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cons, digitization, Fintech General, innovation, insurance, InsurTech

Have the horse before the cart- problem first, then innovation solution

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TLDR Insurance is not complicated, say compared to sending a man to land on the moon, but it’s big, and its current challenges are like finding the proverbial needle in the haystack.  Innovation, digitization, virtual sales and service, and so on.  Not unlike the elephant in the fable, insurance is perceived differently by each beholder- is it tail, ear, leg, trunk, sales, or underwriting, claims, accounting, actuarial, or customers?  What is to be innovated?

The drum beat of innovation is in some part fashion, but a large part reality- insurers need to evolve with their customers.  But there’s the rub- what evolution is meaningful, useful, profitable, doable, and able to be integrated into a carrier’s strategy, tactics, and admin superstructure?

This week’s discussion- who is useful to consult when you want to do it, or how to tackle it, innovation idea-wise.

I had a very useful conversation this week with an insurance veteran, Joël Bassani, founder and consultant at jinnbee who is now looking to share his knowledge gained over years with the insurance industry.  Our discussion reminded me that there are many aspects to insurance, many lines, covers, regulations, regions, etc. that one must deal with in the globally interconnected insurance world.  And how does one determine what path to take from that which one is on to one that leverages innovation or change?

What Joël told me as a foundational message resonates well- it’s not necessarily knowing the tech to apply, but it’s knowing what problem you have and working from that to what innovation has to help you.  In his opus of an InsurTech study, Joël notes early on, “An InsurTech is a solution, you need to focus on your Problem!”

And how do you know your problem?  Simple- you ask your customers, both external and internal and you strive to #innovatefromthecustomerbackwards .

What jinnbee has compiled for the industry is a compendium of InsurTech purposes:

You have an insurance problem, jinnbee’s analysis can help find an InsurTech solution from organizations that exist, are experts in their fields, and are available.  So you don’t have to create the wheel, you simply need to know the makeup of the wheel and jinnbee will help find a fit.  Do you make the innovation in house, or connect with an InsurTech?  Jinnbee will help lead your decision matrix.

And as comprehensive a study as jinnbee has produced, there are other organizations who have blazed a trail in terms of aggregating InsurTech organizational data, firms’ purposes, an ability to play ‘matchmaker’, and in providing accessible data. The two most prominent examples are Coverager, and Insurance Thought Leadership .

Coverager

I asked Coverage founder Shefi Ben-Hutta what synopsizes Coverager’s business model, what is the ‘elevator pitch’ that would best describe her firm’s approach:

  • Focus on tech, strategy, and alternative insurance distribution
  • Create and curate coverage (news, not lines of insurance)
  • Address the needs of insurance professionals, those who need access to information regarding how to address their unique problems (sound familiar?)

If the reader has yet to access the Coverage website (or better yet, subscribe to Coverager’s daily email), rest assured you will not be disappointed by a simple blast of information.  Coverager approaches information sharing with a wry tongue in cheek, occasional snark, but always best in class, topical information.  The firm’s web splash page gives an indication of the depth of coverage and information:

Everything from an encyclopedic source of insurance company information, a searchable database of InsurTechs, hosting of industry events, and to the latest marketing scheme or the scoop on a company that has gone off path.  As Shefi recounted, their purpose is:

  • Learn from the past
  • Understand the present
  • Better bet on the future.

Insurance Though Leadership

Take Coverager’s avant-garde approach to InsurTech assistance and look to a somewhat organizational opposite, and one finds Insurance Thought Leadership (ITL).  ITL approaches InsurTech advisory services with more of a formal suit, but with no less breadth of information as Coverager.  ITL has developed through the efforts of its founder, Dave Dias  into a premier source of innovation source/need connections, and a premier host of innovation education.  And the firm is the home of the man with a knowledgeable grasp on the innovation world, Guy Fraker, AKA the man with a thousand sneakers (runners, athletic shoes).  Insurance company C-Suites are encouraged to subscribe to the matchmaking service, and the organization’s excellent editorial staff keeps the industry appraised of the latest concepts.  A look at the Innovator’s Edge page of ITL website provides the searcher an idea of what the firm can offer:

Three very good sources to search and consider, and there are other InsurTech informational resources, e.g., GR Capital’s recent summary article, Why Next Year Can Be a Turning Point for Global Insurance Innovation, and industry influencers who can make connections from personal experience, including those in this list, or this one, or even this one (companies).

 

But it still requires the asker to know what innovation problem needs to be solved, what the customers are expecting (maybe it’s no change?), and how efforts are to be focused.  Innovation is not fashion, it’s strategic application of resources and there are good resources at hand.  And in most cases it’s not part of the elephant, but consideration of the whole beast.

 

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

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 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).

 

 

The post Have the horse before the cart- problem first, then innovation solution appeared first on Daily Fintech.

Bitcoin, Blockchain, Cryptocurrencies, CBDC, CentralBanking, Consumer Banking, cross-border, CryptoValley, DID, digital identity, Fintech General, libra, money, regulation, stablecoins

Convergence or clash of non-natives & natives going Stable – #CVC19

2019_crypto_valley

The 2019 Cryptovalley Conference remains true to its nature. Three days, three stages, and overweight technical and economics content. I attended for two days and became A cool kid on the Blockchain. 

The narrative has clearly changed. Lots of evidence around us. Yesterday the BIS, the umbrella organization, announced the launch of a global innovation hub in Basel,Hong Kong, and Singapore to help Central Banks to “identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability”.

The EU is very serious about supporting Blockchain technology. Tom Lyons announced the Convergence conference this coming November sponsored by the European Commission, the EU blockchain observatory & Forum, Consensys, Alastria, and INATBA[1].

