Small Business Fintech

EY releases first ever global SME Fintech Adoption Index

The EY FinTech Index, which has been going since 2015, is back for its 2019 edition.

The publication interviews more than 27,000 consumers in 27 markets to take the pulse on where fintech is at.

Unsurprisingly, the sector is thriving, or in EY’s words, innovation has now ‘become the new normal.’

2019 marks the first year the index has taken a deep dive into SME fintech, building out the first ever SME FinTech Adoption Index. It’s a survey of 1000 organisations across 5 markets – no mean feat indeed.

The SME index interviewed decision makers in the UK, US, South Africa, China and Mexico, via a digital survey. An important disclaimer, as digital enablement isn’t always a feature of SMEs everywhere, developed and non-developed nations included.

Here is a snapshot of the results that caught our eye.

China leads the way in SME Fintech adoption, with 61% of SMEs interviewed having used a banking and payments, financial management and financing and insurance service from fintechs in the past 6 months. The UK (18%) is not far in front of South Africa (16%), with Mexico at 11% and the US at 23%.

Global averages for fintech adoption sit at 25%, however China skews the data significantly, given the highly digitized and platform centric nature of the financial services economy. Skewed or not, it represents the future that the western world is lagging behind on.

SMEs that were considered adopters tended to be VC backed, global in outlook and with an online/mobile sales model.

In developed markets, like the UK and the US, the most widely used services are online bookkeeping, payroll management, online billing and online payment processors. In emerging markets SMEs are also frequent users of payments and billing services, but mobile point-of-sale devices and readers also feature.

Fintech isn’t always a panacea, however.

More than half (57%) of those surveyed who were classified as adopters said the services available from fintechs didn’t meet the needs of their company. It presents a distinct opportunity for a unifying force in SME fintech that can connect the dots in a fragmented system for time-poor business owners.

The gap in attitudes between the adopters and non-adopters when it comes to data sharing with fintechs is also interesting. 89% of adopters indicated they were willing to share banking data with a fintech, compared to only 50% of non-adopters. 69% of adopters were willing to share that data with a non-financial services company, which should present some interesting opportunities to those in tangential markets to fintech, where access to banking data could provide additional context and experience enhancement.

You can access the full report here.

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)

AI, Bitcoin, Blockchain, Cryptocurrencies, Blockchain, data scientists, Numerai, prediction, WealthTech

Numerai a small cap AI Blockchain gem

Blockchain and AI are the most trending technologies. Blockchain for Finance and AI for Finance ventures are also increasing. The combination is hoped to fuel the autonomous financial infrastructure that will host all kinds of intelligent applications in capital and financial markets.

LiveTiles-Blockchain-Infographic-E

LiveTiles brought to my attention 20 AI Blockchain projects with a great infographic. As I have profiled a few of them in 2017 at the protocol layer and the data-finance verticals, I decided to catchup with Numerai. They had grabbed my attention 2 years ago in this primer I wrote: The Big Hairy Audacious Goal of Numerai: network effects in Quant trading

Screen Shot 2019-06-02 at 16.59.44Numerai is creating a meta-model from all the Machine Learning (ML) algorithms developed by “the crowd” with cryptographic data. Numerai aims to offer a platform that generates alpha in a novel way. It wants to structure a rewarding mechanism for its traders that not only eliminates the typical competitive and adversarial behavior between them but actually, penalizes them.                              Efi Pylarinou

Numerai was and is a bleeding edge venture. It remains the only hedge fund built on blockchain and using ML and data science in a novel way. The novelty lies in changing the incentive and compensation structure of the fund manager.

Numerai launched no ICO. The NMR token was awarded to the thousands of data scientists for creating successful machine-learning based predictive models.  Once the data scientists are confident of the predictive ability of their model, they can stake their NMR and earn additional NMR if they are correct.

Numerai involves a staking mechanism.

In March, Numerai reported that $10million had been rewarded up to date. NMR tokens were distributed via airdrops initially. At launch on 21st February 2017, 1 million Numeraire tokens (NMR) were distributed to 12,000 anonymous scientists.  Thereafter, NMR  tokens were awarded as rewards to users of its platform. Bear in mind, that if a participant stakes NMR and their model doesn’t perform, the staked tokens are burnt.

