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

Image Source

$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).

Pondering the cool discussion of InsurTech carrier Lemonade- is it as sweet as presented?

TLDR As discussed in the prior post Lemonade is many things, per CEO and co-founder, Daniel Schreiber– revolutionary tech platform, charitable giver, P2P service provider (no, strike that), but at its core it is a property insurance company.  The hows and whys matter not when the application for license goes before the respective jurisdiction’s regulators.  The company must be organized and operated in a manner that is recognized as secure for its policyholders and adequately financed as such, must comply with the same accounting standards as other insurance carriers, and must be ready and able to comply with the agreements, provisions, and conditions its policies include.

Why belabor these points?  Because the company leads with its innovation chin, its behavioral economics, and its promises to act as a totally different insurance company than what those crabby octogenarians (who) think we are making too much noise companies do.

One of the foundational points the firm makes at its outset is that there is a recognition by Lemonade’s founders that, “There’s an inherent conflict of interest in the very structure of the insurance industry.”  (Chief Behavioral Officer, Prof. Dan Ariely, see around 0:54 of the video).  He continues, “Every dollar your insurer pays you is a dollar less for their profits.  So when something bad happens to you, their interests are directly conflicted with yours.”  

Of course there is conflict between payment of premiums and indemnification- absent the ‘tension’ insurance would not exist, or perhaps would be free! It might be said that Professor Ariely’s perspective has an inherent flaw in not acknowledging that an insurance policy is a contract for risk sharing between an insured and carrier, that a respective policy premium and deductible are the insured’s agreed cost of sharing the risk covered by the policy, and that the carrier promises to indemnify the insured for damages due to causes of loss the policy covers.  It’s not a pure quid pro quo financial agreement because the cost of underwriting, selling and administering the policy falls upon the carrier, and the deductible and premium cost falls upon the insured.  The use or equality of the costs are only considered upon inception of a claim.  In addition, the insured is not involved in devising the terms of the policy, as a contract of adhesion a prospective insured’s sole power is accepting the contract in its entirety or not.  Absent optional inclusion of additional contract scope or details (endorsements and/or coverage limits), the insured is powerless in respect to a contract that ostensibly is in equilibrium between the parties- premium on one side, equivalent policy benefits afforded by the other side.

The price of the risk is determined by the carrier and approved by regulators based on volumes of data, actuarial smarts and with an eye to profitability balanced with service.  The frequency of CWPs (closed without payment) and paid claims is part of the actuarial machinations (regulators are comforted by carriers whose data are in concert with the industry at large), as such denials of coverage are, if absent, a concern for regulators. Is there an undue conflict of interest for incumbent carriers where policy provisions apply, or is Lemonade leveraging a message based on clever marketing?

Consider the typical property insurance claim pool:

Not every policyholder has a claim each premium period; in fact less than 20% of a typical insurance carrier’s homeowner’s customers experience a claim during a policy year.  Of that pool of claims the  frequency of denial is on average less than 30% of the total claims closed.  Extending the thought process, a carrier with 500,000 policyholders experiences on average 100,000 claims during a year, and of those 100K customers 30,000 may be denied coverage, so one can say approximately 6% of the subject carrier’s customers’ insurance services end in coverage disappointment.  Compare that with the carrier’s YOY customer retention rate and it may be clear that denials of coverage are not the only factor in customers’ renewal algorithms.  Is that the basis upon which differentiation can reside?

There may be a stronger position for the firm to take that the inherent issue may be in pricing losses, confirming losses at FNOL, or sorting out the spurious (read as fraudulent) claims.  Per the firm 90% of FNOL reports are through Maya or similar service bots, and since that service entry is tied to the entire suite of AI it can be said that FNOL may be the best vehicle to mitigate the effect of any ‘inherent conflict.’ 

Why that?  The firm (through marketing and per discussion) relies on the position that a ‘Ulysses Contract’ is in place for the firm- a figurative ‘tying of hands’  for Lemonade in focusing on denials of claims since any excess of earned premium over the firm’s flat fee is donated to the policyholders’ charities of choice.  No path to the bottom line, no incentive for capricious denials.  Is there legitimacy to this position?  Insurance is a contract, 90% of Lemonade’s claims are being handled by bots, pricing is established by regulated filings, and claim denial ‘touches’ affect only a small percentage of customers.  It’s probable that most denials of coverage are due to contractual reasons, i.e., policy provision reasons including the cause of loss not being a named peril.  At this juncture the carrier has primarily renters’ policies as its portfolio, and claims are comprised of unscheduled personal property that has relatively concrete pricing.  In addition, claim customers have limited knowledge of what comprises effective claim handling- other than prompt receipt of proceeds into one’s account.  If there’s a Nash Equilibrium in place, customers seem to be unaware, and can a bot be adversely subject to the vagaries of Game Theory?   

Lemonade must be respected for its InsurTech effect on the property insurance industry- everyone knows of the Lemonade entry and journey.  The growth of the firm (while overall PIF is small) continues to engage the attention of all.  As Daniel Schreiber said in our discussion and in his recent blog entry Two Years of Lemonade: A Super Transparency Chronicle, “ the fact that our reinsurance agreements protect us from too many claims can’t hide the fact that, since launch, we’ve paid out more in claims than we’ve collected in premiums. Clearly, that can’t continue indefinitely.”

