collaboration, cyber risk insurance, digital, digital insurance, ecosystem, insurance, insurance marketplace, insurancethoughtleadership, InsurTech, platform insurance

The local insurance agent- insurance ecosystem re-defined

Source

You don’t have to look very far to find an active insurance ecosystem- just visit the neighborhood insurance agent or contact a commercial broker.  They have been fostering the ecosystem method of serving customers since before the term was moved into the front row at the innovation and InsurTech get-together.

TLDR.  Read any of the volume of current discussion regarding insurance ecosystems and you’ll find references to smart device apps, on-demand, shopping or ride sharing companies that are adding insurance options (Paytm and LIC, Amazon and Acko, Flipkart and Digit) but these are not surprisingly in insurance markets that are developing through a ‘digital native’ business culture.  Ecosystems per se have been a difficult ground up start in more developed insurance markets, e.g., U.S., Canada, and Europe.  But what of the US and Europe- forget being part of an ecosystem?

A quick look at defining an insurance ecosystem finds:

Ecosystem- “An ecosystem is a new business paradigm in which firms use digital tools to leap over traditional industry boundaries or forge partnerships.”  (WHY ECOSYSTEMS ARE THE FUTURE OF INSURANCE, Accenture).

Huh.  Leap over traditional industry boundaries or forge partnerships.

Or this-

“we suggest that middle-market insurers may want to consider expanding their horizon well beyond the standard product and service options they typically offer policyholders (see figure 2). This would involve creating or joining a much broader ecosystem offering a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.”  (Building new ecosystems in middle-market insurance, Deloitte)

Hmmm.  Offering a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.

I suggest if we look past the urge to see ecosystems as a new paradigm in developed insurance markets you will find- the agency model.  Not just the independent or captive agents who are churn and burn lead chasers, but the agents who have a holistic approach to building relationships (old school suggestion of recognizing inter-connectivity of business- nascent ecosystems.)

Digital ecosystems such as are noted above typically didn’t begin as systems; they were applications.  WeChat was launched in 2011 as a mobile chat app by China digital giant, Tencent.  Within four years it had developed by the popular demand of users and affiliate companies into being a 200 million users per month- wait for it- ecosystem of users and providers.  The application was adding value to what was originally a form of communication.  It was accessible, easy to use, had features that were meaningful in daily life.  It’s said that WeChat was the impetus behind the explosive growth in use of QR codes in China.

How does that tie into insurance, or insurance ecosystems?

There are tens of thousands of insurance agents in the U.S. alone, each of whom is working to build business, retain customers, increase the actual or perceived value customers find in the agent’s service, in other words- working to sell a reason for the customers to interact with the agency more often than once per year.

Smart agents have figured ways to do this for years before digitization- sponsor little league, be active in the chamber of commerce, bring a dish to pass at the service organization luncheon, donate bicycles to good readers at school (Chris Paradiso !), names on bowling shirts, filling sandbags, holding a customer’s hand when a claim occurs, referring the accountant next door, keeping a bank account in the local 1st National, keeping abreast of business and tech changes, and so on.  Building the value he/she could bring to customers, being a resource.

How is it that agents can be the insurance ecosystems of today?  If in China- have your QR code on WeChat, of course.  Piggyback on the platform Tencent has constructed.  But in mature markets where the insurance industry has tenure, the model has it’s own reference- ‘legacy’- and the availability of carriers is a fractured confusion to customers?

Active agents have the basis- relationships with collaborative businesses/organizations, and a pool of mostly content customers.  How might the agent leverage these resources?

  • What does an agent’s website say when it’s opened? Chances are it says, “I want to sell you something.”  So, people visit the site when they need to buy insurance.  Why not have a splash page that showcases the value/connections/resources that the agent has built over time?  A site that is a resource pool for clients that also serves as a selling tool when needed. (not like that of the Life Insurance Corporation of India– love their resources but the splash page is crazy busy).
  • Collaborate with business partners- what’s wrong with having synchronization of messages within the respective websites? If the agent resides in a smaller community then resources are common, success of one results in success of another, and there’s that synergy thing to take benefit from.
  • Be an active part of social media that makes sense for business. Not just a ‘like’ clicker, but a question asker, expertise sharer (Billy Van Jura )
  • Don’t try to re-create the wheel- link to existing resources customers are familiar with. Have an FAQ link on your site?  Did you know that Pinterest has an insurance info page? The details aren’t too tough to get a link onto your page, and cross-clicks builds your digital presence.
  • Be an easy source of information/links for emergency, weather, and government contacts. Be the source customers want to keep as a favorite.
  • Build a smart device application that makes sense- not a selling tool but a resource for the user that can also serve as a selling tool.
  • Leverage the digital resources your stable of carriers has- they know that being a digital resource is important; some are better at it than others.
  • There’s a lot more that the reader can think of- convert your analog ecosystem into a digital version.

There are agents who are working to perfect targeted ecosystem plays, e.g., cyber insurance (Brett Fulmer, Joe Hollier, Ben Guttman in the US), or in unique SME plans (Michael Porpora ), or in facilitating service tools for high net worth customers (Kurt Thoennessen).  A very good example of building an ecosystem/resource platform is Pat West whose firm, Hedgequote’s primary function is to be a resource for those needing information on insurance and potential firms from which to purchase.

I regret I do not know many agents working outside of the US, but some good examples who are building services beyond the basic sales model include Muhammad Ayodeji working in Lagos, Nigeria, (who in addition to representing insurance well posts traffic and accident updates through Twitter), or Mark Callanan in Sydney, Aus, who investigates crop and parametric options for the farmers and farm landowners in the country.  And one never knows- the transition that German insurer DFV-AG   has forged from being a more traditional carrier to digital expert may lead the firm into digital ecosystem land.

The point is that ecosystems can be insurance businesses that truly offer a wider range of business support solutions, as well as facilitating educational and networking opportunities for customers.  Perhaps a clever player will build an ecosystem of business connections that is a digital repository of business links.  Ecosystem is still be defined- agents can evolve beyond the world of sales quotas and discussions about premiums.

“Alexa, who does my insurance agent recommend for plumbing repairs?”

 

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).

 

Small Business Fintech

India’s SME fintech sector flourishing – Facebook and Tiger Global take stakes

The convergence of simplified business banking with accounting is happening at a phenomenal pace.

The latest player to get the global investment market excited is Indian neobank startup Open, which recently announced a $30 million funding round, led by Tiger Global.

Today the neobank allows new customers to seamlessly link or open a new business current account online, powered by Indian bank ICICI. From within the online banking platform, they can then issue simple invoices and receive payments, streamlining how the banking and accounting arms of their business interact with each other.

The approach taken by Open is almost identical to UK neobank Tide, which now claims 1 in 12 new UK business accounts’ is opened via its platform.

