$41 Trillion in Mobile payments – China tech target digital banking

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$41 Trillion was the size of China’s mobile payments market in 2018. It is perhaps counter-intuitive when the payments market is more than three times the size of China’s GDP ($12 Trillion). That’s because GDP is based on value creation, not on transaction volumes.

Let me explain it with a crude example. A couple of weeks back, two of my friends and I went into a sports shop in Chislehurst, and bought a cricket bat for £240 for the summer. We knew we were going to share the costs at £80 each. I paid the shopkeeper £240, and then my friends paid me £80 each.

While the value created/exchanged in this case was for £240, payments happened for £240+£80+£80 = £400. GDP is calculated based on the £240, and payment volumes would account for £400.

In the initial days of my discussions about China Fintech, I would often praise China’s Fintech businesses as perhaps the largest in the world. China is doing Trillions in mobile payments, and the US is still groping its way towards $200 Billion. Purely from a size perspective China is light years ahead, but the business models there are different.

Fintech is used as a business model by lifestyle firms in China and broadly Asia. Fintech is not their core value proposition, at least it is not until they onboard a few million customers. Their core lifestyle business is then augmented by Fintech services for their customers, and that makes their life style business stickier.

I have touched upon this in detail in one of my previous posts on how lifestyle businesses have evolved into Fintech heavy hitters in Asia. And payments is the lowest common factor between ecommerce/lifestyle businesses and financial services. Therefor, firms like Alibaba, Tencent, Grab and Bykea have integrated payments to their core service offering.

However, the Chinese tech giants have identified that it was time to upgrade from payments into banking. Earlier this month Alibaba, Tencent, ZhongAn and Xioami were granted a virtual banking license in Hong Kong.

Alibaba applied for a banking license for its Ant SME services, which is a subsidiary of Ant Financial. Tencent and Xiaomi did a Joint venture to go for the banking license. Xiaomi is the fourth largest mobile phone manufacturer in the world with over 120 Million smart phones in 2018.

When Amazon began offering lending to its SME base, there were headlines that they would soon go for their banking license. However, the trend these days is that the East would lead and the West and the rest would follow. Now that China tech giants have upped the ante with a banking license, would the US peers respond? Watch this space.

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 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).

Silicon Valley Stock Exchange and the Saints of Wall Street

A week ago, the news of the Long Term Stock Exchange (LTSE) backed by some of the biggest names in Silicon Valley emerged. The Elites in the valley, including
Marc Andreessen, Reid Hoffman and Peter Thiel have joined hands to set up a stock exchange where firms do not have to worry about “Short Termism”. It is seen as the tech world’s open war against Wall Street’s modus operandi.

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Some hail the move as a masterstroke. The features of the LTSE make it more attractive for investors who stick around longer with a firm. Voting rights are directly proportional to how long an investor held a firm’s stocks. But this is also a double edged sword as it makes founding teams too powerful. It could make bubbles bigger, and wave riders could get a smoother ride to exit.

Many questions come to mind when I think about where this could take us. Let us explore each one of them.

  1. Recent disasters of Uber and Lyfts – is Wall street better at identifying good business models?
  2. How long can patient capital be, errrr, patient?
  3. Does Wall Street need to be more tolerant of Visionary Founders?
  4. Growth vs Profitability conundrum – Won’t LTSE make profitability and a good business model rarer?
  5. Creation of monopoly – Good way to make money for businesses and investors? But what about the consumer?

Uber’s IPO earlier this month is arguably the worst opening ever as investors lost $650 Million on the first day. This also happened with Lyft and the stock hasn’t recovered yet. Analysts claim that the ride hailing business model is broken. Softbank’s stocks has taken a beating since then. Would LTSE have minimised the losses that Softbank made since the Uber IPO?

However, with investments (of ~25 Billion) in Ola in India, and Grab in South East Asia, SoftBank’s fund controls 90% of the ride hailing market in the world. One of them (Wall street or Softbank) is definitely wrong about the market and the business models in this space. Is LTSE needed to bridge this gap in perception of business models?

The question that immediately followed was, how long can Patient capital be patient? Early stage investors go largely with gut instincts, where as later stage and public market investors are generally more data driven. If all data points to continued losses (Uber’s Q4 2018 EBITDA loss was at $842 Million), should analysts still give the firm a thumbs up based on the market potential of the firm?