Several speakers and panelists participated at the Cryptovalley Conference from Central banks around the world. Of course, they repeatedly stated that they share personal opinions and not the CBs official position. Between the BOE, the Fed, the SNB, and the Bank of Italy, the conversations went deeper.

We were reminded that unconsciously we are going back to the 19th century when multiple entities issued money. I like to add to that observation that we are also going back to bearer instruments. Tomaso Atse, director of the UCL Center for Blockchain Technologies, pointed out that what is new in our era is programmable money and the creation of hybrid types of value (like combining digital identity with money or some other value) and the ability to exchange it).

Alexander Lipton, the EPFL visiting professor and founder of SILAmoney, poked and provoked and defended his point of view. In a nutshell, he is the godfather of the DLT version of Narrow Banking concept. This is a way for Central banks to deploy DLT technology by issuing a fiat-backed digital coin (FBDC). The idea is that the central bank will allow and work (indirectly) with a consortium of validators that manage the issuance of the FBDC. It is worthwhile reading about this concept `Narrow Banks and Fiat-backed digital coins` by Alexander Lipton, Alex Pentland, Thomas Hardjono (MIT). What jumps out of it is that right now, we are faced with Facebook intending to implement this kind of concept through the LIBRA association. While each Central bank is doing its in-house due diligence, concerned only with its local country monetary policy and reserves; there is a clear need for Central banks to get together. They should be designing a Central bank coordinated narrow bank consortium.

This is a wakeup call to nightmares of whether Central banks will be able to control reserves and rates on reserves if LIBRA scales. LIBRA`s adoption in countries with currency instability, is troublesome if it really scales. Can LIBRA create hyperinflation in Venezuela? Alexander Lipton, says yes.

The narrative has clearly changed, and we are shifting in a phase where understanding monetary economics is becoming important.

When I raised the question last week about the governance of the LIBRA association (see  here) and whether there could be collusion; I didn’t mean in the DAO technical sense (i.e. more 50% of validators collude and validate an invalid transaction). I meant collusion in terms of decisions about, for example, the management of the LIBRA reserve fund. Which currencies will be included, will the fund become a significant holder of US debt, how much government debt versus currencies, why share the interest of this cash cow by accepting new members, how to deploy the profits of the reserve?

Once the LIBRA reserve scales to $100billion (Ant Financial`s money market fund is currently $168billion down from a high of $250billion), the interest will be in the order of $1.5billion (assuming an average 1.5% interest rate). That is huge for an association with no reporting requirements.

We live in very interesting times.

Monetary policy issues need to be understood better.

Moral hazards are lurking everywhere.

Those that have been working on financial inclusion, self-sovereign identity, P2P protocols are feeling looted.

  • Why didn`t Facebook join the Decentralized Identity – DID- project (media report that they were invited and rebuffed an invitation)?
  • Why isn’t Facebook`s Calibra, the ID part of the LIBRA ecosystem, respectful of the open standards for verifiable credentials developed already by DID under the auspices of the World Wide Web Consortium (W3C)? Why do they want to design new ones?
  • Will this world domination-ish attitude, shoot them in the foot[2]?

Back to the native people, Lisa Nestor from the Stellar foundation, shared a great overview of the global P2P network that can be used by banks to work directly with each other, without the need for correspondent banks. Stellar is decentralized and open with 28 nodes currently. Their aim is to optimize cross-border payments and work with all currencies. They launched in 2014. In 2016 they had 9,000 accounts and today they have 3.2million. Their daily volume has reached $350k with a total cost of processing of $1.50! During the conference, they reported that the first Swiss node was launched.

Bitcoin Suisse announced that they are seeking a banking license and they will be expanding in Europe. Ficas, a Swiss crypto asset management group for HNW, was a platinum sponsor. They are based in Zug with presence in Turkey, Greece, Spain, and Australia.  Flovtec and Ovrium shared the award of the best Swiss Blockchain company at the SICTIC investor event during the conference. Orvium is a decentralized scientific collaboration platform for deploying blockchain and artificial intelligence technology. Flovtec is a liquidity provider for tokenized assets.

My opinion is that we will be seeing an explosion of stable coin issuance. CNNmoney Switzerland was at the Cryptovalley conference taking a pulse on  LIBRA (watch here).

The GOSCI  – Global Open Source Currency Index- is a novel independent volatility benchmark for Stablecoins. Launched by Bernard Lunn the same day the LIBRA white paper hit the market. Become part of it.

The Stablecoin.foundation was launched in October 2018 with 25 Stablecoin issuers from 16 countries. Its mission is to represent the collective interests of Stablecoin issuers to unify the industry.

Closing remarks

The narrative is now, about financial stability with privately issued coins. Several factors are forcing everyone to the table. These conversations are hard and consensus is not given.

Stable coins are creating a very collateral hungry market situation.

[1] INATBA is the new International Association for Trusted Blockchain Applications, offers developers and users of DLT a global forum to interact with regulators and policy makers and bring blockchain technology to the next stage.

[2] “That’s very world domination-ish of them,” said Kaliya Young, a co-author of “A Comprehensive Guide to Self Sovereign Identity” and co-founder of the Internet Identity Workshop. “Some of us have been working on that problem for a really long time. You already have a set of open standards for verifiable credentials that are basically done and working.” From the article `Buried in Facebook`s LIBRA paper, a Digital Identity Bombshell`

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

 I have a commercial relationship with Flovtec. I have no positions or commercial relationships with any other company or the 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).