Open isn’t the only neobank in India worth watching.

InstantPay plays in a similar space to Open, minus the accounting bundling, with its suite of services extending beyond SMEs to corporates and individuals.

NiYO wants to own the banking relationship with salaried employees in India, offering 50% salary advances via its platform, at 0% interest. It also has a multi-currency Visa travel card and a tax-saving feature for employee expense management. Bank owned challenger brand Yono by SBI is also going after the consumer market.

Tiger Global aren’t the only US firm doubling down on Indian fintech. Facebook, who see opportunity in the tangential social commerce space, have taken a stake in Indian startup Meesho.

Meesho are effectively redefining the definition of a SME, enabling a new generation of Indians to establish home run businesses, reselling goods via its marketplace. Suppliers list goods, and resellers then market those goods out to their community of Whatsapp, Facebook and Instagram connections, setting their own margins. Collectively, resellers have access to 7 million customers on their platform, so a big carrot for suppliers to access.

The influence of cultural norms on how fintech’s develop is fascinating, and demonstrates the gulf that is expanding between how the west and the east think about innovation. Many take from the other (Open arguably from Tide), but undoubtedly some of the most interesting and novel applications in finance, like Meesho, are happening in the developing nations. There is no doubt in my mind this innovation will accelerate economic parity with more developed countries, and possibly even place western nations at a disadvantage from a financial infrastructure perspective, in the not too distant future.

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)

Bitcoin, Blockchain, Cryptocurrencies, Consumer Banking, facebook, governance, libra, nodes, Payments, stablecoin

Who bought a seat at the table of the Libra Association

 Governance, Financial Inclusion, India, Tier 3 economies, remittances, payments, currencies, tokens, coins,…

These and more terms have been tossed around over the past few days, as we consumed facts and interpretations, triggered from the Libra white paper and all the related communications around it. As the dust settles down from the initial reactions, there are several overlooked aspects of the LIBRA plan that merit looking into.

Confession No. 1

There has been an explosion of cynical, partisan, and hyped threads of discussion. I include myself in the humans that reacted rather emotionally to the communication of the LIBRA plan. My `button` was pushed when the `financial inclusion` intention seemed to be the branding and PR storyline.

Dr. Cathy Mulligan and her collaborators called for caution in their Digital Cooperation report for the UN High-level panel  (UNHLP) about using vulnerable communities to experiment on with #digitaltechnologies. Of course, `experimenting` is subject to interpretation and in the case of Facebook, maybe they can argue that this will be their second attempt in financial inclusion – as they did attempt to launch in the booming Indian market to offer seamless, cheaper payments like in any messaging app. Admittedly,  payments are the very heart of any economy and we do live in a world that customers expect payments to be like WhatsApp messages[1].

Confession No. 2

We are not ready yet for DAOs. Thomas Power, rightly says that we need a Face to each and every scalable unicorn (every system needs a Face, at 8:30 BloxLiveTV). And the truth is that there is a problem with the Face behind Facebook, even though #DeleteFacebook led nowhere.

However, sentiment is not on our side, on this one. We, the ones that don’t forget Cambridge Analytica, fake News, propaganda, and what Chris Hughes or Sean Parker or Chamath Palihapitiya said; we are outnumbered. Let’s admit it.

The masses that send and receive remittances, and the masses that spend online to buy inexpensive items – micropayments – value access and convenience. While we, the ones that have a problem with the Face, are in another phase altogether, with more choices and the luxury of discussing governance, social responsibility, public scrutiny etc.

We have to acknowledge that foundations and associations (two different legal entities) setup in Switzerland have credibility and thus, the registration choice for LIBRA association. However, we need to also admit that this Swiss branding that has been deployed in another `alternative` use case – to accommodate legally the needs of blockchain startups to launch ICOs – still has to prove itself in the governance field and in the ways it links to the for-profit businesses that are their raison d` ȇtre.

As Kathryn Haun, general partner at Andreessen Horowitz (one of the 28 founding members) pointed out[2], the Libra Association, will focus on governance issues debating decisions around how the new digital currency will be overseen etc. Swiss associations and foundations are not legal structures that were meant to spearhead such large business initiatives and that is the reason that Kathryn Hauna says “I think of it as a constitutional convention; you have all these different states coming in trying to form this union.” Dianne Schepers, a legal executive, explained to me that foundations are supervised by the Swiss Federal Supervisory Board for Foundations (ESA) and are required to be registered in the commercial registry and provide an annual report. Associations are not subject to any of these requirements.

As the 28 founding members will be discussing governance and much more about LIBRA, I feel that the composition of this association was overlooked (as other more basic items needed tending). It was actually – and rightly so – welcomed and the sentiment was positive because it has a decentralization flavor to it.

Confession No. 3

One of my first emotional reactions while reading the facts reported from Verum Capital – Your guide to Libra – on the day it hit the market, was to ask three questions:

Q1: For how many of the 28 founding members has financial inclusion been their business?

Q2: How many of the founding members have unsuccessfully experimented at scale in financial inclusion?

Q3: Which organizations were invited to consider being a founding member? And who decided this?

I share with you today my initial findings (more research and patience is needed to address them all) from looking closer to the founding members that each `coughed up` $10million

There are 7 members from the financial sector and most of them need no introduction.

  1. Visa
  2. Mastercard
  3. Paypal
  4. Stripe
  5. PayU has a large footprint in Latam and India that goes beyond payments.
  6. Mercado Pago, is the financial arm of MercadoLibre an Argentian company incorporated in the US (NASDAQ: MELI) running various online and ecommerce businesses. MercadoPago is a tech enabler with a significant footprint in Latam, for online retailers to provide their customers with payment solutions to pay in installments
  7. Calibra – is the startup, separate Facebook, wallet and dashboard entity

Discussing the composition of the founding members with Verum Capital, it became clear that none of the top 5 remittance players were invited. Xoom ranks 6th and was bought out by Paypal in 2015. LIBRA has included the 6th global remittance player as a founding member.

saveonsendSource: SaveOnSend.com

There are 4 members from the Blockchain space. Coinbase and Xapo, need no introduction. I do confess that I had to check out the others. BisonTails was only setup in Oct 2018 in the US to focus in blockchain interoperability and has only $5.3mil in seed funding[4]. Anchorage is a US start-up launched in 2017 focused on digital asset custody for institutional investors with a Series A funding completed (total funding $17mil).

  1. Coinbase
  2. Xapo
  3. Anchorage
  4. Bison Trails

Where did Bison Trails find the $10million membership fee to participate in the LIBRA association? Why did Anchorage decide to spend 60% of its total funding up to date, on its LIBRA membership?