According to Numerai, the NMR token is one of the most used ERC20 tokens. By end of 2018 reporting 25,000 stakes of NMR.

Numerai II.pngSource

Almost 200,000 models submitted by data scientists around the world for a competition to crowdsourced the best prediction models.

Screen Shot 2019-06-02 at 18.52.49Source from Chris Burniske`s talk at Fluidity Summit in NYC.

Numerai in March raised $11mil from investors led by Paradigm and Placeholder VCs. Numerai is a very rare case because this fundraising is not for equity but for NMR tokens.

Numerai token is a utility token and investors just bought $11million of NMR tokens.

The funds raised will primarily be used to drive the development of Erasure, a decentralized predictions marketplace that Numerai launched.

What does this mean in plain worlds?

Numerai was not a protocol but rather an application  – a hedge fund. Erasure will transform it into a protocol. This has several significant implications.

  • NMR becomes a token on the protocol and can be used to build all sorts of applications on top of Erasure.
  • Numerai becomes decentralized. The NMR smart contract will no longer be controlled or upgraded by Numerai but by NMR token holders. So, NMR becomes a governance token.
  • Numerai will have no authority on the supply of NMR tokens.

A protocol is born out of the app Numerai – its name is Erasure. Erasure is much broader than a hedge fund, as all sorts of prediction and data markets can be built on the protocol. The vision is to always to be a token that is actually used. Which brings to the spotlight the lack of transparency around data measuring use of protocol and Dapp tokens.

 Footnote: Numerai at launch was backed by Fred Ehrsam, Joey Krug, Juan Benet, Olaf Carlson-Wee and Union Square Ventures.

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

Why is Bitcoin going up? HODL on Bitcoin?

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Last week our theme was “Is it time to buy Bitcoin? Google’s data on Bitcoin searches“. Our theme for this week is “Why is Bitcoin going up? HOLD on Bitcoin?”

TLDR. Ten years ago, when Satoshi Nakamoto published Bitcoin’s whitepaper, he described a “peer-to-peer version of electronic cash.” The idea was for Bitcoin to be digital cash. To provide a borderless means for payments, without intermediates. Since then, while Bitcoin has become a household name, it has yet to realize its true potential. It’s primarily used for speculation, instead of an everyday means of exchange.

Major retailers have become very receptive to the idea of accepting Bitcoin as means of payment. Now you can pay your AT&T bills using Bitcoin. Satellite television and Internet service provider Dish Network accepts Bitcoin as a payment option. You can fund your Microsoft account with Bitcoin, to purchase games, movies, and apps in the Windows and Xbox stores. Who accepts Bitcoin? Here’s a list with a few of the major companies accepting Bitcoin.

Yet, research from Chainalysis shows that just 1% of Bitcoin transactions were payments to merchants. Almost no one is using Bitcoin to buy things. Speculation was the primary use for Bitcoin.

Annotation-2019-05-31-114901.png

In the first four months of 2019, the proportion of merchant related transactions remained low. Only 1.3% of Bitcoin (BTC) transactions were purchases from merchants. The most extensive use is speculation on exchanges. The increase in price has to do with what we are willing to pay for Bitcoin and cryptocurrencies, instead of what we can actually do with them.

Bitcoin’s volatile nature discourages people from using it to buy things. People prefer to HODL and make huge profits in the future, instead of using Bitcoin to pay for things.

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Five years ago, criminal activity was behind about 90 percent of cryptocurrency transactions. Now, illegal activity has shrunk to about 10 percent and speculation has become the dominant driver.

Speculation is important for new technologies. Whether you are dealing with emerging technology, a new business or idea, speculation is one of reasons that something will cross the chasm, to become widely adopted or a complete failure. But speculation can also be bad, when its not backed by growing usage.

Today, usage for Bitcoin and cryptocurrencies is still very low. About 85% of Bitcoin’s value is the result of speculation. Investors are heavily speculating on the future usage and adoption for cryptocurrencies and blockchain, but today utility is just a small component of the current price.

Use cases are what will drive Bitcoin’s growth, not speculation.

During a conference in Korea, Andreas Antonopoulos said “Crypto doesn’t have a use-case in the ‘developed’ world… yet“. The reality is that until scalable use cases are fully deployed, cryptocurrency markets will remain a highly speculative and volatile.

