Editor’s Note: this is the 3^rd post on Daily Fintech, written in 2014. How things have NOT changed!

To give our authors a break over the holidays, we are re-posting from our archive of over 1,000 articles. Rather than pick favourites we elected to simply  repost the first 8 articles (as that was over 5 years ago you may have missed them; we were pretty unknown then). 

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Editor’s Note: this is the second post on Daily Fintech (way back in 2014). 

To give our authors a break over the holidays, we are re-posting from our archive of over 1,000 articles. Rather than pick favourites we elected to simply  repost the first 8 articles (as that was over 5 years ago you may have missed them; we were pretty unknown then). 

As we close out 2019, make a resolution to be smarter about Fintech in 2020 by subscribing for just US$143 a year (= $0.39 per day). You will get all our fresh daily insights and participate in our forum. You can also read our archives with over 1,000 articles, an example of which you are reading from over 5 years ago.

We look forward to welcoming you to the Daily Fintech membership community today!

As we close out 2019, make a resolution to be smarter about Fintech in 2020 by subscribing for just US$143 a year (= $0.39 per day). You will get all our fresh daily insights and participate in our forum. You can also read our archives with over 1,000 articles, an example of which you are reading from over 5 years ago.

We look forward to welcoming you to the Daily Fintech membership community today!

The post Why I created this blog appeared first on Daily Fintech.

Editor’s Note: this is the very first post on Daily Fintech. 

To give our authors a break over the holidays, we are re-posting from our archive of over 1,000 articles. Rather than pick favourites we elected to simply  repost the first 8 articles (as that was over 5 years ago you may have missed them; we were pretty unknown then). 

As we close out 2019, make a resolution to be smarter about Fintech in 2020 by subscribing for just US$143 a year (= $0.39 per day). You will get all our fresh daily insights and participate in our forum. You can also read our archives with over 1,000 articles, an example of which you are reading from over 5 years ago.

We look forward to welcoming you to the Daily Fintech membership community today!

 

The combination of digitization (Social, Mobile, Analytics, Cloud, cryptography), globalization (Rise of the Rest) and demographics (younger Digital Natives) creates a shift in the Financial Services Stack akin to the transformation that happened when the PC stack replaced mainframes. We moved then from vertical integration (mainframe vendors controlled the whole stack) to horizontal layers (Intel, Microsoft, Applications, PC Manufacturers).

Now we are moving from vertically integrated banks that control the whole stack to a horizontal stack with services at the application layer currently controlled by born-digital ventures in areas such as  Lending, Payments, Trade Finance, Foreign Exchange and Wealth Management.

This is fundamentally different from the first wave of Emergent Fintech, which created a lead flow engine for banks by adding a better User Experience on top of existing bank services. Those services (such as Simple) were non-threatening to Banks and made easy acquisition targets.

Both Banks and Traditional Fintech vendors to those banks will face wrenching change to adapt to this big shift in the financial services stack.

Banks that do not change at a fundamental level risk becoming “data centers with fancy lobbies”.

Banks that do not transform at a radical level risk becoming a commodity product with high costs in a market with low cost digital-first alternatives. That is a recipe for declining profitability.

The VC community has already woken up to the massive opportunities at the application layer of the financial services stack, to create category-defining ventures in areas such as Lending, Payments, Trade Finance, Foreign Exchange and Wealth Management.

Many banks will thrive by partnering with the born-digital startups that become dominant in an area of the application stack that they consider non-core.

These banks will leverage their brand, balance sheet strength and low cost of capital to combine products to deliver new experiences for their customers.

These biz dev partnerships will be driven initially by the born-digital startups via APIs. However in the second phase we may see some Banks seize the User Experience challenge to create a whole wave of new consumer-facing services that use data and services from the middle layer via APIs.

Smaller banks may thrive in this new environment because they are used to outsourcing their IT and partnering to deliver services; they see their core competency being their local brand and customer relationships; they know that relationships are the one thing that does not become commoditized.

A few mega banks will try to own the whole stack. However even the biggest banks are starting to exit business lines where they recognize that they cannot get a dominant market share. So these mega banks may be vertical in some markets and horizontal in others.