There are 4 members from the VC world, which a priori seems a sector weight that I cannot rationalize (help is welcome; please comment).

  1. Andreessen Horowitz
  2. Union Square Ventures
  3. Ribbit Capital; a US early stage VC with the most fintech unicorns in the portfolio
  4. Thrive Capital another US VC more focused in tech investments and is well known for raising capital from institutional investors, like Princeton University, Wellcome Trust. According to a profile in Forbes, Thrive was one of three firms (joining Sequoia Capital and Greylock Partners) to invest in Instagram’s $50 million Series B round at a valuation of $500 million. Forbes wrote that after Instagram sold to Facebook, “Thrive had doubled its money in 72 hours.

Picture1.png

Source: Ribbit, A16Z Lead Fintech Unicorn Hunters, CB insights

Andreessen Horowitz is an investor in Bison Trails (one out of seven) and a lead investor in Anchorage. Thrive is family to the Facebook family. USV is family to Coinbase, and on and on.

Three out of the five top VC are founding members of the LIBRA association. Top VCs can be measured in several ways. What is more relevant here is their Fintech footprint.

There are 3 members from the e-commerce space. Ranging from travel, to luxury fashion.

  1. Booking Holdings
  2. eBay
  3. Farfetch is the online luxury fashion e-commerce business, publicly traded NYSE: FTCH

Two online hailing businesses and one music unicorn

  1. Lyft
  2. Uber
  3. Spotify

Two telecoms with Iliad being a founding member that is losing clients and revenues but has a founder and still majority shareholder (billionaire Xavier Niel) who loves challenging the corporate establishment and is the founder of the StationF, one of the biggest startup campus.

  1. Iliad is a troubled French telecom whose stock price has been in a steady bearish trap over the past 2yrs (-47% yoy). It has launched discount services and expanded recently in Italy.
  2. Vodafone

There are 5 members that are non-profit organizations:

  1. Kiva, Kiva Microfunds is a 501 non-profit organization founded in 2001 in San fransisco that has arranged  $1.3 billion of loans in 78 countries. They have a 96.9% repayment rate which makes them one of the most successful microloan NGOs.
  2. Mercy Corps is another US NGO focused on humanitarian aid launched in 1980s it boasts over 5,500 volunteers members.
  3. Women’s World Banking a US based NGO supporting microfinancing institutions
  4. Creative Destruction Lab; is a seed-stage program in North America launched in 2012 by the Rotman School of Management (the business school of the University of Toronto)for massively scalable, science and technology-based companies.
  5. Breakthrough Initiatives is a scientific non-profit launched in 2015 with several programs that aim to answer big  questions, like life beyond earth, through scientific and technological exploration, probing the big questions of life in the Universe. The Board has two members: Yuri Milner, who funded the initiative and Mark Zuckberg. Stephen Hawkins is still listed.

Wrap up

Confession No. 4

I continue to look into the issues raised by the boldness and the potential of the Libra coin (which has huge regulatory risk). LIBRA has actually a huge PR and branding problem, as even the MIT Tech Review article and many more, refer to the LIBRA Stable coin as the `Facebook coin` Facebook’s Libra: Three things we don’t know about the digital currency.

David Marcus, spearheading the Libra project for Facebook, had to denounce rumors that the $10 million buy-in got the validating firms access to transaction data (Decrypt).

There are 28 seats around the LIBRA table for now (similar to the way Stellar started off with 30 nodes). The LIBRA coin is not a Facebook coin. However, governance in an association is legally non-existent. So, for now we need to be clear that it is in good faith and only by giving the benefit of the doubt, that the LIBRA association has a dream and we should be watching their execution closely.

David Siegel through his new endeavor Cutting through the noise shared several facts and insights on LIBRA, as he is excited about the potential of a Stable coin  that can scale fast as it will be launched in established markets. LIBRA will be offered to all users on Facebook, Booking, Lyft, Paypal, Farfecth, …..

During his webinar on Saturday (recording on youtube) I learnt that 60% of votes are needed in order to make a change in LIBRA. I like to think of this as the 60% attack nightmare.

Can Facebook pull off a 60% attack?

As Bernand Lunn said to Swissinfo.ch the day after,  in What does Facebook’s Libra cryptocurrency aim to achieve?: “Facebook has been hugely successful making money from accumulating people’s data and then selling it. It’s hard to see them completely changing their stripes.”

How will the LIBRA association untaint the LIBRA coin so that it is not thought of as a Facebook coin?

[1] Excerpt from `Money is a claim on an Institution and the reason for change`, Efi Pylarinou

[2] Andreessen Horowitz: How Facebook’s Libra Cryptocurrency Will Be Governed

[4] Source from Crunchbase

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, Blockchain, Cryptocurrencies

Facebook’s Libra looks and smells like a cryptocurrency, but it really isn’t

facebooklibra.jpg

Last week our theme was “The FOMO crowd is back in town. Will Bitcoin have a blockbuster comeback?”. Our theme for this week is “Facebook’s Libra looks and smells like a cryptocurrency, but it really isn’t”

TLDR. Facebook finally released their much anticipated white paper on Project Libra. Facebook’s entry into the cryptocurrency market means that companies around the world are now considering their cryptocurrency strategy. There isn’t a big company in the world that isn’t going to join the cryptocurrency market. Thousands of centralized stablecoins are on the way.

Lately, every week I am on the edge of my seat, wondering what will happen next. It’s been another big week… While its not clear yet how Libra will affect the future of other cryptocurrencies, for now it looks like they are responding positively. Bitcoin hit new highs this weekend.

Early last week, Facebook the world’s largest social media company published a white paper about Libra, and over this weekend Bitcoin broke back to back records, reaching $11,000 in less than 24 hours, after blowing past the $10,000 mark.

In ancient Rome, Libra was a unit of weight, equivalent to 12 ounces. It was the forerunner of the pound. On Tuesday, Facebook unveiled it’s own a unit of money, Libra, a digital currency pegged to a basket of major currencies.

Weighing in on Libra, many questions come to mind. If Facebook’s 2.5 billion users adopt Libra, to pay for things and send money to each other, Facebook could disrupt banks, governments and everyone that’s involved the money business.

Is Libra a cryptocurrency?

Well, its being presented as one, but Libra doesn’t really follow the basic principles that other cryptocurrencies adhere to. Its not open, public, neutral, borderless, and censorship resistant. It lacks the decentralization that makes cryptocurrency enthusiasts, so faithful and loyal to Bitcoin. When thinking about Libra, it might be better to compare it with traditional peer-to-peer payment networks, like PayPal, Venmo, Square or even Western Union.

Like these networks, Libra is layer on top of the existing financial system. Each coin is backed by traditional currencies, to eliminate volatility and ensure its price is stable. But its also very different. Because of Facebook’s enormous reach, Libra could unify payments on a global scale and lower transaction costs.