API, Baas, cloud, Fintech General, Mambu, rebundling, Saas

Saas offerings, re-bundling and the pot of gold

pot of gold.jpg

Source

Jessica Ellerm wrote about `Something as a service`, the new fintech paradigm while looking at Raisin`s offering. This prompted a discussion with Richard Turrin and Aki Ranin around Saas models for banking. Richard is a proponent of `Buy versus build` which allows for rapid deployment. Aki is a proponent of shared infrastructure because it allows for economies of scale and expansion in additional markets.

Increased Saas model adoption and APIs, make it difficult to predict whether incumbent banks or Fintechs are becoming the plumbing of financial services. For me, we actually need to reconsider whether this should be a question at all.

Two or three years ago, the `dump pipe` debate was hot and terms like Big banks becoming Dumb Pipes or Dumb pots, were trending as discussion topics in articles, conferences and debates[1].

`The “dumb pipe” debate originated from the telecom industry and there is a lot of literature on the subject. The grandfather of the debate is David Isenberg who in 1997 published the seminal paper The Rise of the Stupid Network.` Excerpt from Andra Sonea`s post On banking “dumb pipes” and “stupid networks”

We have been using the `dumb pipe` term because it works in the attention economy which is dominated with trendy jargon. But we each map the term to a different concept.

We are actually even biased. When we look at a Fintechs with a B2B Saas offering like Mambu, then we may think that it if Mambu powers an incumbent bank to offer lending, then maybe the bank is at risk of becoming a dumb pipe. On the other hand, when we realize (if we do at all), that Mambu is powering N26, we don’t classify N26 as a bank with a high risk to become a dumb pipe.

Mambu is a great example of a Fintech specialized in a Saas core banking offering. It powers up Oak North bank, which is the No.1 UK challenger bank. It is the heart and brain of the ABN Amro`s digital banking spinoff, New10, that focuses on SME lending; and more.  Mambu does not offer the banking license (a different approach to Solaris Bank). Just by looking at these two examples – Mambu and Solaris Bank – that have unbundled financial services in different ways; we have to pose the question `Where is the value being creating?`

  • Powered by Mambu means: Go to market fast with a Saas cloud-native solution – Client has the banking license; Fintech has the tech – Who is the dumb pipe?
  • Powered by Solaris Bank means: Get into banking with a Saas cloud-native solution – Client can offer banking services without a banking license of its own – Baas – Fintech has the license and the tech – Who is the dumb pipe?

The `dumb pipe` threat was native to the digitalization phase of unbundling as the disruptive force that was going to dominate. Now we are in a re-bundling phase and fintechs are growing their stack of offerings, incumbent financial institutions are transforming their offerings, and tech companies are also stepping in. From Sofi moving from lending into wealth management and Habito powering the mortgage offering of Starling bank; to Kabbage powering Santander`s business loan offering, to Motif launching structured products for Goldman Sachs; to Goldman powering the Apple card and Solaris bank powering Alipay`s acceptance in Europe.

I hope you are convinced that we can’t spot easily dumb pipes in this kind of world. If business expansion is powered through a Saas cloud offering, then the next question to ask is whether this powers your ability to offer advice by analyzing what is processed in the pipes and whether it enhances your brand through strengthening your trusted relationship. As the re-bundling continues and the commoditization of transactional banking services also continues, the

Last man standing will be Brand and Advice[2].

If you use Saas offerings towards offering advice and enhancing your brand, then there is no reason to fear becoming a dumb pipe.

Last minute footnote – As I am finished posting this article, a Linkedin post from Richard Turrin grabbed my attention about Tencent`s investment in a UK startup, Truelayer which is tech company leveraging APIs within the PSD2 and Open banking progressive European regulatory frameworks, to give access to financial services.  TrueLayer powers neo bank Monzo.

[1] Are Banks Destined To Become The Next “Dumb Pipes”? via Tech crunch

Banks May Be Turning Into Dumb Pots Of Money via Forbes

The Big Banks Are Becoming `Dumb Pipes`; As Fintech Takes Over via CBinsights

[2] Inspired, copied and stolen from Gary V`s tips from his the recent at The Financial Brand Forum’s. See 9 Priceless Tips For Financial Marketers From Gary Vaynerchuk

 

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

 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).

bitcoin, facebook, facebook currency, Fintech General, stablecoin

The Facebook GlobalCoin stablecoin won’t kill Bitcoin but many companies should be worried.

Eras .001

TLDR. Facebook’s move into crypto enabled payments has led to hyperbolic reactions that Bitcoin will be roadkill in front of their thundering truck. This post argues that we are nearing the end of the Facebook era and that the Bitcoin honey badger is not scared of Facebook and that Facebook is moving into dangerous territory where they will be competing with other behemoths.

This update to The Blockchain Economy digital book covers:

  • What we know and don’t know about Facebook’s stablecoin
  • Bitcoin is the honey badger that is not scared of Facebook
  • Big players who will feel threatened by Facebook
  • The end of the Facebook era is coming
  • No, don’t short Facebook, yet.
  • Which companies should be most worried
  • Context & References

What we know and don’t know about Facebook’s stablecoin

The news outlets did a copy/paste on Facebook Press Release. Plus we get the salacious factoid that Mark Zuckerberg spoke to the Winkelvoss Twins.

PR also tells us that all doors are open to Facebook, telling us about conversations with:

  • Bank of England governor Mark Carney.
  • Officials at the US Treasury.
  • Western Union.

Facebook has the clout to talk to anybody on the planet, not matter how high and mighty, but talk is cheap.