LTSE in this scenario could make Wall Street look good, if the intention was to stay long despite continued losses.

The other side of the argument is also valid. Markets have misjudged visionary founders. Michael Dell took his firm private at ~$25 Billion in 2013 and led the transformation of his firm. The firm has re-positioned itself, and it’s estimated valuation today is ~$70 Billion. When Tesla had pressure from the markets, Elon Musk, took to twitter and spoke about taking the firm private – and of course got into trouble with the regulators for doing so.

If LTSE went live, founders like Dell and Musk could operate in the public market more comfortably.

If LTSE went live, firms like UBER could keep growing and take more of the market, without having to demonstrate a sound business model underneath.

One of the approaches that private investors like to see is “Going for Growth”

If your growth plan doesn’t scare me, I do not want to invest in you” – That’s another famous VC one liner.

This approach has given rise to centralised tech monopoly over the years. Google, Facebook, Amazon, Uber are all leaders in their market segment. If LTSE backed them with public money, they have to worry less about profitability, if at all. They can continue with growth and their market conquest.

As an investor who is just looking for an exit, I would love this approach. But as a consumer, who cares about accountability and healthy competition, this is definitely not the way forward. The “Winner takes all” approach has made tech look like the new banking.

LTSE can be a boon to some visionary founders. If it had been announced during times of low liquidity in the market, it would have come across as a genuine attempt by proven Silicon Valley elites. It is coming at a time when market is rich with cash, and it feels like LTSE will make the bubble bigger, and the fall harder.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on “Sustainable Deeptech Investments” 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 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).

Telecom Fintech innovation is spreading

Africa-Mobile-Money-Market

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

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

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

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

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

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

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

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

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

Telecoms and banking

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

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

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

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

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

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

[4] MTN is Africa’s largest telecoms operator

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

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

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

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

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

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

`You Can Marcus`

Goldman Sachs is one to watch.

It is an example of how sticky a banking brand name is – It has shredded off scandals in the past and the recent Malaysian state-run fund scandal seems no different. Sack Goldmans – a 2010 slogan – did not stick.

Goldman Sachs is an example of how an incumbent builds a Fintech business positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end[1].

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation of this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competences to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by rebundbling additional services (e.g. adding robo-advisors to loans, or deposits to trading, ect).

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

I have written about Marcus several times.

Just after the launch of Marcus in late 2016, Will Goldman become a verb? Watch the Marcus ads!

Just after the Marcus rebranding and UK launch in Fall 2018, Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

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I must however, confess that I have no idea how to interpret the new Marcus Campaign ‘You Can Money’.  Is this an example of new Fintech language? If you have other such rarities, please send them to me, as I collect them. Maybe we can tokenize them, with the hope that they become the next non-fungible craze.

[1] A Seeking Alpha article that includes several links, for anyone who wants to dive into more details https://seekingalpha.com/article/4251792-buy-goldman-sachs-apple-card

Sources: CNBC, Barrons, Financial Brand, Crowdfundinsider, The economist

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

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).

The rise of Chief Behavioural Officer and how to hack customers’ mind

Financial Services has traditionally been a game of numbers, aggressive product (mis)selling, big bonuses and as a result too many “too big to fail”s. The rise of regulations and technology innovation within the industry has resulted in a course correction. The customer is now getting some attention. And more recently customers’ behaviour is.

Applying behavioural sciences to study how customers make their financial decisions has seen some recent traction. It is critical to bring together cognitive biases and behavioural anomalies and understand how these affect financial decisions. Add to that the impact these financial decisions have on an organisation’s PnL. An executive in a bank capable of doing that would be an ideal fit to as the Chief Behavioural Officer.

The rise of Fintech was accompanied and facilitated by the rise of friendly customer journeys. Today I spend so much, not realising how much money has gone out of my bank account with just a touch. The process is so frictionless that, the act of paying someone is invisible. When it is out of sight, it is out of mind. That’s the simplest way to make people spend more.

That is an example of how an existing process has been made less of a touchpoint. Recently, Merill Lynch conducted an experiment where they asked users to upload their photos. They would run a program to show what the users would look like in 30-40 years. That made the users more conscious of their retirement planning, and shifted their financial behaviour.