Many attribute this to block size, Lightning Network, or user experience.

We are starting to see some real use cases around the world. Projects like Facebook’s upcoming stablecoin, JPMorgan’s JPM Coin and Fidelity’s recent announcement that it will start buying and selling BTC for its clients. These are all important and constitute stepping stones in mass-adoption for cryptocurrency, but I am not sure if they are the Bitcoin’s killer app.

If we want to predict where it might go, we need to look beyond price and follow how its used and who is using it. Lack of real-world use is the biggest challenge for Bitcoin. Maybe Bitcoin will never become a payment currency and will only be a stored value just like gold. But it’s only by using Bitcoin we give it “real”, intrinsic value. Either way, with serious money now coming into the market, we are still at the beginning of everything.

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.

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)

bitcoin, facebook, facebook currency, Fintech General, stablecoin

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

Eras .001

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

This update to The Blockchain Economy digital book covers:

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

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

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

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

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

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

What we don’t know:

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

 

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

 

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

 

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

 

  • Which Fiat currencies they will peg to.

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

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

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

First the rock…

Bitcoin is the honey badger that is not scared of Facebook

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

Next, the hard place….

Big players who will feel threatened by Facebook 

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

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

The end of the Facebook era is coming

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

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

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

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

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

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

No, don’t short Facebook yet.

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

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

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

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

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

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

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

Which companies should be most worriedWhich companies should be most worried

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

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

Context & References

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

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

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

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

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

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

alibaba, Bitcoin, Blockchain, Cryptocurrencies, Blockchain, BofA, china, ibm, patents

IBM and BofA lead Blockchain patents tally – but do patents matter?

patent-cartoon

Image Source

I must credit the research behind this post to Keir Finlow Bates. Keir is an entrepreneur based out of Finland, where he runs a Blockchain research company. I recently came across his research report on the Blockchain patent market.

It was refreshing to see that the report was published on LinkedIn and free for everybody to access and benefit from. It had good coverage, understandable trends, a few obvious names at the top, and a few disappointing stats too. Keir had spent three days researching on Blockchain patent information on ‘google patents’ and compiled the statistics in his report.

Before we get into the findings of the report, I just wanted to discuss the question, “Do patents matter at all?”. I believe, the answer is “It depends”.  It depends on your willingness to defend them – if you are the patent holder.

With 97% of all patents, the costs are not justified. The inventor spends the money filing the patent, but do not reap any benefits. 50% of patents are expire as inventors do not pay the maintenance fees. So why file a patent at all?

Patents make sense if your product is extremely complex and hard to develop, and if the costs of defending the patent is affordable/justified. It also helps with perception (that you own the product IP), and posturing (that you will defend it).

However, defending a patent takes years, and costs millions of dollars. So it may not necessarily be an option for a startup with a differentiated product and shallow pockets. It may also not make sense if the invention’s life span is relatively shorter. By the time the patent battle is fought in courts, the life of the product would be over.

Patents are often very narrowly defined, and getting around them shouldn’t necessarily be hard work for a smart competitor/imitator. In a conversation with a startup CEO I met recently, she revealed that she wasn’t so fond of patenting her product. She reasoned that she had to give away a lot of information about her product during the patenting exercise, that it makes it easier for a competitor to create a close enough version of it.

In the case of Blockchain, I feel, patents are a KPI to mark industry and thought leadership than protecting IP. Apart from a handful of architectural improvisation in Blockchain, innovation has been largely incremental.

Another point to ponder is that, Blockchain is a technology that knows no boundaries. As there are several Blockchain friendly island jurisdictions, patenting within major jurisdictions like the US, Europe or China may be meaningless. However, the race for getting on top of the patent list is still on.

Patents

Source: Keir’s report

Coming back to Keir’s analysis, one key dimension I missed on it was China. It’s no news to us that China is racing ahead of the rest of the world in patenting its inventions with most emerging technologies like AI, Blockchain and Quantum Computing.

A research on patent databases Patentics and Incopat about a year ago, identified that Alibaba was leading the Blockchain tally, even ahead of IBM. Of the top 36 companies with at least 20 Blockchain patents, about 50% of them were Chinese firms including BAT.