What we don’t know:

  • what will be the the real name of Facebook’s stablecoin when it finally launches? PR says it is “internally dubbed” GlobalCoin but that is too close to GlobalistCoin and that does not play well in the cyperpunk/anarchist/libertarian crowd that loves Bitcoin. There is a cute sounding internal name which is Project Libra, which maybe more consumer friendly.

 

  • When Facebook will launch. PR says “first quarter of 2020”.

 

  • Where Facebook will launch. PR talks about “in a dozen countries”. Earlier PR in December 2018 talked about India as launch venue.

 

  • What Facebook will launch. It will be a cross border digital payments system aka a remittances system.

 

  • Which Fiat currencies they will peg to.

There is lots of negative sentiment. You can expect this from the privacy and crypto crowd. It must be more worrying when Bloomberg, which is hardly known for bleeding heart anti establishment ranting, has this headline:

Dr. Evil Would Love Facebook’s “GlobalCoin”. “More than 2 billion users spending one currency, controlled by one billionaire. What’s to worry about?”

Facebook’s strategy in the past with negative sentiment has been to take one step back, issue an apology, then proceed to do exactly as they had planned. However that may not work today, because Facebook’s Stablecoin is between a rock & a hard place. Bitcoin is the rock. The hard place is all the big players who will feel threatened by Facebook. 

First the rock…

Bitcoin is the honey badger that is not scared of Facebook

You cannot shut down Bitcoin. Facebook can lobby Governments all they like and Governments would love to shut down Bitcoin and do deals with Facebook, but you cannot shut down a decentralised permission less network. You need a CEO that you can pull onto the carpet and grill.

Next, the hard place….

Big players who will feel threatened by Facebook 

The hard place is all the big players who will feel threatened by Facebook.

This is a huge move by Facebook. They are moving well beyond their media comfort zone into currencies, payments, remittances and e-commerce. The big players in those markets, including Governments, will feel threatened by Facebook’s move into their territory.

The end of the Facebook era is coming

You can see trend from the chart at the top of this Chapter (based on research by Daily Fintech) – the dominance years are getting shorter. Our thesis is that decentralization won’t lead to one dominant company because dominance is a feature of centralization. In the decentralization era, dominance may go to a leaderless open source protocol (Bitcoin), with many companies thriving within the ecosystem created by that protocol.

I never got the Facebook habit. I am as addicted to social media as the next 21st century human, but my social drugs of choice tend to be blogs, Twitter, Whatsapp, YouTube, & LinkedIn. Occasionally I can only see something online if I have a Facebook account. So I set up a fake account and enjoy the recommendations I get from that fake account where I am a woman born in 1997 in Chiang Mai, who now lives in Mongolia and who studied Thermodynamics at The College of Hard Knocks. My bio says “FB algos do not deserve to know me”.

The usual way that big tech eras come to an end is a mix of:

  • Regulation. That is happening to Facebook in Europe and China and there is even political pressure in America
  • Disruptive Technology. In past eras, the regulators jump on board just when disruptive technology is doing a much more effective job. For example, IBM could manage regulators but could not control PCs, Microsoft got sideswiped by the Web, Google by Social. In the coming transition, centralized services will be replaced by decentralized services.

Facebook the service is no longer cool, even if Facebook the company controls the two biggest competitors – WhatsApp and Instagram. Soon Facebook the service will be a digital landfill populated by:

  • Institutions selling you stuff. Institutions, both political or corporate, use pinpoint personalised marketing to make sure you buy/vote what they want. My little messing with Facebook’s algos is not likely to do them much harm, but billions tuning out ads will damage them at some point.
  • People willing to view ads for a fee. Pay to view ads is desperate race to the bottom by sites with low quality content. Advertisers get the attention of the people with the least money or influence brought in by Mechanical Turk to compete with robot scam traffic.

No, don’t short Facebook yet.

Mark Zuckerberg is one is the greatest entrepreneurs of all time. He has navigated one big disruption before. When mobile threatened the Facebook franchise he solved the problem by buying into the game at great cost with the WhatsApp and Instagram deals.

So, don’t count him out. He could pull it off with GlobalCoin. The odds are against him because this disruption is different:

– mobile changed delivery front end but the core concepts of centralized data to sell advertising remained valid.

– Decentralized Blockchain networks challenge the core concepts of centralized data to sell advertising.

It is inconceivable that Facebook, which has a market cap of over 500 Unicorns (ie over $500 billion), could head into a deep decline. Look at past eras and the dominant company of the day looked equally invincible.

Although Facebook’s long term decline is inevitable, don’t try shorting Facebook stock yet as there is a big difference between inevitable and imminent. 

There are companies that should be worried by Facebook’s move into crypto-enabled payments. They could be accidental roadkill as Facebook searches for relevance in a game that they no longer control.

Which companies should be most worriedWhich companies should be most worried

A. Decentralized social media companies funding via Tokenomics such as Steem and Brave. Content creators will prefer to be paid in either Bitcoin or a reputable Stablecoin from a neutral player.

B. Remittances companies such as WorldRemit and Western Union. The latter may do OK as Facebook will need their off ramp into local Fiat, but that will be a hugely reduced role.

Context & References

Facebook Ambitions in Fintech. Note date (2014); over 4 years ago we were forecasting this move by Facebook.

The PewDiePie deal with Dlive is a big move forward for decentralized Blockchain media.

Why I am closing my Steemit account and why I am a bear on EOS.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

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 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).

cybersecurity, Fintech General, mobile payments, tokenization

The Security Features And Vulnerabilities in Mobile Payments

its me david

Editor Note: Mobile is changing Payments, but you have to get security right, so we wanted a real expert to lay it out for us. David Smith is a cryptographer with 12 years of experience in both the public and private sectors. He is currently working on his second startup (currently in stealth mode) that will track and interpret the use of contactless payments. His expertise includes: system design and implementation with contact and contactless smart cards, smart card personalization, mobile payments, and general knowledge and experience with APAC market trends and consumer preferences.

