Latin America digital banking giant Nubank to add business accounts to its line-up

Asia seems to be where many fintech investors’ eyes are turned these days, however there are plenty of other underbanked markets that hold just as many opportunities, possibly more, for the savvy global venture hunter.

South America is one of those markets, and its stand-out performer to date has been Nubank.

The online bank started out life wooing personal banking customers, and now counts 10 million of Brazil’s 209 million residents as customers. While its bread and butter has been a slick digital experience for retail customers, the company is now looking beyond personal banking to business banking for SMEs.

Complementing its current base of personal account holders, the new line of products will focus on self-employed professionals and individual micro-entrepreneurs, otherwise known as MEIs. Their needs are not that different to a retail account holder, and the move will no doubt increase average revenue per account holder, plus entice new customers. Around 800,000 of Nubanks clients are reported to have already requested the bank move into business banking, no doubt helping sharpen the decision around product prioritization.

This announcement from Nubank shows an understanding of the growing global trend around flexible work, and how financial services are so central to empowering this trend.

It therefore comes as no surprise that the likes of SoftBank Group are reported to be sniffing around. It’s rumoured that any financing deal Nubank undertakes, would value the company in the realm of $8 – $10 billion. According to Vox, that would make it the second most valuable fintech in the world, behind Stripe.

If Nubank can conquer Latin America (the company has just started expanding into Mexico), it seems like that valuation will be well justified.

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).

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The US President tweets about Bitcoin

Donald-Trump-is-Not-a-Fan-of-Facebook-Libra-and-the-Volkswagen-Beetle-Will-be-no-More-750x354

TLDR. Last year, when Steve Bannon, Donald Trump’s adviser praised Bitcoin as “disruptive populism” and revealed he was working on his own cryptocurrency. It was evidence of something many people had long suspected: The forces driving the growth of anarchic, get-rich-quick digital tokens are very similar to those buoying Trump and his imitators.

Ten years ago, if you claimed that the President of the United States would be talking about digital money, people would think you were crazy. Well it happened. Last week the President Trump tweeted about Bitcoin and other cryptocurrencies:

The President expressed his opposition to cryptocurrencies, specifically about Bitcoin and Libra. He doesn’t think cryptocurrencies are real money, because their “value is highly volatile and based on thin air.”

Is fiat any better?

Cryptocurrency is volatile. Cryptocurrencies are based on thin air, but so are all the fiat currencies in the world. Bitcoin cannot be debased due to its limited supply, but the US dollar can and continues to be, as large quantities are printed. Cryptocurrencies can be used for illegal things, but so can cash. But on the other hand, Bitcoin transactions can be tracked by authorities, US dollars used for illicit purposes, are often impossible to track.

Trump’s statements about Libra, were along the same lines of other governments. France also appears to be opposed to Facebook’s cryptocurrency plans. An official at France’s finance ministry said the country would not allow a private entity to set up the equivalent of a national currency. China’s central bank is reportedly developing its own digital currency in response to Facebook’s Libra, as it could pose a threat to the country’s financial system.

The market barely reacted after Trump’s tweets. Bitcoin and cryptocurrency markets were completely unaffected by the comments The price of Bitcoin slightly rose, as investors bet that Trump’s mention of Bitcoin will bring greater awareness to crypto and push prices up.

This is possibly, the largest bull signal for Bitcoin, ever. The President’s tweets coupled with the growing institutional adoption and investment, spell out a clear message “buy Bitcoin”.

Trump’s tweets come one day after Federal Reserve Chaiman, Jerome Powell, told lawmakers that Facebook’s plan to build a digital currency called Libra could not move forward unless it addressed concerns over privacy, money laundering, consumer protection and financial stability.

Bitcoin had a huge week. Some in the crypto world have interpreted Trump’s series of tweets as an endorsement of Bitcoin’s growing importance. Trump turned Bitcoin into a hot issue for the upcoming presidential election in 2020.

It looks like Trump is hammering potential threats to the dollar’s status as the world’s reserve currency. But, this doesn’t matter, because the value of Facebook’s coin is also pegged to the value of a dollar, they are essentially just dollars on a blockchain. For me, that’s more interesting. Not that long ago, the world’s reserve currency was gold, where the value of a dollar was pegged to the value of gold. But one day the US decided to unpeg the dollar from gold, paving the way for the dollar to replace gold as the world’s reserve currency. Could Libra or another cryptocurrency, do the same thing to the dollar? It’s possible.

But, I think the dollar and crypto can coexist, and will coexist for a long time. Currency competition is inevitable, but the dollar doesn’t need to fail in order for Bitcoin to succeed.

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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)

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Last Week on Daily Fintech

During the week when hurricanes headed for America and the awful drought in India got worse, our Experts posted fresh insights about Fintech each & every day.

