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Bitcoin & Blockchain, Blockchain, Consumer Banking, ibm, Payments, remittances, stellar

IBM World wire – the inevitable rise of Centralized Blockchains

72 countries, 47 currencies, 44 banking endpoints and more than 1081 unique currency trading pairs. IBM Blockchain World Wire is here.

IBM Press release on World Wire

In the last four weeks, we have had JPM Coin announcement by JP Morgan, followed by Facebook’s ambitions to plug crypto payments into Whatsapp, and now IBM have announced the launch of World wire – a cross border payments platform on Stellar protocol. I tried to call them permissioned Blockchain, but couldn’t resist calling them “Centralized”.

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When I blogged about JPM Coin a few weeks ago, and how it could affect both Ripple and SWIFT, one unanimous comment I received was that JPM Coin couldn’t be considered a cryptocurrency. I have had several philosophical arguments over the years on why a permissioned Blockchain, preferred by enterprises, do not/do qualify as Blockchain as they are centralized.

For all practical reasons, we have seen the rise and fall of decentralized Blockchain. Most of us would like a utopian decentralized world without these too-big-to-fail firms throwing their weight around, or central regulators calling the shots, or tech giants monopolizing industries with their data might. However, it is hard to make the leap from a highly centralised system (we have today) to a new decentralised way – not just philosophically, but also pracically.

The focus has shifted from ICOs to the more conservative STOs, with stable coins showing up in most use cases. Several startups I have met in the last few months have even stopped using the term ‘ICO’. The resurgence of Blockchain is now being led by big firms like IBM, Facebook and JP Morgan. I wouldn’t be surprised if this becomes the norm in 2019, where we see more Blockchain based production use cases from enterprises.

IBM have been working in partnership with the Stellar Foundation for quite sometime now. When I spoke to Lisa Nestor, the Director of partnerships at Stellar in Q4 2018, she mentioned that they had a strategic partnership with IBM. She stressed the importance of working closely with incumbent organisations across industries to make Blockchain usage mainstream.

We’ve created a new type of payment network designed to accelerate remittances and transform cross-border payments to facilitate the movement of money in countries that need it most

Marie Wieck, General Manager, IBM Blockchain

As a result the IBM World wire, focused on the cross-border payments market has already enabled payment locations in 72 countries, with 48 currencies and 44 banking endpoints. It supports Stellar Lumens and a USD based stablecoin – thanks to their work with Stronghold. The network will also support stablecoins issued by several of its consortium banks. The list includes stablecoins based on Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real. How will this affect Ripple?

Credit Ripple for the vision of using a digital asset in order to enact immediate settlement with finality. I think their implementation followed one path. Our implementation is a little bit different. We are not the issuer of an asset. In fact, what we believe is that there should be an ecosystem of a variety of digital assets that provide the settlement instruments that enable these cross-border payments.

Jesse Lund, IBM’s VP of Blockchain and Digital currencies

IBM’s strategy of keeping the platform agnostic to any kind of digital asset is a master stroke. The platform will work through the following steps,

  • Institution A chooses USD to execute a transaction with to Institution B in Euros
  • Institution A converts USD to XLM (or any other digital currency of their choice)
  • IBM Worldwire converts XLM to Euros and records the transaction on the Blockchain
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The new world of international payments look pretty disintermediated, near real time and efficient. Bringing on-board new markets is cheaper; micro payments support and end to end transparency are all benefits too. Are we still going to be hung up on “It is not really decentralized”? Do we care?

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

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

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Blockchain, Consumer Banking, cryptos, facebook, Payments, remittances, tencent

FB doing a Tencent – Cryptos mainstream adoption in sight?

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We have had a record breaking February in the UK weather-wise. One of the days in Feb saw temperatures go up to 21 degrees Celsius. While the cold has returned a little bit, it seems winter is largely done. I get that sense with cryptos, as large institutions one after another are announcing projects, and it only takes one of them to take off for cryptos to go mainstream.

Messaging applications thinking of launching their own cryptos is nothing new. Telegram and Signal have been at it for sometime. However, it is a bigger deal when Facebook looks at introducing cryptocurrency based payments on Whatsapp. The size of the opportunity for Facebook and their partners when the platform is Finteched will undoubtedly get them out of their issues they have faced over the past 24 months.

The Facebook Opportunity

Facebook has two problems to solve, and both potentially powered by Blockchain.
Facebook’s Blockchain team has been spearheaded by former PayPal president David Marcus since last May. In order to replicate Tencent’s successes, they need to leverage the user base of their apps (FB, Whatsapp, Instagram). Bringing payments to Whatsapp would have have been a good starting point, however Facebook’s attempt at doing that in India (the largest Whatsapp) hasn’t gone too well.

About 1 Billion people in India have a mobile, and about 300 Million of them use Whatsapp. Last year, Whatsapp pay launched in a controlled fashion to 1 Million users in India. They used the government backed UPI (Unified Payments Interface), and during the pilot, they achieved about a Million transactions per month. However, the regulators weren’t happy that the payments engine was on Facebook servers. They wanted the servers to be in India, and despite several conversations there is no solution.

The payments market in India is a $1 Trillion market by 2023, and it would be a shame if they missed the bus.

Facebook is looking to create a stablecoin attached to a basket of currencies. There is a team of about 50 people working on this project. If FB planned to use the Indian market as a testing ground for the crypto-powered Whatsapp pay, they may now have to deal with the crypto currency regulatory ban too. However, if they managed to clear the regulatory hurdle, their growth could dwarf the likes of PayTM, and that would just be the start. On top of it, Indian remittance market boomed to $80 Billion last year. If I could use whatsapp to send money to my mom, that would be awesome!!

The other issue that FB has had is around data privacy. With identity management being one of the key concerns, FB saw record number of millennials leave their platform last year. However, with a Blockchain powered Self Sovereign Identity engine, Facebook connect could redefine it’s position with data privacy as a distributed identity management platform.

How decentralised it (the identity engine) will stay if launched is another challenge. Most federated and decentralised identity management engines have ended up creating a centralised monopoly in the past. With Blockchain behind the scenes, one would expect that to be different.

Will Facebook replicate Tencent inspired successes through Whatsapp? Will FB change perceptions through a genuinely decentralised identity engine? Would 2019 be the year of mainstream adoption of cryptos? Watch this space.

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

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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.

mpesa-around-the-world

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.

Financial-Inclusion

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.

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