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alibaba, amazon, china, Consumer Banking, digital banking, hongkong, Payments, tencent

$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).

Bitcoin & Blockchain, Blockchain, Central Banks, cross-border, digital currencies, MAS, Payments

World’s first Central Bank Digital Currency payment successful- MAS lead the way

The Monetary Authority of Singapore (MAS) have been piloting several Blockchain use cases over the past few years. Central Bank Digital Currency (CBDC) was one of the key focus areas of Project Ubin – MAS’ Blockchain initiative. In September 2018, I had published my post on Singapore and their efforts around Blockchain.

With the five phased approach to Project Ubin, we may soon see a state issued digital currency. That would not only put Singapore ahead of its Asian peers, it may be a Global first.

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We now have a global first. Just over a week ago, MAS and the Central Bank of Canada made an announcement that a transaction between digital currencies of the two central banks was executed successfully. The trial was performed with the help of Accenture and J.P.Morgan.

As the Blockchain narrative developed over the years, one of the key buzzword was decentralisation and disintermediation. However, in the last two years, we have seen permissioned Blockchains gain popularity.

The three dimensions of the Blockchain Trilemma proposed by Vitalik Buterin were, Scalability, Security and Decentralisation. Designers of Blockchain systems have to choose between these three dimensions. The rise of permissioned Blockchain indicates that Decentralisation would be the first to be compromised amongst the three dimensions.

There are several reasons why a central bank would launch a digital currency. In the case of the Petro, the rationale was largely to stay clear of sanctions and raise capital to pay back some of their debt.

Reserve Bank of India on the other hand is exploring CBDC as it would be a low hanging fruit after the mass (forced) adoption of the nation’s identity system – Aadhaar. A good model would be to link a CBDC to Aadhaar verified wallets to create accountability and traceability of cash in the economy.

RBI was also spending 7 Billion Rupees ($100 Million) per year in just creating and managing the Rupee. There would be huge savings if they launched a CBDC.

Getting back to the SGP digital currency. Some key points to note are the following,

  • The exchange transaction happened between SGD and CAD.
  • The MAS network was built on the Quorum Blockchain and the Canadian network was on Corda.
  • The principle of Hash Time Locked Contracts (HTLC) was used to ensure an all-or-nothing guarantee. If one leg of the transaction fails to complete, the entire transaction is rolled back.
  • Interledger protocols can be used if parties were on different Blockchain networks.
  • Off-Chain transfer of hash were performed to initiate and complete the transactions.
  • The asset swap was performed using an intermediary, and a multi-currency support option was modelled in using this infrastructure.
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The picture above explains the HTLC framework used by this model. A report was published at the back of this initiative, describing several models that cross border settling systems could use.

The next wave of central bank blockchain projects can make further progress by bringing technology exploration together with policy questions about the future of cross-border payments

Sopnendu Mohanty, Chief Fintech Officer, MAS

The report also goes into the depths of the challenges in using HTLC and the potential alternatives being worked on by the Blockchain community. Like in most other Financial Services use cases of Blockchain, this transaction was also executed in a controlled environment.

CBDC are still in their infancy. This pilot could be followed up by collaboration across several central banks at the policy, governance, process and infrastructure levels. This would benefit the global economy at a scale never seen before. Let’s take stocks in a year. Watch this space.

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).

ashwath damodaran, behavioural science, Consumer Banking, customer experience, Payments, savings

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.

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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).

Consumer Banking, Payments, Small Business Banking

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).

alibaba, apple, apple card, Consumer Banking, credit card, Payments, techfin

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).

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

IBM World wire – the inevitable rise of Centralized Blockchains

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

IBM Press release on World Wire

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

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

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

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

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

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

Marie Wieck, General Manager, IBM Blockchain

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

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

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

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

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

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

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

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).

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

FB doing a Tencent – Cryptos mainstream adoption in sight?

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

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

The Facebook Opportunity

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

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

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

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

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

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

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

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

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

Consumer Banking, Payments

The law of the fintech jungle is changing

Today when I went out to buy my lunch, nursing a crushing migraine I accidentally pulled out my company debit card to pay for the transaction. Luckily, in my glucose deprived eleventh hour, I realised the grey card was not the orange card, and yelled out to the operator to stop the transaction. Not a great look during the Sydney lunch rush hour, with hungry city workers milling around, eager for me to just get on with buying my lunch so they could.

Of course, if I had of had a Curve card on me today, it wouldn’t have mattered if I’d paid with the incorrect card. The card aggregator startup, who celebrated the first anniversary of their launch across 27 European countries today (must have been a slow fintech news day), would have allowed me to jump into their app right after and take advantage of their Go Back In Time feature. Assuming I’d caught my payments slip-up within 14 days, I could have moved it from one card to another. Bingo.