Introduction

Mobile Payments refers to payments made over the mobile phone. This includes mobile proximity payments where a mobile phone is used to make purchases at the POS terminal through contactless technology like Near Field Communication (NFC) or mobile remote payments where it is used to purchase products or services online using mobile phones. Mobile wallets payments using software like Apple Pay or Google Wallet can also be categorized as mobile payments. Enhanced smart phone technology, better network speed and rise of ecommerce applications have all resulted in the growth of the mobile payment sector. McKinsey reports that, use of mobile wallets will reach $400 billion in annual flows by 2022, in the US alone. Due to its convenience, the use of mobile payment technology seems to be very popular amongst the millennial generation. However conventional wisdom dictates that we understand the security features and vulnerabilities of mobile payments thoroughly before we enable them in our businesses or start using them as consumers.

Security Features

Following are the security features which can potentially make mobile payment technology more secure than card or online payments.

  • Tokenisation: Square defines tokenization as “the process of protecting sensitive data by replacing it with an algorithmically generated number called a token”. It is used in mobile payment transactions to replace the customers primary account number with a series of randomly generated numbers. Thus the customers actual bank details are not sent over the network.
  • Device-specific Cryptograms: These are used to ensure that the payment originated from the card holders mobile device. If an hacker somehow obtains the transaction data, the cryptogram sent to the payment terminal with the token cannot be used on another mobile device. Thus the stolen data is useless.
  • Two-Factor Authentication: This is used as an additional layer of security when executing the transaction. The 2nd level of authentication could be a password that needs to be keyed in on the mobile device or biometric authentication using fingerprint recognition technology.
  • Protection against loss: Mobiles ensure data security as consumers can remotely erase their data on a smart phone, when a device containing a mobile wallet is lost or stolen. This can act as a safeguard against fraud and identity theft scenarios..

Vulnerabilities

  • mPOS devices: According to this article on ZDNet, vulnerabilities in the mobile Point of Sales (mPOS) machines, can allow merchants or personnel at the terminal to change the amount charged to the credit card. The vulnerabilities in the mPOS could also allow attackers to perform man in the middle attacks, by intercepting the Bluetooth communications between mobile and the reader.
  • Variety of mobile devices: There are multiple varieties of mobile phone hardware and software available in the market. People living in developing countries may not always find the latest technology affordable and accessible and may continue to use older versions of the phones and operating systems. Such devices may render mobile payments insecure even if they were done through a secure app.
  • Malicious apps: Users who do not have anti-malware tools on their phones may be targeted by using malicious app clones available outside the usual app-store/play-store framework. The best way to protect oneself from this is to only install apps published on Apple AppStore or Google Play Store on your iOS or Android devices.
  • User Habits: Some users prioritise convenience and fail to protect their devices using a PIN or biometric authentication. Keeping the phone locked at all times can protect the data on the phone in case it is stolen or lost. According to this article, most of the reasons causing mobile payments vulnerabilities are related to user habits.

Conclusion

Like any new technology, adoption of mobile payments overcomes the disadvantages of older technology and presents new challenges and vulnerabilities. It is essential to identify these vulnerabilities and secure the system end-to-end. While device and services providers are required to provide adequate security, each user needs do his part to keep his data and transactions secure.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

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 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).

Consumer Banking, Fintech General

‘Something’-as-a-service, the new fintech paradigm

Something-as-a-service lights up the eyes of most VCs and investors.

Mainly because it sounds far easier and simpler than going after the juggernaut of core-anything. The thesis behind SaaS in fintech is premised around letting the banks and existing incumbents get on with what they are good at – financial plumbing – and enabling the fintechs and flashy experience layers and product teams to build cool stuff.

One excellent example of this in action is German business Raisin, a deposits-as-a-service play. They’re not dissimilar to Cashwerkz, a local player in Australia. Both operate a model that allows consumers to access a marketplace of deposit and saving products from multiple brands, in one place.

In February this year, Raisin announced it had closed a Series D round with Index Ventures, PayPal, Ribbit Capital and Thrive Capital injecting $114 million into the business. To date the business has brokered $11 billion worth of deposits to 62 partner banks, and generated savers $90 million in interest earnings.

Fintech SaaS businesses, like Raisin, are often free to the user. Raisin charges no fees for opening accounts with one of its partner banks, and provides a single online interface from which to manage all your accounts.

While SaaS is lower risk and investment from an infrastructure perspective, it can also be lower margin, and under threat from regulatory pressure regarding conflicted commission structures and independence. Raisin receives a commission from partner banks, essentially establishing itself as a very good lead generation tool for banks, and a great commercial model, until the taps turn off.

Which of course, they very well may not. With marketing budgets under pressure, and lead generation from traditional media hard, to near impossible to measure, outsourcing marketing to fintech-as-a-service is probably a smart investment, from a bank or financial incumbent’s perspective.

The only thing that could stop these businesses in their tracks is tightened regulation and an increasingly risk-averse regulator that has had to deal with too many human financial advisors and brokers willing to push financial products onto consumers that come with conflicted commissions (i.e. I sell you this because it pays me the most, rather than it being the best product for you). In theory, technology should make this transparent to all involved, including the regulator, and put the shine back on commission led structures.