Keir’s analysis was performed on Google patent, which supposedly includes China Patents – but the data in the report indicates otherwise. The key takeaway from the reports are that,

  • Bank of America leads the tally with 60 filed and 24 granted patents in the US.
  • IBM had over 200 filings and 16 granted patents, and continue their investments in Blockchain R&D.
  • Challenging the big names, Chainfrog really stole the thunder, with over 16 filed and 4 granted patents.
  • Apple, Google and Goldman Sachs disappointed with 0, 1 and 2 granted patents to their names respectively. However, it may be a calm before the storm for these leading brands.

One key point stands out for me. Is the system of patenting fundamentally broken? If I spent two years of my life creating a complex product, addressing a huge market, I should be able to patent it, and defend my patent. Cost shouldn’t be a barrier to defend my work.

Instead of raising the innovation bar for competitors/imitators, the patenting system has perhaps raised the cost bar for inventors to defend their IP.

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).

 

advisers, cross-border, Daily Fintech Advisers, free agents, Payments, stablecoin

Globcoin GLX StableCoin to power payments for the Daily Fintech SmartExpert service.

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The Daily Fintech SmartExpert Service is an easy engagement model for our advisory services. Now you can start working with us by simply choosing your expert, paying for the hour and scheduling your call with the Expert.

In this post we unpick that simple phrase “paying for the hour” and explain why we decided to innovate on that front by partnering with one of the next generation of StableCoins for payments rather than simply using the credit card rails and what we learned from that experience. We like to write about payments innovation. With this partnership we are testing our theories in the laboratory of the real world and making that experience available to our readers.

In this post we will describe:

  • Why we are using a cryptocurrency for payments, rather than relying on the legacy credit card rails.
  • Why we use a StableCoin rather than Bitcoin or any other Tokenomics funded cryptocurrency.
  • Why we chose the GLX StableCoin
  • What we learned during this project.

For our big picture view on why StableCoins are so important (but also so hard to get right), please read this update to The Blockchain Economy digital book that was published on Saturday.

Why we are using a cryptocurrency for payments, rather than relying on the legacy credit card rails.

First, we do offer legacy credit card rails as an option. If you are not comfortable using cryptocurrency, just use Paypal.

Second, we like to test our theories in the laboratory of the real world. Back in April 2017 Daily Fintech articulated the thesis that Bitcoin Will Move From Darknet Early Adopter Niche To Clearnet Mainstream:

“This will happen first among free agent, knowledge workers who offer digital products/services cross border.“

“Free agent, knowledge workers who offer digital products/services cross border“ describes the Daily Fintech SmartExpert service. Now it is time to test that theory in the laboratory of the real world.

Third, it just makes practical sense in a borderless world for DailyFintech’s global subscribers and Experts. Once you really look at how cross border payments work using legacy bank and credit card rails, you see three big practical problems:

  • Problem 1 =  FX costs. Including spread, real FX costs are often over 10%. Consumers can see the fees quite easily, but the spread is pretty hidden. You don’t see the spread unless you look up the interbank rate at that precise moment in time that you get money from an ATM or pay via a credit card in a foreign currency. It is now possible to do this using mobile phones, Google and currency pairs. It is possible to stand in front of an ATM, Google a currency pair such as CHF GBP (if arriving in UK from Switzerland or vice versa) and compare the Interbank rate with what the machine gives you. I have done this, but unless you geek out on obscure Fintech subjects you probably won’t do this.  Bank and credit card networks have been very good at isolating consumers from the problem, but if merchants have to pay they will pass on those costs to the consumer; it is a real albeit hidden cost.
  • Problem 2 = Fraud is an existential threat for Merchants getting paid by Credit Card. Fraud can destroy a small-business owner with a momentary lack of attention. If Merchants accept payment from a stolen credit card, they will a) not get paid for the product they sold b) banks may look for additional reimbursement for permitting the transaction and c) payment processors may terminate their account and put them on a blacklist; the latter can be the death knell of a small business. In contrast, cryptocurrencies enable a simple irrevocable payment or can be done using smart contracts and the equivalent of an Escrow service; either way, it is not an existential threat to the merchant.
  • Problem 3 = Returns. That is why our thesis is that change will come first from digital products/services where there is no physical product to deliver/return.

Our theory is that change will be driven by Merchants not Consumers, because Merchants have the motivation. We decided to test this theory by offering payment for the Daily Fintech SmartExpert Service using a StableCoin.