IT vendors serving the banks face a hard grind in this environment. It is really hard to sell to middle management when an industry is going through this kind of “transform or die” change. Traditional Fintech vendors will have to either move up the stack or down the stack. Moving up the stack means becoming a trusted adviser at Board level, making change happen from strategy down to code. There are already very strong vendors such as Accenture and IBM in this rarified air, so it is hard to break in here. Moving down the stack is equally hard because you have to become the disrupter in a market you are already in, with a 10x better, faster, cheaper solution. Vendors that don’t make either move – up or down the stack – will be “rolled up” into tech conglomerates and the product will slowly fade away.

It is unlikely that we will see anything like a Wintel level dominance of the bottom of the stack. Regulators will be concerned about this and VCs will bring their lobbying power (including modern digital lobbying) to remind politicians not to kill the goose that lays the golden egg of innovation. So the bottom of the stack is likely to be open source and standards-based using technologies such as Blockchain.

The bottom of the stack in application terms will be deposit taking. This is so ripe for fraud, that you will have to be regulated as a Bank to get FDIC Insurance (or equivalent in other countries); without that protection consumers won’t trust you.

The fundamental shift at the consumer level is:

“We don’t go to the Bank, the Bank comes to us.”

In all the earlier generations of technology we went to the Bank:

1.0 we went to the Bank’s branch.

2.0 we went to the Bank via an ATM.

3.0 we went to the Bank via their web site.

The current wave of technology means that Banks need to be there and relevant at the point when the custommer is considering a transaction (whatever that transaction might be – buying/selling a product/service, buying stocks and bonds, etc) on whatever device the user has at that moment in time. This experience has to be real time, event driven, powered by recommendations from personalized data, in context and mobile.

Context is king & queen because context is what drives User Experience

As we close out 2019, make a resolution to be smarter about Fintech in 2020 by subscribing for just US$143 a year (= $0.39 per day). You will get all our fresh daily insights and participate in our forum. You can also read our archives with over 1,000 articles, an example of which you are reading from over 5 years ago.

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The post The Financial Services Stack appeared first on Daily Fintech.

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

The news 9 months ago was unexciting and seemed like a no brainer. On February 8, 2018, the headline (from a law firm called Skadden) was SEC Approves NYSE Rules to Facilitate Direct Listings

Who would not want direct listings?

Then on December 10, 2019, the headline from another law firm (Cooley) was SEC fast tracks a “no” to NYSE primary direct listing proposal.

Huh?

To understand what is going on we have to go below the headlines.

What this reveals is a different point of view between Wall Street West (aka Silicon Valley) and Wall Street East (aka New York).

To understand this, start with the basics of direct primary listings vs investment banker underwritten offerings.

Direct primary listings vs banker underwritten offerings

A direct primary listing means an SEC registered/regulated sale of Securities directly into the public market and here is the difference, without intermediary underwriter commissions or roadshow expenses. Direct listings puts the marketing responsibility onto the issuer, without relying on the bankers.

Although everybody refers to direct listings, the more precise term should be direct primary listing. Primary means that the  issuing company collects funds for selling securities; secondary means existing shareholders sell securities and collect the money. Direct secondary is permitted now.

Using the Daily Fintech Qui Bono/Qui Amisit Analysis:

• Qui Bono. Direct listings are good for some issuers/entrepreneurs who have plenty of capital and a well-known consumer brand. The best articulation of this point of view comes from one of the leading purveyors of capital for entrepreneurs, the always articulate Bill Gurley of Benchmark Capital. In short, get your capital from private funds and do your own marketing. This makes sense because a modern IPO is much more of a marketing event than a capital raising event.

• Qui Amisit. Direct listings are bad for Investment Banks who lose some of those underwriting commissions. Most other players in the ecosystem are neutral or positive about direct listings. Many lawyers for example, anticipate growth from direct listings.

Issuing public stock is more than a marketing or capital raising exercise. Two key advantages are that it provides a public stock currency for M&A, and enables employees to see and get value from public stock bonuses. The third reason helps explain why VCs are so keen on this and why the SEC reversed course – a direct listing does away with lock-up periods at the offering for insiders.