Monday from @iliashatzis, our Greece -based crypto entrepreneur, celebrated America’s Independence Day by describing how Bitcoin shows that a community of people can create a currency system on their own, just like the Colonials did. Read here.

Tuesday from @efipm, our Swiss-based Fintech Adviser, questions why the variety of  `anything Fintech as a service` is helping BigBank more than SmallBank today. Read here.

Wednesday from @jessicaellerm, our Australia-based Fintech entrepreneur,   continued analysis of the red hot India Small Business Fintech market by looking at TenCent’s investment in NiYo. Read here.

Thursday @insuranceeleph1, Patrick Kelahan, our US based Insurtech expert, curated & analysed the most important news items in Insurtech globally during the last week. Read here.

Friday from @karunk, a London based Fintech investor, describes how in India, the third most active innovation ecosystem in the world after US and China, most Blockchain projects are driven by Government initiatives for financial inclusion. Read here.

Saturday @lunnbernard, CEO of Daily Fintech,  is surprised that the SEC Crypto regulation gets it almost right with the Reg A Blockstack token offering and opines that this may define a new innovation capital market. Read here.

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Amazingly, the SEC may have got it almost right with the Reg A Blockstack token offering and this may define a new innovation capital market

Reg-A-Quadrant.001.jpeg

TLDR. Napster blew up the music business with free and illegal. Then we had low cost and legal like Spotify, Pandora and iTunes. The same is happening to innovation capital. The summer of 2017 ICO, kicked off by Bancor, was the now illegal way to raise a lot of money easily and at virtually no cost. That was a lousy deal for investors and naturally then regulators jumped in.   

This update to The Blockchain Economy digital book covers:

  • What is broken in the legacy innovation capital business
  • Why the ICO went too far in the opposite direction
  • The news about Blockstack and Reg A
  • Reg A Basics
  • Blockstack Basics
  • Jurisdictional competition will continue
  • Context & References

What is broken in the legacy innovation capital business

In March 2017, in Crypto equity via ICO and the other innovation chasm we wrote that:

“Most entrepreneurs understand the chasm between MVP (Minimum Viable Product) and PMF (Product Market Fit). The low cost to build MVP increases supply, but real demand does not change that fast, so lots of MVP ventures fall into the chasm (i.e. they fail).

The next chasm is less well understood. This is the chasm between PMF and Liquidity (via an IPO on the Public Markets and failing that via trade sale).

Today, we don’t see this chasm so clearly because there is a very expensive bridge across it – in a few locations. The very expensive bridge is provided by the big PE/VC Funds.”

Why the ICO went too far in the opposite direction

In 3 hours that shook my world: the Bancor ICO in June 2017 we described Bancor raising over $150 million in 3 hours in an ICO that kicked off the ICO craziness in 2017 when ventures could raise huge sums on not much more than a “minimally viable white paper”. The ICO went too far in the opposite direction – good for the entrepreneur and bad for the investor.

The news about Blockstack and Reg A

The news as reported in many media outlets was that the SEC gave Blockstack the go-ahead to conduct a $28 million digital token offering under Regulation A (which enables smaller companies to raise money from the public with less strenuous accounting and disclosure standards than a traditional IPO).

This is big news because the SEC is creating a new protocol for token offerings under Reg A. This is tokenized early stage crowdfunding. While neither  tokens nor crowdfunding are new, this the first time they have been combined in a global market that US public investors can participate in.

America has been losing ground in crypto as it was not perceived as a friendly regulatory environment. This news is a big win for American entrepreneurs and investors.

Reg A Basics

Regulation A as per the SEC:

“is an exemption from registration for public offerings. Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period. For offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2.

There are certain basic requirements applicable to both Tier 1 and Tier 2 offerings, including company eligibility requirements, bad actor disqualification provisions, disclosure, and other matters. Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports. Issuers in Tier 2 offerings are not required to register or qualify their offerings with state securities regulators.”

Blockstack Basics

Blockstack describe themselves as the” easiest way to build decentralized apps that can scale” and claim over 120 independent developer teams that have built apps on Blockstack.

Like Ethereum and many ICOs, Blockstack is a developer-focussed open source platform. It is the sort of innovation that the crypto community needs.

Jurisdictional competition will continue

In Some Governments Want To Shut Down Bitcoin But They Don’t Know How we wrote that:

“For a long time, entrepreneurs faced competition and regulators sent them the rule book. Regulators were government employees who thought about competition only in the abstract;  competition was something that other people had to worry about.Today, the environment is more fluid as governments recognize the economic return on innovation in terms of jobs and GDP growth. The regulators now face real competition because their political masters have to keep citizens happy and citizens care about jobs and GDP growth. Both Fintech upstarts and incumbent global banks are increasingly mobile; so jobs can disappear fast if regulators get it wrong. Plus, innovation is the primary driver of productivity which drives GDP per capita. Pity the poor regulator who must balance that with protecting citizens from fraud and enforcing existing laws.”