Why use a StableCoin rather than Bitcoin or any other Tokenomics funded cryptocurrency.

in a word – volatility. When we first started thinking about how to do this, we planned to use Bitcoin and we created a clever (but, in hindsight,  overly complex) way to deal with the volatility problem. When we discovered  StableCoins, we saw that we did not need a complex way to deal with the volatility problem. The complexity of explaining how we dealt with Bitcoin volatility would have created friction that would have impeded the chances of success for the Daily Fintech Expert Service.

So much for Bitcoin. What about all the Altcoins that offer quick, low cost payments? They solve the speed and fees problem very well, but they do NOT solve the volatility problem. Any cryptocurrency that is funded through Tokenomics has an inherent volatility problem. The venture and their early investors want the price of the coin to rise and some traders bet against it rising; the push and pull of these bulls and bears creates volatility.

What is needed is something that is a) a cryptocurrency b) non-volatile by design. In short we need a StableCoin. For more on Stablecoins, please see this chapter of The Blockchain Economy Book

The next question was – which StableCoin?

Why we chose the GLX StableCoin

GLX is a StableCoin issued by a company called Globcoin.

We chose the GLX StableCoin for 5 reasons:

  • Basket not single Fiat. In the chapter on Stablecoins in The Blockchain Economy Book we describe the difference between Single Fiat and Basket. Single Fiat typically means US Dollar (but could be EUR or any relatively stable Fiat currency) but many big corporates and investors prefer a basket that is less volatile than a single currency. GLX is a basket of 15 currencies plus Gold that together account for more than 80% of the World Economy; this is less volatile than even the famously stable Swiss Franc.
  • Fiat Collateralized The book also describes three forms of collateralization (ie what proves that the StableCoin really is worth what the promoters say it is). Those three forms are Fiat, Crypto and Issuer Collateralised. The book describes why Fiat Collateralised (sometimes called the tech lite/audit heavy model) is the most secure. GLX is Fiat Collateralised.
  • Experienced team. A StableCoin that is a) Basket b) Fiat Collateralised is easy to say. It is much harder to achieve in practice. The team behind GLX Globcoin, led by Helie d’Hautefort, has decades of sophisticated currency management experience before the Blockchain era. Helie started his career as a currency option trader in New York. He joined the Peugeot Citroën group in Geneva, where he was in charge of currency hedging. In 1998 Helie founded Overlay Asset Management, the first european currency management business offering currency overlay services, managed accounts and pooled fund programmes. By 2012, in partnership with BNP Paribas, the business had grown to over USD 23b of assets under management, with a client base from 16 different countries. Since 2010 Helie has focused his research on the creation and management of the Global Reserve Currency Index, an innovative systematic virtual currency that mirrors the world global economy. In 2014 he created Globcoin to extend the scope of client users thanks to Blockchain technology. Helie has built an experienced team based in Switzerland and London that can manage a StableCoin that is a) Basket b) Fiat Collateralised.
  • Globcoin card. If you get paid in a cryptocurrency, you want to be able to spend the money. You may decide to save some, but it is unlikely that you want to save 100%. If cryptocurrency remains in it’s pre-chasm phase, you might get paid 10% of your income in cryptocurrency and save it because a) 10% is a good saving rate b) you are a long term bull on cryptocurrency. On the other hand if cryptocurrency crosses the chasm to the mainstream and you get paid say 80% of your income in cryptocurrency you might choose to save 10% and spend 90%. One simple way to spend is via a PrePaid Debit Card and that is one of the services offered by Globcoin. For more on prepaid debit cards please see this post.
  • Regulatory Framework in Switzerland. StableCoins attract the attention of regulators because a) they are sometimes deposit takers and b) they can facilitate the on/off ramps from/to Fiat/Crypto. The question  is – which regulator in which jurisdiction? GLX is based in Switzerland which is interesting for two reasons:
    • FINMA (the Swiss financial regulator), regulates Tokens depending on their use case and has a specific regulatory framework for payments.
    • Switzerland is legally a multi-currency country. What? We all know Switzerland is multi-language, but we also know the famous Swiss Franc. It turns out that there is an alternative currency called WIR that was set up in 1934 that is quite legal. The WIR was set up by people wanting to create an alternative to a financial system that had failed so dramatically in 1929. This has echoes from 2008 and the Satoshi Nakamoto White Paper. WIR accounts for a tiny % of Swiss GDP but it is real and it is legal. So the idea of adding another legal currency was not too big a stretch. That is why you can pay taxes in Bitcoin in Switzerland and buy Bitcoin at any railway ticket machine. It is also why a StableCoin that plays by the rules can be a legal currency in Switzerland.