Will Libra’s launch motivate other big tech companies follow Facebook’s suite?

Facebook’s Project Libra could motivate big competitor’s to create their own cryptocurrency. Amazon, Google Yahoo and many others are making moves, that indicate cryptocurrencies will soon become a bigger part of their platforms. Forbes has published a great list entitled “Blockchain 50: Billion Dollar Babies.”

There isn’t a big company in the world that isn’t going to join the revolution.

While Amazon hasn’t made any official announcements, it has already registered a number of new crypto-related domains, including AmazonEthereum.com, AmazonCryptocurrency.com, and AmazonCryptocurrencies.com. This has raised speculation that Amazon could be getting ready to make its move into the cryptocurrency market. Recently, Amazon was granted a patent for various techniques to build a proof-of-work (PoW) cryptographic system similar to those used by Blockchains such as Bitcoin.

Google is working on displaying cryptocurrencies in a friendly way, showing relevant information that include top news and other suggested cryptocurrencies, when a user performs a search. Its also invested in several blockchain startups, including Veem, a payments platform that lets enterprises instantly send and receive payments in different currencies, using Bitcoin.

Yahoo owns 40% of the Japanese crypto exchange, Taotao, which it bought in April 2018 for $19 million The platform allows trading for Bitcoin and Ethereum, and for margin trading for Litecoin, Ripple, and Bitcoin Cash.

Libra is not really a cryptocurrency.

Its looks and smells like a cryptocurrency, but the truth is, it’s an operating system for moving fiat money around the world. According to the whitepaper, developers will be able to build on top of Libra their own payment applications.

The authors of Libra’s white paper write: “Imagine an open, interoperable ecosystem of financial services that developers and organizations will build to help people and businesses hold and transfer Libra for everyday use.”

While in theory everything sounds open and transparent, ofter the reality is very different. The channel always wants to own the consumer advantage. Big tech companies have always developed strategies to capture the majority of the created value and in the case of crypto we can expect exactly the same. This is how Apple, Google, Amazon, Microsoft and Facebook became so huge and retain their positions. The argument has always been simple, “join or die.”

But, it’s important to see through the hype. We need to consider the who and why. Whose best interests do they have in mind. Big tech companies have huge numbers of customers and know everything about them. They push advertising and encourage customers to shop through their platforms. They understand that decentralization and blockchain can potentially shift the ownership of their livelihood, user data. Moving data from them, into the hands of the users. The ownership of data is the reason they are trying to figure out how to morph cryptocurrencies and blockchain for their own purposes. Its the only way to make sure they keep control.

Facebook’s entry into crypto could be a double edged sword. Facebook could setting the model of what crypto is and it’s not. While the Lightning Network is showing great promise, it might be too little too late. Libra might be the first digital currency to capture the payments market. We could be seeing cryptocurrencies morph into centralized stablecoins and not the decentralized cryptos we’ve known and loved for the last 10 years. The trump card for cryptocurrencies, but its uncertain if they can capitalize on it, is Facebook’s irresponsible past privacy practices and the whole debate about control vs. freedom and centralization vs. decentralization. Would you trust Facebook with your money? IMHO, most people won’t care about it and just want an easy and cheap way to send and receive money.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

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Consumer Banking, facebook, india, Payments, paytm, UPI

$2 Trillion – India payments rise force regulators on data protection

161129150332-india-cashless-payments-780x439

Image Source

2016 was a pivotal year in India’s digital economy. Demonetization was deemed a execution failure by many experts. However, it has triggered a digital payment boom in the country. In the last two years, transaction sizes in India have grown 50 times to $2 Trillion (143 Trillion INR). Some claim demonetization wasn’t the reason for the payment boom. If not causation, there is definite correlation between the two.

When we talk about Asia Fintech/Payments, China’s $40 Trillion market perhaps takes precedence over the other economies. However, if India continues to grow at the current pace, we may see yet another leap frogging Asian Fintech economy. I must confess, I was pretty excited when I first read about the 50X growth of the payments market.

Several global players have set up shop in India. Google, Amazon and Alibaba have all taken part in the payments boom in different ways. While these tech giants keep clashing, the Indian government has led the way in setting up the core infrastructural elements through the Unified Payments Interface (UPI). This is perhaps one of the few instances where a government has pioneered innovation at this scale.

I recently spoke to Elizabeth Chapman, CEO of ZestMoney – a fintech lender in India. As a Westerner, now running a startup based out of India, she is perhaps best suited to assess the developments there, especially in comparison to the west. There were two key developments she was very pleased about.

One, getting a digital identifier for 1.3 Billion people. Getting the Aadhaar programme up and running in under two years, was no mean feat. The data base has been linked to several governance aspects, like tax for example. The other development Liz was impressed about was the UPI, which has catalysed the payments boom.

Now coming back to India payments, Facebook is a key player. Whatsapp payments was tested with a limited audience in India. While the uptake was very good for the functionality, regulatory support was missing. The Reserve Bank of India (RBI) initially came up with a rule that customers’ payments data can’t be stored outside of India.

The Government of India also imposed a rule that any data classified as critical personal data cannot be stored outside of India. Most international technology firms have expressed their dissatisfaction with these data protection rules. One of the key reasons why Whatsapp Payments didn’t take off in India was because of this rule.

In an emerging markets context, consumers care less about data protection and privacy. As long as they get to be part of the banking system and the financial ladder, getting paid is all they care about. Which is why QR codes and PayTM wallets have become so commonplace on Indian roadside shops.

cashless_Reuters

Image Source

In a recent Linkedin conversation, one of the comments were about decentralised ways of storing assets in a wallet. It is a great concept in the west, and I love to talk about it till the cows come home. However, this was hyped as a great development in an emerging markets context. I don’t believe that is true.

Emerging markets consumers DO NOT care about decentralisation. I am not talking about the college graduate in south east Asia who is writing a Blockchain and has 10 different wallets to store cryptos.

I am talking about the lady who is selling the turmeric in the picture above. All she cares about is an easy way to get paid, so that she can cook dinner for her kids, and pay their school fees. They care about how inflation could take away all their wealth in Latin America and parts of Africa. Therefore, a solution that solves their day to day problems will see massive uptake.

We have already seen the rise of digital payments in India. With the removal of these data localization rules by RBI and the Government of India, there will be more explosive growth. With Facebook’s Libra (Sorry, couldn’t help mentioning it) around the corner, getting rid of the data localization rules, may not necessarily be a bad thing.

For Facebook, India is the biggest market – be it based on population or internet growth, or middle class income or financial inclusion. All the metrics point to India for Facebook.