This jurisdictional competition is a good thing because while, the SEC may have got it almost right with Reg A and the Blockstack token offering, there is still room for improvement. If you look at the details, you will see that accredited investors get in early and the public get in later. The public gets in earlier than they do in a traditional IPO, but this is still a two tier market. In a global market with jurisdictional competition, expect big moves by Singapore, Hong Kong, UK, Switzerland the EU and other tech/finance centers.

Context & References

3 hours that shook my world: the Bancor ICO in June 2017.

Crypto equity via ICO and the other innovation chasm

Some Governments Want To Shut Down Bitcoin But They Don’t Know How

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

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

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

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The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity?

It’s an emotional week for Indians – for most of them atleast. It’s a week when India crashed out of the cricket world cup, that they were favourites to win. While I was looking for “India news” to cheer myself and my family up, I spotted an important trend worth talking about.

The rise of Blockchain in India doesn’t come as a surprise to me. It is the third most active innovation ecosystem in the world, next to the US and China. 2018 had $35 Billion of PE/VC investment in the country, and that has risen over the years at a rapid pace. However, with Blockchain, most of the initiatives have a public sector organisation driving it.

Blockchain-India-Infographic

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Most Indians would admit  that public sector organisations in India are super dysfunctional. So, this is indeed a sign of new times. Perhaps, the state governments are taking inspiration from the centre’s initiatives with payments and other technology innovation. Let us look at the three key trends that we have identified across the states.

  • Land Registry – This is such a critical use case for Blockchain in India. The real estate industry is fraught with corruption, and a system to bring integrity to the value chain is most welcome. Blockchain could add so much value to this space.

 

  • Farm Insurance – I am quite glad that this is a key trend. Less than a year ago, I wrote an article asking for exactly this. A violent storm that hit my home state, affected coconut farms and many farmers lost their 10 years of hard work. A smart contract based insurance mechanism is critical for farmers to protect their livelihoods. In a country that depends on two monsoons for agriculture, a flood or a drought could kill the crops.

 

  • Digital Certificates – There is a saying in India – You can’t go wrong with a food or an “education business”. Education has been commoditized in the country so much that, every year there are 1.5 Million engineers being produced. It is also a market where counterfeit certificates and CVs are not uncommon. Blockchain based digital certificates to maintain the integrity of the education process is yet another useful application.

The map also identifies several other use cases like Organ transplants (as the black market in India is thriving), IP Protection and Cybersecurity. I am surprised that there is no line item for Self Sovereign Identity. India has the world’s largest citizens’ database in Aadhaar. Loading it up on a permissioned Blockchain, and providing citizens the ability to share their data in a controlled fashion would be a major building block.

But that initiative needs to come from the central government. It cannot be a state government driven agenda. Also, despite all these developments, the action from the central government around Blockchain initiatives is missing. The central government needs to intervene to standardise state government based initiatives across the country.

The other elephant in the room is the cryptocurrency ban in the country. I believe, this has pushed India behind its global competition by a few years when it comes to Blockchain innovation. The country has a buzzing startup ecosystem. The centre has taken several steps even in the most recent budget to support innovation.

But when it comes to cryptocurrency, the Reserve Bank of India has taken a very binary approach. I spoke to Lizzie Chapman (CEO of ZestMoney) a few weeks ago on lending fintechs in India. During that conversation, she mentioned that the Indian regulators have been quite collaborative in setting policies for the industry. That approach seems to have been lost somewhere with Cryptos.

The challenge that India has is that of talent. With lack of innovation happening in this space, Blockchain skills will start running out pretty soon. Yes, the big tech consulting firms looking to build Blockchain skills can do so. But that doesn’t necessarily translate to leadership within Blockchain innovation.

The other challenge is global competition. China and other top economies have allocated $ Billions towards emerging technologies such as AI, Quantum computing and Blockchain. China and US fight it out for the top place in the world’s patenting charts across these technologies. India is only in 6th position in the world for the number of Blockchain patents, and without private sector innovation, will soon risk being left behind.

In essence, the centre needs to wake up to this new era in the country. It’s time for leadership at the top, much like they did with payments. They should get initiatives kicked off on Blockchain and its standardisation across states. They should ensure that the regulations are clear for the crypto community.

With just those two steps, the country should be back on the map in a much bigger way with Blockchain. The mistake (crypto ban) could be turned into an opportunity. Onwards and Upwards!! Cheer up India!!


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).