In fact, in full disclosure, I like Globcoin so much that I agreed to join their Board and help make things happen for them.

What we learned during this project.

  • Don’t make it hard to do business with us. That is why we also offer a Paypal option if you are uncomfortable with cryptocurrencies. We think that many Daily Fintech readers will want to learn from the experience of using a StableCoin for payments, but not everybody.
  • There is still friction in the on-ramp and off ramp due to regulators and AML/KYC. We filled in more forms than we wanted to, but that is life in crypto land today.
  • The crypto world really is easier, once you get started. Gen Z and later will use cryptocurrencies and tokens without thinking, as easily as how we now use email. For those of us who grew up with Legacy Finance, we have a transition to go through.  It is a bit like learning to ride a bike – a) easier to learn when you are young b) a lot more efficient once you are past the learning curve. Part of our mission at Daily Fintech is taking big complex subjects and making them understandable. Our written materials are always free, but if you want a more personal trainer type of service (where we explain just what you want to know in your context) please book an hour of our time using the Expert Service – and pay using a StableCoin.

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

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

cybersecurity, Fintech General, mobile payments, tokenization

The Security Features And Vulnerabilities in Mobile Payments

its me david

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

Introduction

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

Security Features

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

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

Vulnerabilities

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

Conclusion

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

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

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

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

customer centricity, digital insurance, innovation, insurance, InsurTech, internet of things, IOT, lemonade insurance, NPS

Insurers love NPS- can the IoT help show why it remains an important measure?

 

 

TLDR  What to do, what to do, in the InsurTech, innovation insurance world?  Insurance remains a ‘sold, not bought’, product.  Virtual service is not only becoming a demand of customers, but carriers are embracing the concept based on expectations of efficiency and economy.  Will there be a disconnect between service efforts and how customers perceive it?  As customers change their habits, can insurance change theirs?  What is the common thread?

How an insurance carrier performs is typically known only when an adverse situation occurs, i.e., a claim, and service is triggered for the customer, a customer who doesn’t really know what to expect during a claim experience.  So of course the industry knows this and has devised many ways of gauging service performance: from internal surveys, JD Power ratings (Customer Service Index), and most recently, by asking claim customers how they would rate the service they received in terms of one question,

“How likely is it that you would recommend this company to a friend or colleague?”  

 The answers to that clever question are the basis of the calculations for a ‘Net Promoter Score’ (NPS), a service (loyalty) measure devised by Fred Reichheld and other clever minds at Bain and Co.  How does this tie in with InsurTech principles?  Seemingly through another three-letter acronym, IoT (Internet of Things).

 

What are you talking about, you say- NPS is a survey administered measure made available to but a fraction of insurance customers, is but one question, and disregards the experience of the majority of the customers.  IoT speaks to connected devices, ostensibly meant (to many in the insurance world) to detect adverse conditions, track adverse conditions, determine behaviors that might predict adverse circumstances, and by extension reduce carriers’ exposure to claims. One measures experience, and one works to predict experience.

Well, I’m here to say that the two concepts couldn’t be more intertwined, and as innovation within the insurance industry becomes more practical, and as IoT becomes more ubiquitous, the interplay of NPS and IoT will become clearer.

At its root NPS was developed as a means to measure what the folks at Bain found as the key driver of business growth and success- customer loyalty.  Loyalty has been a proven factor in business growth and businesses who foster customer loyalty not only retain those customers’ business, but those same customers are motivated to bring other business along.  Enhancing customer loyalty, adding value to the customers’ lives, and refuting the contention that “loyalty is dead” (see Mr. Reichheld discussing that here ) is the foundation of NPS.  And everyone touts their NPS results, don’t they?