For me, Financial Inclusion comes ahead of Data Protection. We thought Identity with Aadhaar – we didn’t think decentralisation. Let’s get them all on to the next generation payment network, get an economic identity created for them. Data protection, privacy and decentralisation will soon follow as awareness of the risks of the digital economy becomes more prevalent. For now, let us just help the lady selling the turmeric get paid.

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

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

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

 

Bitcoin, Blockchain, Cryptocurrencies, calibra, facebook, gosci, libra, stablecoin

10 Takeaways from the Facebook Libra announcement

LIBRA.001


TLDR. Will the Blockchain Economy be acquired by the Facebook Economy? Tuesday’s announcement by Facebook ranks as the 3rd big event in the 10 year history of the Blockchain Economy (the first two being the Bitcoin and Ethereum white papers in 2009 and 2014).

This update to The Blockchain Economy digital book covers:

  • The biggest losers will be global banks

 

  • Move will get a lot of traction with developers (despite many negative technical reviews)

 

  • We have all contributed a lot of free brainstorming and market testing for their future product.

 

  • Libra is a stablecoin with unknown constituent parts

 

  • Facebook’s delicate dance with regulators

 

  • They have brilliantly coopted the regulated Legacy Finance world as Nodes

 

  • Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream

 

  • The Calibra wallet will probably drive mainstream adoption of Bitcoin 

 

  • There are lots of opportunities for agile entrepreneurs but never forget who owns this playground

 

  • XRP just became a lot more risky and be careful investing in ETH 

1. The biggest losers will be global banks

Facebook Libra will obliterate the bank’s advantages in three ways

  •  A Stablecoin switchboard is vastly more efficient than today’s interbank foreign exchange market. What I mean by a Stablecoin switchboard is that all currency prices are quoted against the Libra Stablecoin price. Oops DB!! This comes at a horrible time for Deutsche Bank (DB) which many think will be the next Lehman due to their massive derivatives exposure. One area of strength for DB amid all this turmoil is their dominant position in the today’s interbank foreign exchange market which will now be disrupted by the Libra Stablecoin switchboard.

 

  • Facebook has a global footprint without any of the overheads of global banks. I observed how global banks were replacing the correspondent bank network at SIBOS Geneva 2016. If you have invested lots of money over many decades building a physical branch network around the world, Facebook’s global reach looks hugely threatening. This is big threat to banks such as HSBC and JP Morgan. The latter created JPM Coin specifically for payments across the JPM network. 

 

  • Libra eliminates the need to use the banking system to move money. You move Libra and then either pay in Libra or convert to your local currency via the Stablecoin switchboard. 

David Marcus, the very smart leader of this part of Facebook, has been super articulate and on message in interviews. The only point where he looked a bit uncomfortable was when asked why no banks participated. Grab your popcorn folks, this one will be epic.

2. Move will get a lot of traction with developers (despite many negative technical reviews).

Move is the programming language on the Libra blockchain. There is much commentary that it is not as flexible and open as programming on Ethereum or other similar open consensus networks. Despite these negative technical reviews, I predict that Move will get a lot of traction with developers for two reasons:

  • Move is safer. An inexperienced developer is less likely to make a rookie mistake using Move that costs a lot of money (eg a DAO like hack).

 

  • Move brings you scale aka more users today. Why do you program mobile apps in IOS? Technical excellence is less important than the fact that Apple sells a lot of mobile phones.

3. We have all contributed a lot of free brainstorming and market testing for their future product. 

Myself included – no, Facebook did not pay me for this analysis.

Tuesday was the start of  Step 3 in a 5 Step dance

Step 1. Recruit David Marcus. This happened in 2014. I wrote about Facebook Ambitions in Fintech at that time and correctly identified the direction of travel ie where the puck was headed. How long they spent in planning took me by surprise but now, seeing how well they have planned it and the scale of the ambition, it makes sense.

Step 2. Create a plan. Facebook has spent 5 years on this plan. It is a) very well thought through b) existentially critical to a $500 billion market cap company. 

Step 3 Run it up the flagpole. This what they did on Tuesday. All of us have given Facebook a ton of well considered feedback aka free market testing and brainstorming and we will continue to do so in the weeks and months ahead. 

Step 4. Adapt based on this feedback.  The feedback already includes howls of protest from privacy advocates. Crypto folk are certainly privacy advocates; so we can expect this phase to be very, very noisy. Facebook will have planned for this. Based on past Facebook launches, we can expect them to:

  • first, take one step back. Facebook issues a sort of apology and it appears as if privacy advocates win. 

 

  • then, take two steps forward. A little later, Facebook quietly does what it intended to do in the first place, tweaking it to allow for the step back.Watch the $FB stock price – that will be the signal among all the noise. If investors believe that Facebook has no control over private data, they will sell the stock.

Step 5. Launch & execute in 2020

4. Libra is a Stablecoin with unknown constituent parts.

Critical to their very well thought-through plan is the use of a stable cryptocurrency in the Stablecoin switchboard that I described in Takeaway 1. Interestingly enough, considering how critical this is to their plans and how much detail there is in other parts of the white paper, critical details, such as what Fiat currencies are in the Libra currency basket, are missing from the white paper.

That is why Daily Fintech created the GOSCI – Global Open Source Currency Index as an independent volatility benchmark for Stablecoins. If a Stablecoin claims low volatility, one should be able to measure that volatility against other Stablecoins.

5. Facebook’s delicate dance with regulator

Facebook’s delicate dance with regulators has three clever pieces:

  • Self sovereign ID.  Page 9 of the white paper says “We believe that a decentralized and portable digital identity is a prerequisite to financial inclusion and competition”. Governments have historically controlled Identity artefacts such as passports, work permits and drivers licenses. The Facebook deal with Governments  might be to allow Facebook ID if that meant that only real ID people can use Libra (and acceptable to users if the ID is controlled by user ie it is self sovereign ID).
  • Giving regulators control of the on and off ramps. This is a trojan horse for regulators. If Libra becomes an independent Unit Of Account (get paid in Libra and pay in Libra) the on and off ramps will become relics of history.
  • Using regulated entity partners to provide customer facing services (such as on and off  ramps). This means Facebook does not need to become regulated as a financial entity itself.


Facebook’s delicate dance with regulators over Libra needs to be seen within the wider context of Facebook being regulated as a dominant social media platform. They can now say “see, we are not dominant within the wider market of financial services, so a break up should not be on the cards”. 

6. Facebook will ignore all the early adopter howls of protest because they are going direct to the mainstream.

Like most crypto early adopters I am a bit of a “privacy nut” but I am under no illusions that my opinion will matter to Facebook. They know they cannot meet the 5 five pillars of open blockchains as defined by Andreas Antonopoulos: 

  • open
  • public
  • neutral 
  • borderless 
  • censorship resistant.