 

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InsurTech and Innovation news- a great banquet but fill your plate wisely

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TLDR   The volume and variety of insurance/InsurTech news is almost too much to keep track of, even if one tries to keep focus on one insurance line, one region, one company, legacy vs. innovation, etc.  And of course, I like to keep up with all.  Foolishly, because a jack of all trades remains a master of none, even in the digitally aware environment. 

In any case here’s a sampling of what caught my attention during the past week:

Auto telematics help inform driving decisions for the elderly (and maybe create a sales opportunity for scooter sales  What was rolled out originally as an app to measure driving habits for taxis and fleets by Orix Auto Corp evolved into a clever tool for the elderly and their families to broach the subject of safe driving, and whether a person has requisite driving skills.  In turn, many who choose to surrender their auto driving rights have found a measure of freedom using motorized wheelchairs or scooters, e.g., devices rented by Whill, Inc.    Japan Today   Thanks, Robert Collins

InsurTech builds a market for a complementary product.

Equipment breakdown claims grow in a booming economy

“Equipment breakdown now rivals fire loss in both frequency and severity of claims, driven by the booming economy and human influence, according to an FM Global analysis of large property-related losses greater than $3 million released Tuesday.”

Sure, it’s one firm, but what??? Rivals fire losses for frequency and severity???

“Lack of maintenance was a factor in two-thirds of equipment breakdown losses in 2018, while nearly half had a significant human element impact or influence, FM Global said.”

InsurTech opportunity– IoT devices to monitor equipment performance, maintenance, automated repair, and controlled shut down.  Keep in mind equipment failure equates directly to loss of use and profitability issues.  This speaks to changes in underwriting, policy forms/exclusions, changes in indemnity paired with parametric for a new sort of indexed parameter.   Business Insurance

AIG unit off the hook for non-property damage arising from flood

“A flood sublimit in a property policy applied to all losses arising out of a flood, not just property damage, a federal appeals court ruled, reversing a lower court’s ruling against an American International Group Inc. unit.”

An AIG insured filed suit for loss of use (time element) claims, a contention the appeal court said was unfounded as the policy sublimit was deemed to include all claimed losses, not just direct property losses.  Policy provision/endorsement wording and existing case law- insureds need to understand and/or ensure their broker does.  While this is an insurance ‘due diligence’ issue that is not new, this is another innovation opportunity- policy language/unstructured data analysis.  Chris Cheatham of RiskGenius has done yeoman’s work in providing a service to allow companies to “better understand policy language and create more efficient underwriting workflows,” but that does not force a company to understand what coverage applies.  Business Insurance

InsurTech opportunity- automated learning from denials of coverage– this flows both from the insured to the carrier, and vice versa.  Same principle applies to analysis of litigation- learnings for all.

Which P&C Insurers Made the 2019 Fortune 500?

Let’s not consider the 500, let’s consider the top 100 companies on the list, of which 7 are P&C insurers.  Why care for this article?  Well, the seven firms represent $535 Bn in annual revenues, and employ in total 658,000 insurance professionals (not including those populating tens of thousands of agencies).  That’s a lot of financial clout, and 658K pros (estimated one million with all carriers included)?  Innovation opportunity– Think what the input from an informed constituency of that size could contribute to insurance innovation and the industry’s future but are in whole discouraged from doing so. (roll this up to the global top ten- $917 Bn capitalization, hundreds of thousands of staff)

Unleash the innovation Kraken, P&C industry, free the staff! – the only real problem that would be had will be what to do with all the great ideas.  PropertyCasualty360

GetSafe CEO Predicts Lemonade Will ‘Struggle’ In Germany

“Lemonade will have to struggle in Germany,” GetSafe co-founder and CEO Christian Wiens told Carrier Management vie email. “The market is regulated and complex, and the domestic InsurTechs are in no way inferior compared with Lemonade.”

“While Lemonade is a fantastic storyteller, they concentrated on their brand and not so much on their product and technology,” Wiens said. “Germans, on the other hand, prefer to do it the other way around.”

First sentence- seems the industry cognati agree- plenty of DE innovators already in play across all covers.

Second sentence- not so sure.  Lemonade has been a mostly transparent sharer of the principles behind its policy form, and certainly speaks a lot of its favorite bot, Maya.  GetSafe is no technological slouch as its easy app and MGA-based operation has brought together backing (Munich Re) and leverage of changing customer needs in its property insurance platform.

InsurTech opportunity- harken back to business school– what are your market threats, and who is manifesting a potential competitor’s novelty, and can you iterate more effectively based on what new entrants are bringing to your base?  Lemonade’s substantial financial backing can help them bring a ‘square peg’ to a DE ‘round hole’, so why not shamelessly and fashionably imitate?  Don’t denigrate the disruptor of the disruptors- re-disrupt (is that a word?)   Carrier Management

Plenty to see here, as they say, but don’t rest too long on one news feed- too much of one good thing could cause info-indigestion.