Another instance is where the Commonwealth bank of Australia launched an app for customers to set goals. The tool prompts customers to set personalised savings goals and breaks them down to smaller milestones. Since February 2019, users have created more than 250,000 savings goals – 27% of the goals being towards a holiday and 19% towards a property.

Human beings are irrational when it comes to financial decisions. An understanding of behavioural sciences is not just important to win over customers. It is critical to understand the biases that affect existing business decisions that are made within a firm. Leading valuations expert Ashwath Damodaran calls for the need to study these biases as much as the valuation principles used within investment banks.

All valuations are contaminated by bias, because we, as human beings, bring in ourpreconceptions and priors into the valuations. When you are paid to do valuations, that bias multiplies and in some cases, drowns out the purpose of valuation

Professor Ashwath Damodaran

We (my firm Green Shores Capital), recently did an event to identify top financial inclusion firms to invest/track for investments. One of the firms Confirmu, based out of Israel, study the psychological responses from a potential borrower to assess if they were trust worthy or not.

It is one thing going through the borrowers bank account, business plan and reasons for the loan. While all that could be genuine, a borrower might still not have a genuine intention to repay. Especially in countries where there are no credit bureaus, a system to predict the future behaviour of a borrower could be very handy.

While there are several tools to assess the ability to repay, there are very few to assess the intention to repay a loan.

Confirmu’s customer journey takes the users through a chat process, where the customers answer a few basic lifestyle questions, then choose their favourite between a bunch of images, and finally leave a voice answer to a question. Their machine learning powered algorithm gives a rating indicating the customer’s intention to repay.

Banks have started to focus on technology much more than they have ever done. However, as Steve Jobs puts it – ” it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing”


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 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).

M&A on the rise as Visa & Mastercard go for the Trillion $ Cross Border Payments

The Cross border payments market was at $22 Trillion three years ago as per a research by the Boston Consulting Group. Certainly a market to go after, and Visa and Mastercard do not seem to be shy of throwing punches at each other in the process. So who got their nose ahead?

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Earlier this year, Mastercard and Visa were fighting it out for the acquisition of Earthport. In Dec 2018, Visa had made an offer of $250 Million to acquire Earthport, a UK based payments firm. Mastercard came to the table with a $300 Million offer for Earthport. The deal was too important for Visa that they upped their offer to $320 Million and pretty much closed it. Pretty much closed – because the Competitions and Markets Authority (CMA) yesterday said that they were investigating if the acquisition would create a “substantial lessening of competition” in the UK.

No deal is done until it is sold, signed and then signed again. At this point, the deal looks far from signed – however, the acquisition could help Visa’s dwindling fortunes with the cross border payments segment. Visa’s Q1 results showed that the growth of the segment was at 7% and Mastercard’s growth was at 17%. So, clearly desperate times for Visa, and no wonder they are willing to pay a bigger amount.

Earthport were considered leaders in disintermediating the cross border B2B payments space. Historically, this process saw monies taking several hops before it reached the target bank. Through Earthport’s network, the process would be simplified with just one hop, and clearly Visa see the advantage. Having backed out of the deal, Mastercard focused on acquiring Transfast, another cross border payments firm. Transfast boast a network of about 125 countries and integration with over 300 banks.

We believe Transfast gives us the strongest platform to immediately enhance our cross-border capabilities and further deliver on our strategy.

Michael Miebach, Chief Product Office, Mastercard

Mastercard have been more aggressive in driving growth through acquisitions in recent times. In Q1 2019 alone, they were involved in several other payments deals. They committed $300 Million as a cornerstone investor in the IPO of Dubai-based Network International. Network International is the largest payments processor in the Middle East and Africa, and are planning their IPO in London with a target valuation of $3 Billion. The transaction would see them take a 9.99% stake in Network International.

Mastercard are beefing up their Africa presence through their investment into Jumia, an Africa focused payments firm. Jumia and Mastercard have been working together since 2016, and the latest round would take Mastercard’s total investment into Jumia to $56 Million. The ambition is to expand aggressively across the 14 African markets that Jumia are already present in, and also help entry into other African markets.

Having taken care of Africa and the Middle East markets, Mastercard have also set sights on Asia. They have now taken part in the current funding round of Singapore based Bill.com, who handled $60 Billion in payments in the region. Bill.com raised $88 Million from several investors including Fidelity investments, Franklin Templeton, Tamasek and Mastercard.