Without those 5 pillars you will never win over the crypto early adopters. With most launches that would be game over, as the only route to market is via the early adopters. Facebook is taking Libra direct to the mainstream users who don’t give hoot about those 5 pillars.

The irony today is seeing crypto early adopter cypherpunk libertarian types happily saying that Libra will be stopped by regulators.

7. The Calibra wallet will probably drive mainstream adoption of Bitcoin

I say “probably” because this is dependent on Calibra wallet allowing coins  other than Libra. I think this will happen because a single coin wallet will not be popular unless Libra is the only currency/coin we ever use. If Calibra wallet allows coins other than Libra, it will introduce millions of new users to Bitcoin.

8. They have brilliantly coopted the regulated Legacy Finance world as Nodes.

The list of partners leads people to a conclusion that Facebook can only win, that it is game over. Yet many of the partners have more to lose than to gain. For example credit card networks will lose if payments moves to crypto and VCs will lose if Facebook has too big a hold on crypto innovation and value creation. It remains to be seen if these are PR partners or real partners. In a PR partnership, both parties get something but don’t have much skin in the game.

9. There are lots of opportunities for agile entrepreneurs but never forget who owns the playground.

Libra is like Apple creating the Apple Store, a defining moment full of opportunities for agile entrepreneurs. As long as you never forget who owns the playground, your business won’t be obliterated when/if Facebook changes the rules.

10. XRP just became a lot more risky and be careful investing in ETH 

Ripple wants to enable cross border payments via banks. Some banks will run into the arms of Ripple because they are scared of Facebook, but what was a risky speculation pre Libra (can Ripple persuade banks to use XRP) just had another layer of risk added (if banks can be persuaded, can they beat Facebook?).

The ETH Ethereum story is more nuanced. The total openness of Ethereum means that there maybe use cases nobody ever dreamed of (ICOS and CryptoKitties was not part of Ethereum plan in 2014). Yet a platform like Libra can attract lots of less experienced developers who want to win over Facebook’s 2.4 billion users.

Context & References

Investing in Payment Tokens and Stablecoins (aka new currencies).

Why StableCoins are so important (but also so hard to get right)

Facebook Ambitions in Fintech (note, from October 2014)

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

What the rise and fall of Basis Stablecoin tells us about the future of corporate Stablecoins such as Facebook GlobalCoin

———————————————

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 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).

cyber, Cyber Attacks, cyber risk insurance, insuretech connect, InsurTech, small business insurance, SMEs

Cyber insurance- questions without many answers

image

TLDR When we last met it was agreed that cyber risk and cyber insurance are under-emphasized concepts in the SME insurance and InsurTech worlds, and discussion was had on the ‘underground’ nature of cyber attacks and associated non-publicity of cyber events.

It’s Ok to raise awareness and prompt discussion (and there was much of that after the article was posted), but does that move the issue forward in a practical way? 

If a penetration test identifies vulnerabilities, what then?  If the owner of an SME wants to protect her firm from potential actions of a rogue employee, the next step after installing solid tech is…?  And when you call your broker and ask for the most comprehensive cyber cover, what will his answer be and how can you know if it’s the correct answer?

After the 6/14 Daily Fintech  article posted I received an inquiry from Jay Weintraub  of InsureTech Connect through the fine folks at Caliber Corporate Advisers  (thanks, Meg MacDougal ! ) and he posed two pretty good points/questions:

  • The big question regarding insurance and cyber is not, “are we focused enough around this space”, but is, “what happens if insurance gets it wrong?”
    • “A cyber security disaster could be the next major ‘hurricane’, but unlike a hurricane which you can somewhat see coming to a single geography, a cyber breach is the equivalent of 1000 earthquakes happening simultaneously in places that don’t have fault lines- it’s a beast you can’t see coming, with unknown reach, so its imperative that we identify ways to mitigate the effects of that risk.”
  • A role of insurance is to help businesses when there is risk- that includes cyber security.
    • “Insuretechs and incumbents are well-positioned to help, but in the rush to protect businesses, they have to make sure they are not setting themselves up for catastrophic failure in the future. Cyber is simply too new and in some respects the factors that contribute to the losses are so varied that the legitimate question is, “have they modeled this correctly?” As of now the answer is that we don’t yet know.”

It could be said cyber insurance carriers don’t know enough to ask what we don’t know- the risks are new, evolving daily, and the direct and indirect costs of cyber events are being defined as you read this article.  Predicting the costs of risk hinges on adequate pools of data- experiential, financial, valuation, etc.; however, what is really known of cyber risk data?  The biggest consumers of cyber risk data seemingly are the companies whose primary role is protecting consumers/businesses from risk- virus protection companies like Symantec, McAfee, Webroot, or Kaspersky (among other peer companies), but are those companies proxies for cyber insurance?  Not so much- read the user license agreement and see what lengths those firms go to (or don’t) to provide post-cyber occurrence indemnification.  Symantec has taken some steps towards insurance through partnering directly with the data analytics firm CyberCube that serves as a SaaS platform for insurers and underwriters, but not as insurer.

If the risk detection/protection firms haven’t branched into cyber cover, why not?  Yes, it’s a different sort of distribution needed, and more breadth of coverage, but if demand is there from customers, does the InsurTech world not see opportunity in cyber?  AM Best reports that U.S. cyber insurance premiums have grown aggressively in the past few years- $2 billion in 2018 from a level of $ 996 million in 2015.  50% growth and billions in premiums.  The rating firm also notes that the number of claims grew to 10 million in 2018.  That’s a lot of customer needs.  Money and customers- opportunity, for InsurTech and unfortunately for the bad guys.

The answers aren’t clear but some of the points to consider are:

  • Cyber cover includes preparation (know the risk), prevention (antivirus, penetration tests, training), response, and repairs
  • Availability- there are larger carriers who have products for those who are interested, e.g., Chubb, AXA and AIG. Are these carriers accessible to SMEs?
  • There are many SMEs who see the typical business owner’s policy as sufficient, or choose to consider minimal liability cover as being adequate.
  • There’s not much public awareness of cyber occurrences- many who experience an event keep the trouble quiet. There needs to be more focus on the issue such as in Australia, where reporting an occurrence is mandatory.
  • The pool of available data is shallow, inhibiting the effectiveness of risk rating, suggesting premiums will be set higher to manage the carrier’s incomplete knowledge of the risk.
  • Large cyber occurrences are analogous to more traditional catastrophes- except they will cross far more regulated jurisdictions.
  • Cyber risk crosses the line of data security, and will have collateral effects with laws/regs like GDPR and HIPPA.
  • Cyber cover can accommodate products from parametric, indemnity, and reinsurance covers- response, repair, and cat.
  • Is cyber an opportunity area for virtual IoT-based insurance? Cyber monitoring as severity managers?