That’s not the only awesome thing about Curve. Like I link my Amex to my PayPal account to take advantage of collecting Amex points at places PayPal is accepted but not Amex, so to could I have once linked my Amex card to my master Curve card.

I use the past tense, because all of that was possible, until Amex pulled the plug on Curve back in late January.

Curve is understandably upset – you can read the founders impassioned blog here – but it does signal and interesting shift in the innovation/incumbent sands. The point at which banks and payment services become relegated to ‘dumb pipes’ is possibly closer than we think. In the Curve and Amex example, it’s already here.

Curve and Amex aside, the emergence of the money ‘experience’ gives me zero doubt that this will be death by 1000 cuts for incumbents, who despite many murmurings haven’t nailed this one, yet. If you can’t deliver the new contextually relevant, digitally immersive experience, then you don’t understand the new laws of the jungle in finance. This rings true for transactional banking and wealth, just as much as it does for payments.

If you are not experience led, and the only way you can retain your position is by killing off those who are, then you’re playing a very dangerous game that doesn’t end well. Curve may or may not win this battle, but it’s arguable we now have a fairly good insight into how Amex is approaching the war.

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.

Bitcoin & Blockchain, Blockchain, Consumer Banking, Crypto, jpmorgan, Payments

The Return of Crypto DeQuorum – JPMCoin the XRP Killer

After a busy day, I sat down to have a late lunch at 3 PM on Thursday, and I saw a Whatsapp message pop up – and I stood up from my chair saying “Ohhh Ehhmmm Geee”. That was my reaction when I heard about the news of the JPM Coin. Of all the banks, JP Morgan led by Jamie Dimon had to be the first mover to launch their asset backed crypto. It is less than 2 years since Jamie Dimon called Bitcoin a big fraud.

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Will this bring back some decorum into the crypto world? Will this kill Ripple’s XRP? My head is abuzz with all these questions, so bear with me as I manage/struggle to lay them out.

The crypto world can do with some positive news and sanity as there is a sense of the crypto winter coming to an end. As much as I loved to hear the news, and was glad for the crypto industry as a whole, I felt for some of the early adopters of the technology. There is a good chance that we will see a BarcCoin, CitiCoin, GSCoin, and so on, with similar working models. There is more than a chance that we will see some existing players disappear. Let us quickly visit the salient features of the JPM Coin model.

  • It will use the Quorum Blockchain developed by JPM. It provides for
    high speed and high throughput processing of private transactions within a permissioned group of known participants
  • It will be a stable coin, whose value will be always $1 USD – so market volatility linked with Cryptos is mitigated.
  • It will be used for wholesale payments that JP Morgan processes, estimated at ~$6 Trillion per day.
  • The network can be a private or even a centralised network permissioned by JPM.

With real time cross border B2B payments as the core use case, JPM Coin may create some challenges for Swift. Last year, Swift announced that its GPI technology that has had good feedback from its banking customers.
GPI technology that let banks see where their payments were at all times, and that came with rules around response and confirmation times.

However, the challenge for the newcomers (then) that kept Swift going was the mutual KYC requirement from the regulators, which was harder using a DLT payment mode. And GPI let banks see where their money was at all times. Assume a London based bank is sending money to a bank in Mumbai, there may be a couple of correspondent banks in between. The London bank can see where the money is, and stay on top of any delays, issues etc., They can also stay on top of the Service Level Agreements (SLAs) that the intermediaries offer.

With a crypto based approach, the transfer will be instantaneous without any need for correspondent banks as long as regulatory and relationship hurdles are overcome.

Ripple and XRP have had their challenges in gaining adoption from key banking players. One of the key reasons why cryptocurrencies couldn’t be used for cross border B2B payments is because of the market volatility of the cryptos. With a stablecoin like JPM Coin, that fundamental issue has been addressed.

Also, with the banking and corporate relationships that JPM commands, most of their counterparties would be better off being part of the network. The JPM’s interbank network has about 157 global banks, and adoption should be pretty quick once the piloting is successful. Although the underlying Quorum blockchain is based on Ethereum, it offers both private and public transactions capabilities. So banks and corporates on the network will have privacy if they choose/need it.

However, the real pain hits them (corporates) when a bunch of tier 1 banks launch their own stable coins. This space has just started to get interesting, and we should see an avalanche of similar offerings from global banks.