Best approaches I have found- watch what your respected connections watch and watch what smart persons in tangential industries watch- there are bound to be meaningful overlaps.  Don’t limit yourself to one region’s news, don’t limit yourself to one line of thought.  Read the contrarian’s point of view.  And understand that the next best thought may come from an unexpected source/country/post/medium/neophyte/expert/anything.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

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

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

 

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Indian Neobank NiYo gets Tencent on the Cap Table

Just two weeks ago we reported on Daily Fintech that the Indian SME banking sector had received a $30 million funding injection, with Tiger Global leading a round into Open, a neobank targeting the sector.

In that same article, we surveyed the booming Indian neobanking space, and drew your attention to another player similar to Open, NiYo. This neobank wants to own the banking relationship with salaried employees in India, offering 50% salary advances via its platform, at 0% interest. It also has a multi-currency Visa travel card and a tax-saving feature for employee expense management.

Just a few days ago, NiYo hit the headlines in its own right, with news another big funding fish, Tencent, was part of an even bigger $35 million round into the business.

Talk about stealing the spotlight from its competitor.

While there’s the usual chatter about new products and doubling down on distribution, it’s reported the neobank is also on the acquisition hunt, and open to bringing oboard other startups that can fast track its overall vision.

There is a slight irony in the fact that as neobanks like Open and NiYo rise, parts of the industry are in severe decline. Nowhere was this more evident this week, than the (somewhat) shocking news stalwart Deutsche Bank will retrench as many as 18,000 of its global workforce in the coming weeks. The dramatic impact technology has had on certain aspects of the two divisions feeling the brunt of the cuts at Deutsche – equities and fixed income – could have some viewing the move as a bellwether for other inefficient parts of legacy banking. No one can deny business banking is right up there – NiYo and Open are being funded because of it.

While there is no defined news on the extent to which Deutsche’s Indian operations will be affected (their equities team is a small operation), it’s worth remembering India’s huge role in processing and supporting offshore teams. The flow on effects of high salaried, and often highly leveraged employees in Western countries losing their income in a market where replacement jobs are thin on the ground, is all part of a growing concoction of financial chemicals that could pop the global asset bubble. It only takes one prick, after all.

At least in India, the opportunity for re-invention and growth in the financial technology space is abundant, where payments and banking innovation is flourishing thanks to a lack of legacy systems and throttling regulation. Might be time for a sea change for some of those ex-Deutsche employees, who are fed up with the bright lights and ruthlessness of Manhattan and London.

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).

Fintech has not created a level-playing field for small to mid-size banks

Temenos released in April its annual report[1] on the State of digital sales in banking. As I was reading some of the key findings reported by Jim Marous[2], I was struck by these observations:

More concerning is the reality that most of the high marks for digital sales continue to be garnered by only the largest organizations.

 Larger banks ($150B – $2,500B) not only have a financial and technological advantage, they benefit from a head start in the deployment of all digital account opening capabilities, allowing them to gain a share of mind advantage through media and word of mouth. 

 #AndTheIronyIs that technology was supposed to democratize banking not only for the end-customer but also for the smaller, less national, less international financial services provider. After all, fintech is by now overweight B2B providers. Remember it all started as a disruption, replacement to banking. Then it shifted to collaboration and partnerships with incumbents and as Jessica pointed out ‘Something’-as-a-service, the new fintech paradigm.

#AndTheIronyIs that despite the plethora of B2B unbundled fintech services out there, anything you can imagine as a service; the mid and smaller size banks remain overall behind. Of course, there is a variety of metrics and KPIs that one can use to measure their digital readiness. From mobile account opening, save and resume functionality, small business account opening, etc.

Digital transformation these days requires internal cultural and technological changes whose impact will be seen 3yrs down the road. That means that mid to small size incumbents remain at a disadvantage.

level playing field

When I look at 11Pulse, the digital benchmarking offering of 11FS that allows clients to benchmark themselves against peers on onboarding, security, PFM, …; I wonder whether mid to small size banks are flocking to take advantage of this service and to find ways to catch up.

I guess the simplistic answer is that small to mid-size banks don’t have the guts and the budget to stick to such a 3yr plan.

For sure they don’t have any internal strategic funding mechanisms like Goldman Sachs has. Goldman’s Principal Strategic Investments group has made key investments in Kensho and Tradeweb and helped create Wall Street chat platform Symphony, and much more.

Neither do VCs fund the transformation of existing banks because they are only interested in high growth stories, which means investing in those that are building the picks and shovels.