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 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).


The battle of Fintech is over, the battle of TechFin is about to begin

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Jack Ma famously called Alibaba and their tech giant peer group – TechFins, declaring their intention to sneak into financial services. Banks were too focused on their battle with Fintechs then, that they perhaps were blindsided by the rise of TechFins. The first quarter of 2019 has been eventful, with major headlines from big tech firms like Facebook, Apple and Alipay.

Over the past few years, since the Fintech boom has been afoot, talks of Fintechs vs Banks have been rife. But only when China saw leap frog moments in its payments landscape, via, Alipay and WeChat, did the industry (both banks and Fintechs) pay any attention to the big tech giants. I have always said that the Tech giants had two big advantages.

They have what the banks don’t have – agility in innovation, and they have what the Fintechs don’t have – Massive Customer base (and their data).

The challenge in exploding into Financial Services for the tech giants was that, it was non-core to them. However, the evolution of Fintech use cases, and the seamless integration of these applications into consumer’s routine, have made them almost invisible. So, all the tech giants had to do was pick use cases where they could be mostly invisible – payments was a low hanging fruit.

Two weeks ago Barclays and Alipay announced their partnership. Alipay will now be available with several merchants across the UK, and allow for seamless payment experience for half a million Chinese residents, tourists and students in the UK.

Barclaycard, which processes nearly half of the UK’s credit and debit card transactions, today announced a new agreement with Alipay, the world’s leading payment and lifestyle platform, which will allow retailers to accept Alipay transactions in stores across the UK

The partnership is for UK retailers to accept Alipay payments without replacing their existing point-of-sale system. Alipay users on the other hand will enjoy the benefits of the seamless journey that they have at home.

The other key event of the last couple of weeks has been THE APPLE CARD. If you haven’t yet heard, good for you and I suggest you google at your peril. But atleast for me, the social media reaction was a bit too overwhelming. My take on the announcement –

THE GOOD

  • Secure card numbers – many of us have faced credit card frauds, but most of us wouldn’t have thought of getting rid of the card details from the face of the card.
  • No fees – Really? Is there a catch? I still can’t believe that. Especially on international transactions.
  • User experience in staying on top of expenses, card balance, interest etc.,
  • Data privacy – Apple have declared that they would stay away from customer data

THE BAD

  • Cashback of 2% is underwhelming. Many providers, including Amazon offer better benefits.

THE UGLY

  • Plastic cards? Let’s all go back to the cave. For how long are we going to hang on to plastic credit cards? That was perhaps the most disappointing thing about the launch for me. And the worst part is, the card only supports chip and pin and won’t support contactless.
  • No Android compatibility – of course, they have always been a closed ecosystem.

Irrespective of the disappointing aspects of the card, I believe, Apple has rocked the boat, and banks are feeling the heat. They are cash rich, know how to create digital+physical products, have a brand following, and can disrupt payments in a bigger way, if they chose to.

With IBM entering the remittance market through World Wire, Facebook testing out Whatsapp payments, Alipay entering the UK market in a big way, and Apple’s recent announcement, the Penny should have Dropped for the banks. And the realization should hit them that Fintechs were more of a distraction, the real battle has just begun.


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 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).


IBM World wire – the inevitable rise of Centralized Blockchains

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

IBM Press release on World Wire

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

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

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

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

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

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

Marie Wieck, General Manager, IBM Blockchain

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

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

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

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

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


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

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

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).


FCA pioneers digitising regulatory reporting using DLT and NLP

Too many TLAs (Three Letter Acronyms), I agree. Earlier this week the Financial Conduct Authority (FCA) published the results of a pilot programme called Digital Regulatory Reporting. It was an exploratory effort to understand the feasibility of using Distributed Ledger Technology (DLT) and Natural Language Processing (NLP) to automate regulatory reporting at scale.

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Let me describe the regulatory reporting process that banks and regulators go through. That will help understand the challenges (hence the opportunities) with regulatory reporting.