Those are just some of the thoughts that came to mind- much smarter persons have already considered these and others, which makes it surprising that cyber insurance is not more mainstream.

A parting thought for an article that raised way more questions than it answered- what of a person’s or company’s reputation, or brand in the wake of a cyber event?  Is that a recoverable risk?

I reached out to Ben Baker, a personal brand expert, marketing consultant, and radio host for cyber crime/risk perspective.

“Let’s not kid ourselves,” replied Ben, “cyber-crime, whether it is extortion or malicious attack, is a brand problem. Not only is the reputation of the attacked company at stake, but there is added potential harm if it affects the vendors and clients of the business attacked.

The gut reaction by vendors or clients is probably not, “how horrible is it that you were attacked” but rather, “how could you as a brand be so careless with my information?”  Cybercrime, when disclosed, can lead to huge trust issues in the attacked brand mishandled, and unfortunately, most companies do mishandle communicating through a crisis. “

Ben’s words suggest the cyber insurance discussion comes full circle, not only does a lack of urgency/information inhibit acquisition of cyber cover, but it ultimately can affect parts of an SMEs business that may be unrecoverable- reputation.

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).

 

Small Business Fintech

£5m for 5 – the SME fintechs who’ve been awarded RBS grants

Financial disaster has had a silver lining for some fintechs, with many benefitting from RBS’s remediation funding scheme, that was established in the wake of the financial crisis.

Five fintechs are beneficiaries of the latest round of grants. We had a quick look at who they are, and what they do.

Swoop Finance

Swoop’s matching technology helps SMEs find the right funder for their business. Working with over 1000 providers, they can serve up lenders that are a best fit. Born in Ireland, they cover the local and broader UK market.

Funding Options

Matching technology is clearly where the excitement is, with Funding Options performing a similar role to Swoop, this time matching those in need with more than 50 lenders.

Form3

Unlike Swoop and Funding Options, Form3 operates in the payments-as-a-service space. They have access to the Faster Payments Scheme, operating as a Direct Settling Participant. They exist to plug the awkward payments gaps that have arisen as businesses try to make payments work, across an increasingly fragmented ecosystem.

Codat

Codat should call themselves the connecter of the connectors. The company’s API allows you to integrate once to multiple accounting software platforms. Think of it maybe like the Yodlee of accounting.

Fluidly

Last but not least, intelligent cashflow management software Fluidly is all about helping businesses predict their financial future. The also offer automated credit control, claiming they are able to save businesses over 40 hours per month on cash collections.

Here’s hoping some great things come from the £5m grants these companies have received. It is certainly not spare change, and there will no doubt be great expectations from the community, to ensure that money is put towards building great products and experiences that avoid the very disaster the grants were born from.

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)

Daily Fintech Advisers, stablecoin

Global Open Source Currency Index (GOSCI) is an independent volatility benchmark for Stablecoins

GOSCI logo.001

An independent volatility benchmark for Stablecoins

The GOSCI mission is to create an independent volatility benchmark for Stablecoins.

Many in the cryptocurrency community worry that Facebook’s cryptocurrency will usher in centralized corporate control on a global scale.

This what motivated us to launch GOSCI – Global Open Source Currency Index. We want a level playing field via a benchmark that is independent from institutional control (either corporate or government).

The best Stablecoin is the most stable (aka least volatile) Stablecoin. Low volatility not corporate clout is the measure of excellence.

The GOSCI Idea

GOSCI (Global Open Source Currency Index) is designed to be the exact opposite of Bitcoin and other cryptocurrencies in three ways:

1. GOSCI is Non Volatile by design. It is a model created from a basket of Fiat currencies, comprising more than 90% of global GDP.

2. GOSCI is a model/index, not a stablecoin. You can use GOSCI to benchmark any Stablecoin – including Stablecoins from corporate giants such as Facebook.

3. GOSCI does not compete with Fiat. GOSCI is not a threat to Governments that issue Fiat Currencies, because GOSCI cannot be used directly as a store of value or a currency/medium of exchange. Even if some governments decided they did not like GOSCI, it cannot easily be shut down because GOSCI is free and open source and does not require any regulatory approval.

From a regulatory point of view, GOSCI is not a Utility Token or a Payment Token or a Securities Token or an Asset Token. GOSCI is simply a spreadsheet formula filled with data that is in the public domain – which anybody can use (it is open source).

The model is a free/open source project, created by Daily Fintech, but with an independent governance structure.

You have the option to pay for the right to use the GOSCI name and to be involved in GOSCI model governance, see later.

How GOSCI can help the Stablecoin ecosystem

You can use GOSCI to benchmark any Stablecoin. We are not in the business of benchmarking Stablecoins. Our focus is to create the least volatile basket and invite anybody to benchmark any Stablecoin against that index. You can benchmark your own Stablecoin or any Stablecoin. 

There are three different approaches to creating a Stablecoin and each requires a volatility benchmark:

  • cryptocurrency derivative . You use algorithms to match supply & demand of an existing volatile cryptocurrency such as ETH to create a cryptocurrency derivative that is stable.
  • audit heavy/tech light. These ventures match each Stablecoin purchased with a corresponding deposit in a Fiat bank account. The Fiat bank accounts are audited so that investors can be confident that the Stablecoin is a real asset.
  • algorithmic central bank. You automatically buy your Stablecoin when it is below the planned peg/benchmark and automatically sell your Stablecoin when it is above the planned peg/benchmark.

Why License GOSCI when it is Open Source?

We publish the model and the formulas. The data for the model is in the public domain (GDP data by country from the IMF). GOSCI is free, open source and permissionless. There are two benefits of Licensing GOSCI:

  • You are licensed to use the GOSCI name in your marketing.
  • You get a vote on changing the model weightings (see Governance).

The Bitcoin volatility problem is not going away

Bitcoin is a great store of value but flawed as a medium of exchange due to volatility. Layer two services such as Lightning Network may solve the scalability problem, enabling low value payments, but they do not solve the volatility problem. For more on the limitations of using Bitcoin as an interim store of value for payments to enable it as a Medium of Exchange  please read this November 2015 post on Daily Fintech.

GOSCI is non-volatile by design.

USD Is Not The Gold Standard Of Non Volatility

USD is less volatile than BTC, but many sophisticated investors try to hedge against USD volatility risk with assets such as Gold, Bitcoin and Currency Baskets.

GOSCI is built from 36 national currencies that in aggregate account for more than 90% of Global GDP (vs about 25% for USD).

GOSCI is non-volatile by design.

Why & how we use GDP numbers for rebalancing the Index 

GDP data is widely available. Even if some GDP numbers lack credibility it is the best data available to track economic activity and over the long term economic activity drives currencies.