The only such example I have found is Cross River Bank that Battery Ventures, Andreessen Horowitz and Ribbit Capital invested $28million in 3yrs ago[3] and recently another $100mil was announced by KKR. Cross River bank started by supporting fintech startups with loans – $2.4 billion in loans for companies like Affirm and Upstart in 2015 alone. Today it is more than a leading marketplace lender for fintech. It is one of the top go-to bank-fintech cooperation providers. Its customers include Circle, Best Egg, Coinbase, Rocket Loans, Stripe, Upstart, Affirm, and Transferwise. Just 2 weeks ago it Cross River bank acquired Seed, a small business banking company.  Seed is a 5yr old online banking company for small business  owners and freelancers.

`If a payments company wants to become a lender or a lending company wants to do payments, then they have the ability to do that on our rails,` says founder Gilles Gade to Techcrunch.

The question to VCs, CrossRiver bank, 11Pulse, and other remains:

It is either the large incumbents (my Sharks) or the aggressively VC funded Fintechs (my piranhas) that are benefiting from the variety of  `anything Fintech as a service`. What about the bulk in between?

 

[1] The report includes the Temenos proprietary ‘Digital Sales Readiness Matrix’.

[2] Banks Not Meeting Digital Sales Expectations

[3] Who`s building the Banking Smart pipes

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).

10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life

10 heuristics.001

TLDR. Buy low, sell high is easy to say but hard to do. These are 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life. These 10 heuristics work independent of how much you have to invest (whether it is 100 or 100 million). These 10 heuristics avoid both extremes – HODL and TA trading. Buy & Hold (or HODL in cryptospeak) is not quite right when you have a such massive bull/bear market swings  (better to sell near peak and buy near bottom of each big cycle). HODL at all times may not be right, but neither is frenetic trading using Technical Analysis (machines and institutional investors will always beat you at this). Whatever your timeframe, remember that a) this is a wild west, scary/dangerous unregulated market and b) YOLO (You Only Live Once) and waking at 3am because that is when the big swings are happening in this 24/7 market is not having a life. Standard IANAFA (I Am Not A Financial Adviser) Disclosure. This is for entertainment purposes only. If this is how you get your entertainment – you need to get a life (my lawyer advised me not to say this last bit). Although the statement that this is only for entertainment purposes sounds like legal boilerplate, the intersection of entertainment and nerdy techno financial media on YouTube is part of this story. Read on for 10 heuristics  to make money trading 24/7 unregulated crypto markets and still have a life.

Heuristic means a practical way to a satisfactory but not optimal solution (aka rule of thumb, educated guess, common sense).

This update to The Blockchain Economy digital book describes the 10 heuristics to make money trading 24/7 unregulated Crypto markets and still have a life:

1. Choose Coins big enough to make pump & dump more difficult.

2. Only invest an amount that allows you to sleep at night.

3. Don’t follow individual TA gurus.

4. Avoid fake valuation science.

5. Assume you only have 10 trades in a decade.

6. Make sure you have “proof of trade” before following.

7. Have some fun with your financial entertainment.

8. Why nearly is a better word than precisely.

9. If you don’t have an edge, don’t trade.

10. Practice safe Crypto.

If you do not understand these points, do more research. If you still do not understand these points after doing more resesarch, stay away from these markets. The old poker rule applies – if you don’t know who the sucker is at the table it is probably you. If you want to trade/invest/speculate in crypto, please read on.

No 1. Choose Coins big enough to make pump & dump more difficult

Pump & dump is a) very profitable for the person pumping & dumping b) a money furnace for everybody else c) totally simple to do with crypto coins that have low trading volume.

Screenshot 2019-07-03 at 19.49.59

Look at the top 3 crypto coins by market cap and then look at 24 hour trading volume. Bitcoin has about 3x trading volume of Ethereum and 20x that of XRP. Bitcoin is a bit safer than smaller coins with less trading volume because a) you need more capital to do pump & dump b) there are more savvy traders/investors/speculators who can counteract the impact of the pump/dump operators.

The trading volume of even the biggest coin (Bitcoin) is a rounding error compared to equities, bonds and sovereign/Fiat currencies and these legacy finance markets are regulated. All crypto investing has pump & dump danger, Bitcoin just has a bit less risk than others.

Despite this risk, Bitcoin has massive upside and trading volatility opportunity, so don’t give up yet and read on to heuristic no 2.

No 2. Only invest an amount that allows you to sleep at night

Bitcoin could go to zero or 10x or 100x higher. Say you bet 100, you could lose 100 (go to zero) or make 900 profit (10x) or 9,900 profit (100x). That is a good bet (known as an asymmetric upside to downside) as long as you only invest an amount that allows you to sleep at night. What that amount is will vary depending on your risk tolerance, which depends on your age and temperament. It will usually be some % of your capital.  A low risk allocation could be 1% and some big money putting in 1% may be driving the current bull market (1% of a Family Office with $1 billion is $10 million). Some high risk players are allocating 50% or more of their capital.