For marketplace businesses in fintech to achieve longevity, it must be unequivocal that the marketplace is designed for fairness and puts the customer at the centre. It’s an inherently conflicted idea, because both parties are in a sense driven by opposite goals – one to sell high and the other to buy low. But it is not impossible, if there are other value-added features beyond the pure vanilla transaction. In my view, this is still unchartered space, and lots of scope for innovation and ideas. My guess is Raisin will be one of the early ones to deliver it.

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.

I have no commercial relationship 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)

advertising, e-commerce, Fintech General, lending, marketplaces, Platforms, sme

Amazon`s `Other` revenues grow 34%

We have to fly high to see what is happening in the world. We are all trapped in the convenience trap. And as David Siegel says in his recent video

We are pawns

Flying high and using the revenue lens for public companies like Amazon, is where I want to take you today. I took a glance at the 2018 revenues of Amazon. The three main businesses lines are e-commerce, cloud computing, and ad revenues. What struck me was that growth came from ad revenues which are `lumped` into a generic category labeled `Other`.

Remember 2015 was the first year that Amazon reported cloud revenues separately, revealing specifics about its AWS business. Today, four years later, Amazon reports advertising revenues in a category that is named `Other`. According to the GeekWire for 2018, Amazon reported $10.1 billion for the “Other” category. According to Amazon`s financial statements this category “primarily includes sales of advertising services, as well as sales related to our other service offerings”. Fortune reported that in Q1 2019,

Sales in Amazon’s “other” segment, which is mostly advertising, increased 34%, to 2.72 billion. The company’s digital advertising franchise has grown into the third largest in the U.S., trailing only Alphabet’s Google and Facebook, researcher EMarketer estimates.

Let me spell this out loud: Amazon`s advertising business is getting ready to be publicly disclosed as one of the main businesses competing openly with Facebook and Google`s Alphabet. This is important because the top marketplaces are Ad driven and don’t seem to intend to switch from that business model. Actually, it isn’t easy for them to switch to another marketplace business model.

Are you aware that merchants that want to sell on the Amazon marketplace have to compete amongst themselves to reach end customers? That means, paying to advertise on Amazon in order to move algorithmically up the ranking on the Amazon marketplace. This is the game that each and every Western Bigtech uses in its closed ecosystem. You have to understand the algorithm and pay to play based on the rules of the algorithm; be it Amazon marketplace, Facebook, Alphabet.


This realization makes me think that maybe, I only say maybe, merchants borrow from the SME lending arm of Amazon, to finance their advertising campaigns on Amazon. So, Amazon wins twice. I don’t have data on this, so it is only a conjecture.

We know that the technology is there to launch an e-commerce marketplace that vendors can reach end customers (B2C or B2B) without having to pay high advertising fees and incur costs to play on the platform whether they sell or not. Who can execute on this? We just need one success story of such disintermediation. Will it be in selling books or music or baby formula or online education? Will it happen in the West or the East? Will Amazon dare to cannibalize its e-commerce business at least in one area?

What we do know, is that it won’t happen from Facebook whose business is 98.5% based on advertising and their plans for a Facecoin won’t change that business model. It won’t come from Alphabet either, who earns 15% of revenues from non-google ads but 70% from advertising of the Google family (Youtube, Gmail, etc). Both are Titanics in advertising and can`t disrupt themselves.

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

 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).

Fintech General

The billion dollar opportunity for fintechs who serve global citizens

Australia
is sometimes colloquially labelled as the world’s biggest island. While some
might view this from a geographical stand point, it can often be meant more in
the intellectual sense. It’s no secret Australia is generally more interested
in what’s going on in Australia, than what’s happening in the rest of the
world.

The big
news out of Australia, if you haven’t already heard, is that voters went to the
polls last weekend. In true Trumpian and Brexit fashion, Australia was
delivered its own ‘surprise’ political upset. The right leaning conservative
government, led by Scott Morrison, was re-elected, much to the surprise of the
pollsters and betting agencies.

I wasn’t
terribly surprised, having had enough nous to place a bet on the coalition
government as returning to power. The odds of 5 to 1 coalition to labour seemed
out of whack with the actual closeness of the polling in marginal seats, and
the impact of potential preference votes. They weren’t out of whack with the
media commentary however, which from left to right leaning publications, was
more or less backing, or accepting a labour win. Seems like the media these
days, gets it wrong with alarming consistency.

You’re
probably wondering what any of this has to do with fintech.

Well,
governments can play a crucial role in driving the fintech ecosystem forward.
Labour had already made murmurs it would deprioritise open banking, which is
already overdue in Australia.

On the flipside,
the coalition government hardly painted an exciting picture for fintech, with
innovation absolutely not on the agenda. It’s anyone’s guess what will fill the
policy void now, but for those interested in where it may land, Business
Insider spoke to several leading voices on what they think will happen
next. A good read for those of you who have investments downunder, or who are
looking to invest.

As a Kiwi – who can’t vote in Australia, but who’s taxes are certainly welcomed by the powers that be – what I find is interesting, is how the voices of people like me, Australia’s immigrant community, can be impacted by government policy around money. While I am afforded many more protections and rights given the close nature of New Zealand and Australia countries, many others from the immigrant community are not. And this can result in a serious financial impact.

Working Holiday Super Tax

Australia
has long been a number 1 destination for working holiday makers. It’s estimated
that during their approximate 2 year stay, they contribute $1.3 billion to the
economy, with $770M being spent in rural communities alone.

While these
visa holders come from all over the world, one of the main working corridors is
the UK, which only looks set to grow post Brexit, should the trade
representatives get their way. Around 40K land each year as part of the working
holiday visa program, with many going on to sponsored employment.

Working
holiday makers are expected to abide by Australia’s laws, including
contributing 9.5% of their earnings into Australia’s compulsory pension system,
superannuation.