  1. Generally, on a pre-agreed date, the regulators release templates of the reports that banks need to provide them.
  2. Banks have an army of analysts going through these templates, documenting the data items required in the reports, and then mapping them to internal data systems.
  3. These analysts also work out how the bank’s internal data can be transformed to arrive at the report as the end result.
  4. These reports are then developed by the technology teams, and then submitted to the regulators after stringent testing of the infrastructure and the numbers.
  5. Everytime the regulators change the structure or the data required on the report, the analysis and the build process have to be repeated.

I have super simplified the process, so it would help to identify areas where things could go wrong in this process.

  1. Regulatory reporting requirements are often quite generic and high level. So interpreting and breaking them down into terms that Bank’s internal data experts and IT teams understand is quite a challenge, and often error prone.
  2. Even if the interpretation is right, data quality in Banks is so poor that, analysts and data experts struggle to identify the right internal data.
  3. Banks’ systems and processes are so legacy that even the smallest change to these reports, once developed, takes a long time.
  4. Regulatory projects invariably have time and budget constraints, which means, they are just built with one purpose – getting the reports out of the door. Functional scalability of the regulatory reporting system is not a priority of the decision makers in banks. So, when a new, yet related reporting requirement comes in from the regulators, banks end up redoing the entire process.
  5. Manual involvement introduces errors, and firms often incur punitive regulatory fines if they get their reports wrong.
  6. From a regulator’s perspective, it is hard to make sure that the reports coming in from different banks have the right data. There are no inter-bank verification that happens on the data quality of the report.

Now, to the exciting bits. FCA conducted a pilot called “Digital Regulatory Reporting” with six banks, Barclays, Credit-Suisse, Lloyds, Nationwide, Natwest and Santander. The pilot involved the following,

  1. Developing a prototype of a machine executable reporting system – this would mitigate risks of manual involvement.
  2. A standardised set of financial data definitions across all banks, to ensure consistency and enable automation.
  3. Creating machine executable regulation – a special set of semantics called Domain Specific Language (DSL) were tried to achieve this. This functionality was aimed at rewriting regulatory texts into stripped down, structured, machine readable formats. A small subset of the regulatory text was also converted to executable code, from regulatory texts based on this framework.
  4. Coding the logic of the regulation in Javascript and executed using DLT based smart contracts.
  5. Using NLP to parse through regulatory texts and automatically populate databases that regulatory reports run on.

If the above streams of efforts had been completely successful, we would have a world of regulators creating regulations using DSL standards. This would be automatically converted to machine executable code, and using smart contracts be executed on a Blockchain. NLP algorithms input data into the reporting data base, which will be ready with the data when the smart contracts were executed. On execution, the reports will be sent from the banks to the regulators in a standardized format.

This would have meant a few Billions in savings for UK banks. On average, UK banks spend £5 Billion per year on regulatory programmes. However, like most pilots, only part of the programme could be terms as successful. Bank’s didn’t have the resources to complete all the above aspects of the pilot successfully. They identified the following drawbacks.

  1. Creating regulatory text in DSL, so that machines can automatically create and execute code, may not be scalable enough for the regulators. Also, if the creation of code is defective, it would be hard to hold someone accountable for error prone reports.
  2. NLP required a lot of human oversight to get to the desired level of accuracy in understanding regulatory texts. So, human intervention is required to convert it to code.
  3. Standardising data elements specific to a regulator was not a viable option, and the costs involved in doing so is prohibitive.
  4. While the pilot had quite a few positive outcomes and learnings, moving from pilot to production would be expensive.

The pilot demonstrated that,

  1. A system where regulators could just change some parameters at their end and re-purpose a report would enable automated regulatory reporting.
  2. Centralizing processes that banks currently carry out locally, create significant efficiencies.
  3. Dramatic reduction in the time and cost of regulatory reporting change.
  4. Using DLT could reduce the amount of data being transferred across parties, and create a secured infrastructure.
  5. When data is standardised into machine readable formats, it removes ambiguity and the need for human interpretation, effectively improving quality of data and the reports.

In a recent article on Robo-Regulators, I highlighted the possibilities of AI taking over the job of a regulator. That was perhaps more radical blue-sky thinking. However, using NLP and DLT to create automated regulatory reporting definitely sounds achievable. Will banks and the regulators be willing to take the next steps in moving to such a system? Watch this space.


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

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FB doing a Tencent – Cryptos mainstream adoption in sight?

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

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

The Facebook Opportunity

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

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

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

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

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

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

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


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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email