No 3. Don’t follow individual TA gurus.

TA = Technical Analysis, aka charting.

Trading is a zero sum game. Your loss is my gain and vice versa.

Exchanges are like casinos. They make money when you trade, whether you win or lose. Casinos will happily give away books on “how to beat the casino”. If Exchanges offer free TA courses, be wary. It is only slightly better than paying your own hard earned money for those TA courses.

TA is a mugs game for retail traders for the simple reason that professional institutional traders working will beat you every time because they:

  • can trade 24 hours by “moving the book” around the globe. A big swing that happens while you are sleeping, is not a problem for professional institutional traders.
  • have better access to data and analytics that cost money.
  • have better access to data from exchanges that they can use to front run your orders; this happens even on regulated legacy finance markets.
  • can automate strategies to minimise losses during down markets. They can program stop losses but also use manual override if needed, particularly if they can see where Retail have programmed their stop losses by using data from exchanges.
  • use large sums of money to move markets at the precise times when the TA crowd makes that price point vulnerable. Let’s say the TA crowd says that 11,650 is a line that if crossed will lead to a big crash. Professional traders working for institutions will deploy large sums of money to short the market to ensure we fall below 11,650 and then buy in later.

You can find plenty of TA gurus who got one or two big calls just right. If you think you found one who is consistently right, look at heuristic no 6.

Following an individual TA guru is usually a mugs game, but you can look at aggregated TA sentiment as one signal (but only one) to help you make the big calls in heuristic no 5. A good source for this is Trading View, with a simple dashboard view (snapshot below).

Screenshot 2019-07-03 at 15.45.19

No 4. Avoid fake science around valuation FA

FA = Fundamental Analysis.

Many have tried to come up with fundamental valuation models. They want to be known for creating something like PE for Bitcoin. Nobody has got this right yet, which is why there are so many different fundamental valuation models. Looking at all of them is one signal to making the big calls described below, for the simple reason that many investors/traders look at these models.

No 5. Assume you only have 10 trades in a decade.

You could simply HODL (Hold) through all the wild bull and bear swings. That is certainly better than frenetically trading every little nervous tick of the market.

Yet look at the Wall Street Cheat Sheet image. How great if you could sell near peak and buy near bottom of each big cycle. There have already been a few wild cycles like this for Bitcoin. 2017 was only the latest, not the biggest in % terms and this cycle is unlikely to be the last.

Wall-St-cheat-sheet.png

Today we could be at Disbelief (= buy signal) or Complacency (= sell signal). We probably were at Capitulation around January 2019 but if today we are at Complacency then Capitulation is still ahead of us. Personally I think we are at Disbelief today.

Key to this strategy is:

  • not allocating all your capital at once (whether it is 100 or 100 million).  For example in the current market (early July 12019), don’t bet it all at once in the hope that we are at Disbelief.  Keep some powder dry in case it is Complacency. Then you can celebrate if the market crashes and buy more later at lower prices.
  • sitting on your hands unless it is a big one. This is where the mental habit of assuming you only have 10 trades in a decade helps you. For example in the current market, did you waste one of your 10 precious trades as if this was one of the big swings? Although Bitcoin trading is fairly low cost, the more you trade the more likely you will be to get it wrong occasionally. Only gurus claim to get it right all the time (see heuristic no. 3).

If it goes to zero, remember heuristic no 2

The key word is“near”. This deliberate imprecision is explored further in heuristic no 8.

This very occasional trading is a lousy way for brokers and exchanges and content sellers to make money, so it won’t be a popular topic on social media. 

All you want to do is decide if the market is at Capitulation or Disbelief (= buy signal) or Complacency (= sell signal). To make this call:

  • have a point of view in what range you think the top and bottom of this cycle will be. Start buying/selling as you get into this range. You are only looking for a range not a precise top or bottom This takes fortitude as everybody will be shouting exactly the opposite at this stage.
  • Look at signals from both TA and FA to guide how aggressively you sell. The key is to a) avoid emotional herd following b) avoid truing for accuracy and getting the precise top.

No 6. Make sure you have “proof of trade” before following.

Many trading gurus appear on media telling tales from the time they got it right. Unless they offer you a simple “proof of trade” that allows you to follow their trades (and profit from your follow), assume they are only offering financial entertainment.

No 7. Have some fun with your financial entertainment

There is nothing wrong with financial entertainment, but make sure it is actually entertaining. The great comedian John Cleese (who is also scientifically minded and a great educator) has pointed to research that shows that  when you laugh is when your mind opens up to new information. So make sure your financial entertainment is actually entertaining. One that I find entertaining is the Max & Stacey Keiser Report double act.