When they
leave Australia, while they can freely take their take-home pay earnings, they cannot transfer the thousands of dollars
of super they are likely to have accumulated to an equivalent pension plan in
their country.

Instead a shocking 65% of their wealth is taken off them, with the
remainder cashed out. Their Kiwi counterparts can take the full balance home,
thanks to a Trans-Tasman portability scheme.

This is a tax rort, front left and centre. It also disproportionately
affects young people, who need all the help they can get these days, building wealth.

But it is also an opportunity to reinvent what pensions mean, how we distribute
and manage them, and how a fintech that thinks globally but locally can make
all of this easier, simpler, and hassle free.

Look at Transferwise, which is now the most valuable European fintech. It
is part of a growing group of global first fintechs that are willing to tackle
cross border money frictions that have no reason to exist other than through
archaic government policy.

Fintech’s that tackle these problems have a unique opportunity to represent the new global citizen. Despite the noise around protectionism, I believe it is fairly inevitable that the movement of workers and migration will continue, if not escalate. Which is why we need more companies willing to tackle some of these policy inequities head on.

We are doing this at my pension startup fintech, Zuper. After all, why does
it matter where your pension is managed from, so long as you can easily
contribute into it? If you have multiple pots here and elsewhere, there is no
reason why this should be hard to manage.

We launched a petition today that calls
on the UK and Australian government to allow for cross-border, full super
payment transfers. There is no reason someone should lose 65% of their
wealth in one hit. If you ever worked here and had to hand you cash over, this
petition is for you.

Whether we get somewhere or we don’t, the challenge and opportunity is clear. Solve the problems that matter, and be a champion for your customers. Fintech, when done right, should address inequities, not further them. If you can prosecute that case well, then you’ve earned the right to build a billion dollar business.

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.

I have a commercial relationship with the companies or people mentioned as CEO and co-founder of Zuper. 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)

civictech, democracy, digital, evoting, Fintech General, goverment, participatory budgeting

7 Participatory Budgeting use cases: CivicTech is global

 

DemocracyIt was only last week that I took my first deep dive into CivicTech, thanks to the Costa Vayenas, the director of the Procivis Think Tank and author of the book Democracy in the Digital Age.

As usual, there is no clear definition of what CivicTech is and there is a lot of debate which actually gets very political. We can start thinking of CivicTech as any technology that upgrades governments and community governance. So, you are allowed to think of it also as including technologies that reshape democracy. People even include any technology use case that is for common good.

I am only here to share a primer on CivicTech. It became very clear to me (through this first dive into CivitTech) that Social media, Smart Cities in platform economies with ever increasing Digital participation is the era that we live in.

In such a world, CivicTech will increasingly become important. Like it or not, Social media, Smart Cities in platform economies are shaping our identities and values whether we realize it or not. We – the end customers sort of speak – the individuals are demanding more and more rights and the lines of who does what and who is responsible for what, are blurring.

20190520_115650.jpg

Excerpt from the presentation of Prof. Sofia H. Ranchordás, Chair of European and Comparative Public Law & Rosalind Franklin Fellow, University of Groning

“This is Water” is a metaphor for the conscious awareness of others by David Foster Wallace’s commencement speech at Kenyon College.

`This is Digital` and we better become conscious of the ocean that we are swimming in:

Social media, Smart Cities in platform economies with ever increasing Digital participation.

digital human.jpgI focus mostly on Fintech, WealthTech, Regtech,….

CivicTech ties into all of these and much more. Chris Skinner presents to us the `Digital Human` in his recent book with the homonymous title. His subtitle `The fourth revolution of humanity includes everyone` ties into CivicTech that has clearly a role to bringing us all together.

Just a few specifics on how CivicTech is being piloted and used globally right now. Digital humans in participatory budgeting are being included in 3,000 municipalities around the world, according to Dr. Tiago Carneiro Peixoto, Senior Public Sector Specialist, World Bank’s Governance Global Practice.

Examples are live all around the globe. The father of Civictech is the UK project FixMyStreet and in the US, Change.org. These are using crowdsourcing community feedback, ideas and project requests to improve budgeting decisions.

Various technologies are being used in CivicTech, from text messages, to app like dashboards and online voting systems of all sorts. These are powered by chatbots, AI and even blockchain technology.

In Brazil in Porto Alegre, one of the most populated cities in South Brazil, the World Bank introduced participatory budgeting as early as 1989. Citizens present their demands and priorities for civic improvement. This use case is one of the longest standing CivicTech implementations. Because of the increased investment in sanitation and health, the processes have reduced infant mortality. In addition, the tax collection rate has improved by more than 30%. One of the learnings of CivicTech implementation in underdeveloped areas (where it is most needed) is that quantifiable results become evident typically after a 5yr period. So, these are not quick wins.

In Argentina the city of Rosario, has been the test ground for a gender-mixed participatory budgeting approach, aiming to involve more women in the participatory budgeting process, and to raise awareness around gender issues and the positive impact of female participation.

New York City has an interactive map – the Idea Collection Map – that any community member can submit an idea. Community volunteers, called Budget Delegates review the ideas and turn them into real proposals for a ballot, with input from city agencies. These proposals will be up for a community-wide vote. This Participatory Budgeting process is being used to directly decide how to spend at least $1,000,000 of the public budget in participating Council Districts.

In Belgium mini-publics are already being used to improve democratic processes and make them more transparent. Mini-publics are an assembly of citizens who are demographically representative of the community. The topics handled by mini-publics range from controversial science and technology issues to social issues like health and justice. Mini publics are now institutionalized in Madrid and in the German-speaking part of Belgium.