With 36 national currencies that in aggregate account for more than 90% of Global GDP we are confident that GOSCI is non-volatile. Chasing 100% of Global GDP would add a lot of complexity with little extra benefit. There are 164 national currencies, so the 10% long tail includes 128 currencies.

When GDP changes, the index rebalances. For example if China GDP grows faster than US GDP, this will impact the currency weightings.

Why Now

At some point in the future, USD will be replaced as the global reserve currency. No global reserve currency lasts forever. In other transitions, the currency shifted to the rising economic power (e.g from Britain to America). The problem today is that the rising economic power is China and the Yuan is not credible as a global reserve currency and many countries will resist China in that role for geopolitical reasons.

The transition to the next global reserve currency coming at a time when cryptocurrencies are gaining traction is a unique moment in history.

The question is what will replace the USD?

GOSCI is designed to avoid the control of large corporations over  cryptocurrencies. Many BigBank and BigTech companies, such as JP Morgan and Facebook, have announced plans for their own proprietary cryptocurrency. GOSCI is designed to empower a world that is decentralised and permissionless and not controlled by large corporations.

Any single Fiat currency will be resisted for geopolitical reasons, so the three non-corporate alternatives are a) IMF SDR b) Gold or Oil c) Bitcoin.

Why GOSCI is a better volatility benchmark than the IMF SDR.

The SDR is an international reserve asset, created by the IMF (international Monetary Fund)  in 1969 to supplement its member countries’ official reserves. So far SDR 204.2 billion (equivalent to about US$291 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. The SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.

  • It is easier to change the GOSCI model index. We believe that 5 currencies accounting for 65% of Global GDP is not enough, but imagine the politics of getting 36 countries making up 90% of Global GDP (ie the GOSCI model) approved by the IMF.
  • GOSCI is a more neutral and open solution. GOSCI is neutral from a geopolitical point of view and no institution or country can control GOSCI.

Why GOSCI is a better volatility benchmark than Gold or Oil.

Gold is flawed as a volatility benchmark for two reasons:

  • Gold is traded by speculators. Therefore it is volatile.
  • Gold has an unpredictable inflation policy.  If new sources of Gold are found (or improved mining) there will be inflation, but that rate is unpredictable.

Oil has the same flaws as a volatility benchmark as gold.

Governance

GOSCI was created by Daily Fintech, but with an independent governance structure.

One License One Vote builds on a well proven principle. You can only buy one GOSCI License. If you pay the GOSCI Annual Licensing Fee, you get a vote on how to change the model (in addition to the branding rights).

The way Governance works in GOSCI:

  • Anybody can create a GOSCI Model Improvement Suggestion (GMIS). For example you may suggest adding Gold at a 10% weight. You do NOT need to be a Licensee to suggest a GMIS (only to vote for one). We want the brightest minds suggesting GMIS, regardless of their financial resources. We will publish the method for doing this within one year (ie the current model will be in place for at least one year).
  • Licensees vote on the GMIS. Once 10% of Licensees vote for a GMIS it is published (ensuring that the wider community gets a chance to look at it). Voting is done once a year on all GMIS submitted in the prior year.
  • Once more than 51% of Licensees vote for a GMIS it is implemented.

To have influence, you need to be a Licensee (but the annual fee is low enough for even bootstrapped or self funded early stage ventures).

Annual License Cost

0.1BTC (translates to USD1,000 per year if BTC is at USD10,000).

Why Licensees pay in Bitcoin not GOSCI or Fiat

GOSCI is not an asset. You cannot buy anything with GOSCI. So you cannot pay in GOSCI (but you will be able to buy things with Stablecoins that use the GOSCI model).

As Cryptocurrencies work globally and Daily Fintech readers come from all over the world, any Fiat currency we chose would incur exchange rate risk and fees – and it may seem odd for a site that writes a lot about Crypto enabled payments innovation to charge in Fiat currency. 

By charging in Bitcoin, we give Licensees an incentive to buy sooner rather than later. We assume that anybody who gets this far in a nerdy post knows how to pay in Bitcoin and is a long term Bitcoin bull (and therefore expects the price to rise from here). If you want to protect against Bitcoin increasing in value you can buy up to 5 years of License in advance.

Please send an e-mail to julia at daily fintech dot com if you are interested in licensing GOSCI.

The Model

You can see the model in this Google Sheet. We use data from the IMF for GDP per country.

References

Banking, Consumer Banking, emotional banking, retail banking, Small Business Banking, Small Business Fintech

How Emotional Banking can look like

Emotional bankingIt is Spring and officially in three days summer, so this is the time to open up and bring up topics like Emotional Banking. Several influencers have covered this topic – Chris Skinner, Brett King, Ron Shevlin – and Duena Blomstrom has been focused 100% on Emotional banking in her work and with her book `Emotional Banking : Fixing Culture, Leveraging FinTech, and Transforming Retail Banks into Brands`.

The core issue underpinning Emotional banking is the relationship we humans have with money. Undoubtedly not a simple one and clearly an emotional one.

When was the last time any of the three financial institutions you have relationships with, checked in with you as a person? The reality is that we each engage with at least three financial institutions but often with seven (consumer banking, business banking, wealth management, insurance, broker, etc) and the touch point is ONLY when and if we are ready to transact.

Sadly, most neobanks or challenger banks or Fintechs with banking services, are no different than the traditional financial institutions in that respect. And I am not referring to the fact that Revolut does remember my birthday whereas UBS doesn’t. I am referring to the fact that neither Revolut nor UBS, have any idea of what makes my heart beat, what would make me feel more secure, how I dream about the future, why I trained as a Kundalini Yoga teacher etc.

HOW Emotional banking looks like

Here is a concrete example of HOW Emotional banking can look like. Frost Bank is a 150-year-old Texas-based bank that started off as a small mercantile store and is now one of the 50 largest banks in the US. Frost bank has also been receiving the Greenwich Excellence award in the middle market and small banking category.

What caught my attention is their Optimism campaign called Opt for Optimism. They chose to link Optimism with financial health.

First, Frost Bank embarked on a research study about the link between Optimism and financial health. Here are some of their findings:

 Optimists experience 145 fewer days of financial stress per year

Optimists are 7x more likely to experience better financial health

They published their research in Mind over Money showing how attitude and mindset toward money impact financial health.

Screen Shot 2019-06-17 at 12.15.20

At the same time, they launched a campaign about Optimism through a 30 day challenge during which people can join in performing 30 acts of optimism. They also created a community sharing portal to inspire each other, explore the financial habits of optimists,  watch inspiring films the bank produced for the campaign and find out why Frost Bank cares about something like optimism in the first place.

Share in the comments other examples of HOW Emotional Banking looks like.

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).