Two types of financial entertainment that don’t cut it for me are crypto trading gurus who:

  • do their travelogues.If I want a travel show I will choose a travel show

– parade in front of rented richistan toys (houses, cars, boats, planes) to prove how rich they are (and you will be if you listen to them).

No 8. Why nearly is a better word than precisely

The idea of precisely hitting tops and bottoms means somebody maybe picking your pocket. Hunting for magic tops and bottoms is a mugs game. It leads you to follow trading gurus who got it right once (somebody is bound to get to right occasionally given a big enough sample size of gurus). 

No 9. If you don’t have an edge, follow don’t lead.

Lead, follow or get out of the way. If you are not totally comfortable that you know what you are doing, look at heuristic no 6, find a trader to follow, pay the fees and enjoy the time you just won back.

No 10. Practice safe Crypto

Don’t lose you hard earned Bitcoin through one of these dangers:

  1. The Exchange where you hold your Bitcoin is hacked, your money is stolen and the Exchange will not refund your money.
  2. A government does not like you or wants your money and orders the Exchange to give it to them.
  3. You keep your Bitcoin in a safe protected by secure private keys on a hardware wallet but you are robbed or lose it by doing something stupid. Remember, Bitcoin is a bearer instrument.

Despite the mantra of “not your private keys = not your Bitcoin”, practicing safe crypto may mean trusting an institution like Coinbase or Fidelity.


Until and unless you are really comfortable with what it takes to keep your Bitcoin in a safe protected by secure private keys on a hardware wallet, a trusted institution maybe a better solution for you.

Trading, investing & speculating are just words; don’t define what you do by words. Trading is investing with a short holding period. Is holding for 1 year trading or investing? Speculating is just a pejorative word for trading.

Follow these 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life and then follow the 11th one:

Be Lucky!

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

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

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

Softbank Group eyes LATAM’s Neobank and the unbanked market

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The past decade has seen to major leaps made in financial services in the emerging markets – largely thanks to mobile penetration. Be it M-Pesa in Africa, or more recently Tencent and Alibaba in China, the transformation on the ground depended after usage of mobile phones became mainstream. However, there is one part of the world, that is stealthily moving towards one such leap frog moments – Latin America.

Latin America has the third highest penetration of smart phones globally, after North America and Europe. In 2017, smart phone penetration in Latin America was 61% and about 50% of smartphone users accessed the internet through their mobile phones. Smartphone penetration in the region is expected to grow to 76% by 2025.

A platform for growth is well set and the impact when growth occurs is going to be big too. That is because, 70% of the population in the region is unbanked. This is due to the processes involved in opening a bank account. The documentation required to open a bank account involves, proof of citizenship, employment and financials.

Nubank was the first Neobank of Latin America, and they are fast expanding within Brazil and Mexico. Both these markets are pretty large and hot for mobile based financial services. As per a PwC Fintech report, in 2018, there were 224 Fintech startups in Brazil, 94% of them based out of the southern part of the country.

Brazil

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Nubank is hailed as the “Most Valuable Startup” of Latin America. There was recent press about them doing a $1 Billion fund raise from investors like Softbank group, at a massive $10 Billion valuation. The round is not closed yet, however, I wouldn’t be surprised if it goes through, due to the traction Nubank have achieved in a massive market. They have 8.5 Million customers already and are the largest digital bank outside of Asia.

With a huge base in Sao Paolo that has a 21 Million population, Nubank has captured the urban mobile-first customer base with an average age of 32 years. While the Nubank app provides basic banking services out of the box, the Fintech ecosystem in Brazil could allow for better opportunities.

Several Fintech players offering loans, wealth management services, mortgages and insurance can plug their apps onto Nubank’s platform. The API based integration could trigger a bundling up of financial services to form a Fintech Super-App.

One of the closest competitor to Nubank is a food delivery business – iFood. Brazilians are getting on lifestyle apps before they embrace fintech services provided by these lifestyle apps. It is interesting to see that in LATAM, a proper Fintech app (Nubank) has taken the lead, followed by lifestyle businesses (iFood). Whereas, elsewhere in China, lifestyle businesses started offering Financial services.

Brazil has certainly got ahead with Neobanking. But the other LATAM economies are catching up too. Albo in Mexico offers a digital banking experience, and provides a Mastercard that customers can use across the world – free of charge. Uala in Argentina is yet another Neobank app, that managed to acquire close to 500,000 customers in its first year.

With investors like Softbank and several Silicon Valley bigwigs getting into the act, LATAM could soon be the global hub of Neobanking. A case study where we see Neobanks leading a mass financial inclusion drive is waiting to happen. Definitely a space to watch.


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).