So along comes IoT principles as part of the InsurTech wave, and its primary advocate in the InsurTech world, Matteo Carbone. (In an odd coincidence as with Mr. Reichheld, Mr. Carbone is also a Bain alumnus.)  Mr. Carbone has espoused the concept that “all insurers will be InsurTech”, but in addition to that his IoT Observatory has become a central authority regarding insurance effects of connected devices in autos, houses, and to some extent, wearables.  And a main principle he covers within his recent article, “Smart Home Insurance Strategy 101”, is loyalty :

“This way of enhancing proximity and interaction frequency with policyholders (connected devices and value addition) – while creating new customer experience and expanding relationships – is one of the reasons for adopting IoT in home insurance. These interactions with customers are one proven way to earn higher loyalty and allow the differentiation from competitors.”

There’s that word- loyalty.  In an insurance world where virtual service is becoming the holy grail for carriers, how will loyalty remain a factor that can be influenced by carrier service?  Even the InsurTech poster child, Lemonade, has to have concerns that as long as NPS remains an important measure of customer service (Clearsurance may have ideas about that), interactions with insureds must remain focused on maintaining or building loyalty.  Can a bot do that?

IoT programs have that opportunity to integrate technology, virtual service, and value addition that can build customer loyalty, for example, value-added services as noted by Mr. Carbone.  “But the real opportunity is to solve customer problems by delivering enlarged value propositions for their homes. (Some) services enabled by home IoT are:

  • Safety/Security: remote monitoring and emergency services to provide peace-of-mind to the homeowner;
  • Efficiency: tracking and optimization tools to contain the expenditures (energy and water) at home;
  • Property services: concierge with a platform of certified service providers (such as plumbers, metal workers, carpenters, construction workers or electricians) for home administration;

Seems any or all of those points would serve to build customer loyalty in the absence of direct service from claim staff.  And what of agents?  Insurance sales and servicing of policies remain a predominantly agency-driven proposition in the US and Europe- agents/brokers are beginning to recognize the need for provision of more to customers than just quotes.  In markets where ecosystems and smart device access are the primary entry for customers to insurance, loyalty may be even more fragile as ecosystem change is simply an app away.  In all matters the focus must remain on enriching customers’ lives, on #innovatingfromthecustomerbackwards.

NPS and IoT- the concepts can’t make insurance a more ‘bought, not sold’ proposition, but effectively focusing on IoT in an increasingly virtual insurance world can help maintain or build loyalty, and as the architects of NPS found, that is the foundation of an effective growth strategy.  The two principles have previously marked different paths but are now on intersecting courses.

 

image source

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 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).

 

content licensing, Daily Fintech Advisers

Announcing Daily Fintech working with Triumvirate Content Consultants

FINAL-ANGLED High-ResTLDR. Daily Fintech has engaged the services of a firm called Triumvirate Content Consultants (TCC) to to help monetize our content assets through new distribution channels and new markets.

Today’s post is not about Fintech. It is a peek behind the curtain of the business of creating the free original research that you see here every day. It is nearly 5 years since our first post on 29 June 2014 (for the record, here it is). It is still relevant like many of the over 1,000 posts in our archives.

We recently decided to bring on more professionals to help us grow. We started with Paul Conley, because what defines Daily Fintech is the quality of our writing, how we are able to make big complex subjects accessible and interesting to busy senior people. Paul shares that passion. He has made a career out of helping media companies do that well. Here is the post announcing Paul joining us as Content Adviser. Paul introduced us to the folks at Triumvirate Content Consultants (TCC), which goes to show that quality attracts quality. Paul Gerbino and his colleagues at TCC live and breathe the intricacies of content licensing in the same way we live and breathe the intricacies of the reinvention of financial services through technology. The media business is going through wrenching change. Our simple belief is well-written research will always have value. By working with the experts at TCC we turn that into simple belief into new revenue streams so that we can continue to do what we do but better and on a bigger scale.

As Triumvirate Content Consultant’s President Paul Gerbino put it: “We’re passionate about helping companies with unique content tap into new revenue. Daily Fintech is known for its quality content, market insights and expert perspective. There are lots of other organizations whose customers want access to their research. Our job is to make that happen.”

TCC will be representing us to the many firms that have expressed interest in licensing our content. If you are interested in doing so please send an email to Julia Spiegel (our Chief Commercial Officer; her email is julia at dailyfintech dot com).

Consumer Banking, Fintech General

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

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

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

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

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

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

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

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

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

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

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

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

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)