Paris has decided to allocate 5% of its investment budget to be handled through participatory budgeting. This started in 2014 and is planned for a 6yr period (until 2020) and encompasses a total of 0.5billion euros. The issues that have brought up by the community are urban agriculture, greening the city, and caring for refugees and homeless people.

In China, a unique participatory budgeting project started in Chengdu in 2011. This is a city of close to 15million people. Since the start of this process, there have been 50,000 small projects approved. Most them are for basic local services in infrastructure, such as village roads and water supply. The unique design of the implementation is that the citizens have the choice to either spend the participatory budgeting resources on immediate actions, or to use them as a down payment on a collective loan for much larger projects. If the latter is chosen, then the loan is repaid by a part of the participatory budget in the following years.

In the US, Vallejo a city in California’s San Francisco Bay Area, has been using technology for participatory budgeting courtesy of the Stanford Crowdsourced Democracy Team since 2012. There have been 5 voting cycles to allocate over $8million to fund 27 projects. Vallejo reports that 20,000 residents of Vallejo have participated. Unfortunately, during a recent vote (Cycle 6) there was a loss of all votes due to human errors and people are asked to revote.

Conclusion

`This is Digital` and we better become conscious of the ocean that we are swimming in: Social media, Smart Cities in platform economies with ever increasing Digital participation.

This is a #TwitterDemocracy[1] kind of world. Social media alone, are a digital participation form 24/7. We are shifting from one-off events like voting to a very interconnected world. With smart cities, we will provide real-time feedback which swiftly makes the loop into all platforms and into our life. Technology can help us become more efficient and arrive at a consensus at local levels much faster and better than we are able today.

For this however to happen, we need to improve literacy at all levels. Digital literacy is paramount to include everyone in this new future world.

[1] I am using #TwitterDemocracy as a generic term.

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

 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).

 

Consumer Banking, financial inclusion, Fintech General, mobile money, mobile payments, telecoms

Telecom Fintech innovation is spreading

Africa-Mobile-Money-Market

MPesa`s early success in Kenya, will remain the mobile money business case study of payment innovation in Emerging markets[1]. It was 12 years ago; in 2007 when Vodafone launched the service.

Africa continues to be the continent where `Necessity is the mother of invention`.

Africa brings to market further efficiencies, improving the MPesa business model and pushing innovation in financial inclusion (be it remittances, micro-payments, or microinsurance). However, it is not as easy as it may seem. As Chris Skinner notes:

Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries.[2]

Today, EcoCash, is a success story in Zimbabwe. It is a rich mobile payment platform hosted by local telco, Econet. Despite recent tech glitches on the Ecocash platform[3], Econet the parent telco continues an expansive digital strategy. It spun off Cassava Smartech, an entity that offers more financial services than just mobile money. From remittances, digital banking and all kinds of insurance.

Orange Money, started in 2008 in Côte d’Ivoire and has currently 40million customers in Africa in 17 countries (francophone and anglophone). Late last year MTN Money[4] and Orange Money, teamed up to create a JV, called Mowali[5]. They are targeting the 300 million mobile money users in Africa. MTN and Orange alone operate in 22 African countries. Mowali is built on the open-source software payment platform Mojaloop, of the Bill & Melinda Gates Foundation. The aim is Interoperability at a pan-african level.

South African startup, Wala, has launched its own mobile money solution, with the Dala utility token, using blockchain technology. Wala provides no-fee banking services and is creating a decentralized financial platform (Defi) functioning with the Dala coin. Listen to my interview with founder Tricia Fernandez on the unique approach of the Wala foundation.

Dala is one example of the opportunity that Telecoms can grasp by using tokens, be it stablecoins or some such, in order to offer their existing customers ways to manage their digital lives. Alex Mifsud, Co-founder and CEO, Open Payments Cloud emphasizes this point[6] and uses the example of Dala in South Africa and another approach used in Mongolia. The Mongolian telecom company, Mobicom, has received approval to issue a stablecoin (pegged to the national currency), called “Candy”.  Every Mongolian citizen will be able with a mobile phone to pay bills, shop online, transfer funds, and take out microloans. The pilot will start in the capital, Ulaanbaatar[7].

Now back to the West – US and Europe. The recent T-Mobile announcement of a bank account offering did create some talk. For me, it is a move from a Telecom to extend services to non-T-Mobile customers. But the business innovation is lacking, as it is backed by a conventional bank  – Customer Bank is behind the Baas service of T-Mobile Money. This is actually very different to Orange Money, that has also a bank of its own that was launched in 2017. Orange bank is built from the start with a customer relationship model based on AI technology. It has signed up 200,000 customers as of the start of Q1 2019. It has set a target of reaching 4 million customers and €500 million of net income from banking within five years.

Telecoms and banking

`My conclusion was that banks would merge with telecommunications firms and become hybrid institutions. Twenty years later, it hasn’t happened.` excerpt from Chris Skinner`s vision Banks and Telcos? Two become one!  

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

Will blockchain be the enabler or will AI banking be enough?

[1] Why is M-Pesa the foster child for Financial inclusion? Faisal Khan

[2] Getting the Infrastructure Right for Financial Inclusion, Chris Skinner 2018

[3] A two-day crash in Zimbabwe’s mobile money system shows the vulnerabilities of going cashless

[4] MTN is Africa’s largest telecoms operator

[5] Unlocking mobile money interoperability and merchant payments across Africa through Mowali

[6] Telecoms need not sideline cryprocurrencies, by Arti Mehta, TMForum

[7] Mongolia Starts Off 2019 With Its Eyes On Crypto Payment Adoption

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

 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).