A direct listing works well for consumer brands such as Spotify. Many companies that are less well known (such as enterprise ventures) may rather have an underwriter/banker doing the work for them of selling the shares of an IPO into their network, pricing, taking them on road show and creating an aftermarket.

A direct listing also works well for unicorns, where the the NY underwriters are not essential to creating demand/liquidity. The unicorn in the IPO pipeline that might have been pondering a direct listing is Airbnb.

So, what does all this have to do with Security Tokens? To understand this, understand three three letter acronyms – ICO, IEO, STO

ICO IEO and STO

ICO = initial Coin Offering = unregulated offerings using Ethereum that the SEC declared to be Securities. Big in 2017 as entrepreneurs bypassed the traditional gatekeepers.

STO = Security Token Offerings = regulated offerings using Ethereum that are officially Securities. These were big on the hope front in the early days of 2018 as the crypto market crashed and ICOs were deemed no longer valid.

IEO = Initial Exchange Offering. This makes the Exchange into the gatekeeper. That could mean legacy exchanges such as NYSE & NASDAQ or the new breed of crypto exchanges such as Binance. The more liquidity offered by  the Exchange, the more they can charge for their gatekeeper role.

All these with O are designed to evoke IPO. A direct primary listing is different and maybe coming to the token world.

Direct primary listing applies to both shares and tokens

Our thesis is that the direct listings vs IPO debate will come to the token world. What we call a Security Token + Direct Listing remains to be seen. It could be something like STL = Security Token Listing.

You simply list your offering using Ethereum and do a lot of marketing to ensure that it gets noticed so that there is liquidity. If that comes to pass, we can redo the Daily Fintech Qui Bono/Qui Amisit Analysis. Qui Bono is all the entrepreneurs and their investors – same as with direct primary listings. Qui Amisit is some of the Investment Bankers eager for underwriting fees.

Most direct token offerings will be by unknown companies, who will still need some form of Investment Bankers who will market the offering to investors.   

If our thesis is correct that the direct listings will come to the token world, the regulation will be critical. The SEC slamming NYSE primary direct listings may simply serve the function of slowing it down until the rules and risks are studied better. Watch this space. We may see SEC approved direct primary token listings in 2020. 

As this is so driven by legal and regulatory issues, we reached out to Sheldon Freedman for comment. Sheldon Freedman, who is a Fintech Lawyer at Hassans International Law Firm, a multi-services law firm based in Gibraltar with a strong Fintech and Blockchain practice and also a DailyFintech Dean told us:

“The hunger among issuing companies and investors for a shorter path to funding and liquidity is a powerful driver for Security Token capitalization (whether via IPOs or Direct Listings). Those entrepreneurs will of course need to commit capital for legal/regulatory as well as for marketing to effect successful offerings.”

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The post How Security Tokens may seize the day after SEC bans direct primary listings. appeared first on Daily 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 neowealth disruptor in Australia.

SME current-account and bookkeeping tool Coconut recently announced that along with the company’s baked in current account, provided by Prepay Solutions, customers can now connect up their existing business current account.

It marks an interesting pivot for the business, away from a what would have been expected of a quasi-neobanking player, that is to double down on building a large footprint of its own current account users.

Instead, it’s focusing on the problem at hand – helping small business owners invoice and manage their bookkeeping more effectively. Something banks and larger accounting platforms have failed to do on their own, at the micro-SME level.

Coconut’s move is just one example of new business models emerging as banking data becomes openly available to any software application. Defining exactly what new businesses like Coconut are is hard – they aren’t a bank, but they do bank like things. They’re also not an accounting provider, but they do accounting like things.

So just what are they? More to the point, does it even really matter?

Not really. So long as people are buying.

Coconut have 16,000 freelancer and small business owners using its co-joined product offering today. But what could they possibly bring on board by uncoupling the best parts and joining them to the commodity part, the bank account?

Well, that number could run into the millions. And that’s no doubt the SaaS market Coconut wants, leveraging the infrastructure and investment of the banks and their responsibility to bear the costs of keeping current accounts alive.

The ‘banking commons’ that many startups like Coconut are drawing on, represents a very real new threat for the banking sector.

The post Coconut builds new offering on the ‘banking commons’ appeared first on Daily Fintech.