bank do an acquisition like this? Well, if you’re a loved discount program with a cashback rewards scheme, but you’re still putting payments through someone else’s network, if you were Honey, why wouldn’t you get into issuing and earn more margin and save customers more money? Which means if that strategy plays out, and you were Capital One, automated coupon discounts is a game you can’t afford not to be in any longer.

The future is coming fast. And if it makes my next trip to Europe cheaper – I’m in.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

Bitcoin & Blockchain, Blockchain, Consumer Banking, MAS, security token, singapore, smart contracts, tokenization

The rise of Tokenized assets – the bridge between the old and the new capital markets

Most people in Blockchain whom I talk to, feel tokenizing real world assets is an amazing concept with huge potential. I have often thought that the real difference that tokenizing offered, as an economic model, is the ability to tag a number value to something abstract. Like attention, brand value, popularity, karma etc.,

security-tokens

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There have been no lack of attempts to tokenize platforms that act as market places for creating abstract value. In the last year or so, I have come across several firms that act as market places for people to help each other, give and receive points and eventually turn them to tokens.

However, as we create this new value system using Blockchain, it has to be through a logical roadmap. One has to walk before running. And, cryptos have struggled to answer the question “Whats your intrinsic value?” – there are several consensus based answers, but the traditional world typically don’t recognize that. And when the market collapses, the talk about creation of value digitally, often times look baseless.

However, as the Blockchain era turns a new page, we will need security tokens to act as the bridge between the old and the new capital markets.

I still believe value can be created digitally, and there is a market for that. We are at a point, where most of the world agree that Blockchain as a new economic paradigm is here to stay. As institutions plan their entry into this space, the economic model should stand its ground even in a quasi-traditional sense. Security tokens are exactly enabling that. They are beneficial across several dimensions, and some of them are:

  • Inclusion: Tokenizing a fund focused on Manhattan properties could allow people across the world take part in a vehicle, which would have in the past been accessible only to the ultra rich.
  • Liquidity: I can buy and flip a property wholly or partially if it is tokenized. Liquidity has always been a major concern with real estate, venture capital and private equity investments, and tokenizing would change the risk profile of these asset classes
  • Efficiency: Just the speed of execution and settlement that smart contracts offer makes it a very efficient system.

We have had several headlines over the last few months on real world assets backed tokens. Especially from emerging market countries and their central banks. I am closely following India especially. But, Singapore is perhaps the world leader when it comes to their position on tokenized assets.

Earlier this week, the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) announced that the Delivery vs Payments (DvP) app they were prototyping was working successfully. I had written about it earlier on Daily Fintech too, and was looking forward to this announcement.

“Based on the unique methodology that SGX developed to enable real-world interoperability of platforms, as well as the simultaneous exchange of digital tokens and securities, we have applied for our first-ever technology patent,”

– Tinku Gupta, Head of Technology, SGX

Through this prototype, the consortium of MAS, SGX, Deloitte and Nasdaq have tested the functionality where financial institutions can exchange and settle tokenized assets across different Blockchain platforms.

Most of these prototypes are conducted in a controlled environment with minimal risk. Thats because the technology and its viability in a global enterprise still needs to mature. But the concept of tokenising assets, and allowing access to a global consumer base would create new business models (and regulatory headaches).

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

 

africa, Consumer Banking, financial inclusion, mpesa, Payments, remittances, western union

Africa’s M-Pesa’s landmark deal with Western Union and their global ambitions

mpesa

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Africa’s poster child for financial inclusion, Safaricom’s M-Pesa, signed a landmark deal with Western Union earlier this week. The deal would give M-Pesa access to Western Union’s mighty distribution network and banks across 200 countries.

M-Pesa’s journey started in 2007 when Safaricom launched the product for its customers in Kenya. It has seen tremendous growth in some African countries, and not-so-impressive uptake from other parts of the continent. The customer base in Kenya alone is about 17 Million, and Tanzania and South Africa are markets where they have their foot print.

M-Pesa’s expansion beyond Kenya and Tanzania have not been without challenges. Their slow growth in South Africa especially was a disappointment, primarily because of the regulatory landscape, payment infrastructure inter-operability issues and customer awareness were seen as key issues.

That didn’t stop M-Pesa from going Global though. They have a presence in India, through a partnership deal with ICICI bank and also in some parts of Europe. However, they haven’t been able to replicate their African story elsewhere.

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Since the beginning of this year, M-Pesa seem to have revisited their strategy in going global. They have focused on making the most of their existing account holders in Kenya and Tanzania, and providing them financial services that go beyond borders.

“Essentially, how we will do it is look at mapping of customers we have today where we see customers transacting or making calls,”

– Paul Kavavu, Head of M-Pesa New Business Ventures

In order to do that, M-Pesa had to meet global regulatory standards around Anti-Money Laundering and Terrorism Financing. They seem to have done that well now, and are on a roll in signing partnerships with several global financial services organisations.

They had signed up partnerships with Moneygram and WorldRemit four years ago, but that deal largely focused on inward transactions to Africa. The recent deal with Western Union allows Kenyans to send money abroad from their mobile phone.

That opens up major opportunities for M-Pesa to expand globally through its partner channels. Safaricom charge a commission of Sh100 for remitting up to Sh5,000 to a Western Union agent and Sh500 for more than Sh35,000. While this is on the lower end of the pricing spectrum, it should give them the opportunity to grow.

M-Pesa signed a deal with Paypal earlier this year to exploit the market in India, where they also had tie ups with Vodafone. With global players looking at the Africa opportunity, M-Pesa should be able to script their growth story beyond African shores. In the last 6 months, M-Pesa revenues jumped 18.2% to Sh35.52 billion from Sh26.20 billion a year earlier.

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Its good to see African super stars going global, and their success beyond borders will be a case study in itself. However, I believe, the rest of Africa is more of an opportunity for M-Pesa. Their understanding of the continent, clubbed with recent improvements against regulatory standards, should give them a good chance to look at rest of Africa. There are many leap frog moments to be had in Africa, and M-Pesa is perhaps best positioned to make them happen.

 

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

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