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

Bitcoin & Blockchain, CBDC, digital exchanges, e-money, Payments, storage

What is the problem with Money being a claim on an Institution? Reflections from the AxessThinkTank event

axessThe first full day event focused on what is now `Alternative finance` was of high quality and non-tribal. Organized by the Geneva based, Axess Think Tank, with four themes

  • The future of money
  • The Regulatory landscape
  • ICO-STO and Capital markets
  • Blockchain and the Token economy

I had the great pleasure of moderating the last two topics.

Watch Alpha Point the US based leader in digital Exchange software white label solutions and DLT software. Both team members were extremely upbeat about the growth prospects of their market sector. The CME group and the Royal Mint of England are already their customers and Novogratz invested in them last summer.  I felt that they are out there for a mass distribution of Crypto Exchanges that will allow for the tokenization of all kind of illiquid Assets. While selling exchange software, they are disintermediating the oligopolistic conventional exchange software business.

Cryptofinance is a Swiss quality business that offers asset management services, brokerage and custody. Lewin Boehnke CTO of Crypto Storage AG and head of research and shared insights from their journey, seemed to have a card up his sleeve when he repeatedly stated that

`there are a few major players that will join the digital asset class soon`[1].  Stay tuned on their news.

SCX is the new fully regulated Swiss Crypto exchange live since last summer. The Chairman of the board Christian Katz joined our panel. He is the former head of the SIX exchange and is now devoted to building an institutional grade business. A secure and transparent crypto exchange is undoubtedly needed and C. Katz knows the inside outs of the exchange business.

Taurus is a new Swiss player offering brokerage and trading services. Recently also added storage solutions.

LakeDiamond & Monart, were the two specific tokenization use cases that participated. One in tokenizing the industrial production of diamonds and the other in the contemporary art space.

Capco shared lots of insights from their clients and the projects that they have working on.Romal Almazo, Capco’s UK DLT & Crypto Lead continuously emphasized that we need to go back to the core issue

`What is the problem we are trying to solve?`. Five words please. Then we see whether blockchain can do the magic and solve it.

He was also assertive, in his belief that only what is FCA approved will be the dominant tech that will scale. He announced a CAPCO pilot project that is by invitation only, in which CAPCO will use its global network of SMEs to participate in a solution around digital assets that will be led by CAPCO. The aim is to develop a blueprint in solving market problems via digital assets.

CVVC and Amazix, participated in the panels, sharing their experiences from the growth and pivoting of the startup ecosystem.

e-Money, CBDC, and BTC

When you have a board member of the SNB Andrea Maechler, a senior research advisor to the BOE Michael Kumhof, a research fellow of the Fed St. Louis & Professor at univ. of Basel Aleksander Berentsen, a research fellow of the UCL Center for Blockchain Technology Daniel Heller; there is a lot to absorb from their talks and panel discussions. Add to that the moderator Michel Girardin, from the Univ of Geneva and Jean-Pierre Roth, the ex Governor of SNB, in the audience.

They agreed that payments are the very heart of any economy and that we live in a world that customers expect payments to be like WhatsApp messages.

The SNB is actually following the innovations around payments, whether Fintech or Bitcoin originated. Andrea Maechler, emphasized that the SNB`s mandate is to support and promote cashless payments and this done through SIX. Fintechs that hold a FINMA payment license will be granted access to the SIX system.

Regarding CBDC[2]`s they have concluded that it is not a tech issue but rather a policy issue. The SNB believes that while there are advantages, the main disadvantages, make CBDCs a no-no fort he SNB. They see that a CBDC would increase the risk of a bank run and would make monetary policy ineffective when it is actually mostly needed.

This is where Aleksander Bernesten actually stepped up and provoked the thinking. He firmly believes that Central Bank electronic money would increase financial stability.

Give access directly to the CB to all.

His motto is that

the Censorship resistant attribute of Bitcoin, is priceless!

He makes things simple by focusing on this attribute. Since there is no free lunch, we have to choose between

A Censorship resistant database which is inefficient and slow

Or

An efficient and fast centralized database which is not censorship resistant

 

He thinks that a central bank decentralized currency has no meaning at all. Forget about a Fedcoin type of idea. However, he proposes that Central banks issue electronic money for all! So instead of having the authorized commercial banks exclusively access directly the CB, we should all have direct access to the CB. Forget about the RTGS system.

censorship-610101_960_720

For those that want to understand more details read The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies

Note: This post is not comprehensive coverage of the event. By joining the Axess think tank you can access the video recordings and more. Check it out here.

Don’t forget that currently

MONEY is a claim on the Central Bank or a commercial bank!

Will this change? How and when? The Why has been answered: For a Censorship resistance monetary system.

[1] Check https://www.linkedin.com/feed/update/urn:li:activity:6497140631427694592

[2] Central Bank Digital Currency

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

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