As the carrier evolves into a multi line policy organization (renters’, condos, homeowners) the bot approach to claim handling will be tested.  Renters’ claims are personal property tasks- named peril, concrete loss description, concrete valuations.  A house claim may involve multiple parties- the insured, emergency services vendors, public adjusters, field adjusters, third party administers, and so on.  The Nash Equilibrium will be complicated to affect in that multi-player game, and a Ulysses Contract will be toothless to address the covered damage, partial denials, additional living expense wranglings, and other unknown factors. 

Regardless of the company’s cover portfolio, the need to become viable within the framework of insurance accounting looms over the discussion of social good. To quote from a October, 2018, article posted by Coverager, “Lemonade’s Cards“,

“And while Lemonade ‘solved’ this conflict by only taking a flat fee and giving unclaimed money to charity, are they really a conflict-free company? Do they not have a strong desire to improve their loss ratio? Isn’t the loss ratio an important part of their business? Will they be able to attract investors or potential buyers with a high loss ratio?”

The firm will find its data aggregation, analysis, and predictive capabilities invaluable from underwriting to claim settlement, and may find the expected diversity of its claim portfolio meaningful in building its flow of ‘excess’ to charitable organizations. There’s a cadre of claim staff developing their service skills- in other words they are learning to be insurance pros.  And at a minimum Lemonade has been patient with the industry placing them under a magnifying glass, watching every step being made- that’s not a bad thing and has added to the collective knowledge of insurance innovation. However, at this juncture having a Ulysses Contract as a mainstay of its business model appears to serve Lemonade’s marketing more than it does its loss ratio.

image
source

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

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

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

The billion dollar opportunity for fintechs who serve global citizens

Australia
is sometimes colloquially labelled as the world’s biggest island. While some
might view this from a geographical stand point, it can often be meant more in
the intellectual sense. It’s no secret Australia is generally more interested
in what’s going on in Australia, than what’s happening in the rest of the
world.

The big
news out of Australia, if you haven’t already heard, is that voters went to the
polls last weekend. In true Trumpian and Brexit fashion, Australia was
delivered its own ‘surprise’ political upset. The right leaning conservative
government, led by Scott Morrison, was re-elected, much to the surprise of the
pollsters and betting agencies.

I wasn’t
terribly surprised, having had enough nous to place a bet on the coalition
government as returning to power. The odds of 5 to 1 coalition to labour seemed
out of whack with the actual closeness of the polling in marginal seats, and
the impact of potential preference votes. They weren’t out of whack with the
media commentary however, which from left to right leaning publications, was
more or less backing, or accepting a labour win. Seems like the media these
days, gets it wrong with alarming consistency.

You’re
probably wondering what any of this has to do with fintech.

Well,
governments can play a crucial role in driving the fintech ecosystem forward.
Labour had already made murmurs it would deprioritise open banking, which is
already overdue in Australia.

On the flipside,
the coalition government hardly painted an exciting picture for fintech, with
innovation absolutely not on the agenda. It’s anyone’s guess what will fill the
policy void now, but for those interested in where it may land, Business
Insider
spoke to several leading voices on what they think will happen
next. A good read for those of you who have investments downunder, or who are
looking to invest.

As a Kiwi – who can’t vote in Australia, but who’s taxes are certainly welcomed by the powers that be – what I find is interesting, is how the voices of people like me, Australia’s immigrant community, can be impacted by government policy around money. While I am afforded many more protections and rights given the close nature of New Zealand and Australia countries, many others from the immigrant community are not. And this can result in a serious financial impact.

Working Holiday Super Tax

Australia
has long been a number 1 destination for working holiday makers. It’s estimated
that during their approximate 2 year stay, they contribute $1.3 billion to the
economy, with $770M being spent in rural communities alone.

While these
visa holders come from all over the world, one of the main working corridors is
the UK, which only looks set to grow post Brexit, should the trade
representatives get their way. Around 40K land each year as part of the working
holiday visa program, with many going on to sponsored employment.

Working
holiday makers are expected to abide by Australia’s laws, including
contributing 9.5% of their earnings into Australia’s compulsory pension system,
superannuation.

When they
leave Australia, while they can freely take their take-home pay earnings, they cannot transfer the thousands of dollars
of super they are likely to have accumulated to an equivalent pension plan in
their country.

Instead a shocking 65% of their wealth is taken off them, with the
remainder cashed out. Their Kiwi counterparts can take the full balance home,
thanks to a Trans-Tasman portability scheme.

This is a tax rort, front left and centre. It also disproportionately
affects young people, who need all the help they can get these days, building wealth.

But it is also an opportunity to reinvent what pensions mean, how we distribute
and manage them, and how a fintech that thinks globally but locally can make
all of this easier, simpler, and hassle free.

Look at Transferwise, which is now the most valuable European fintech. It
is part of a growing group of global first fintechs that are willing to tackle
cross border money frictions that have no reason to exist other than through
archaic government policy.

Fintech’s that tackle these problems have a unique opportunity to represent the new global citizen. Despite the noise around protectionism, I believe it is fairly inevitable that the movement of workers and migration will continue, if not escalate. Which is why we need more companies willing to tackle some of these policy inequities head on.

We are doing this at my pension startup fintech, Zuper. After all, why does
it matter where your pension is managed from, so long as you can easily
contribute into it? If you have multiple pots here and elsewhere, there is no
reason why this should be hard to manage.

We launched a petition today that calls
on the UK and Australian government to allow for cross-border, full super
payment transfers
. There is no reason someone should lose 65% of their
wealth in one hit. If you ever worked here and had to hand you cash over, this
petition is for you.

Whether we get somewhere or we don’t, the challenge and opportunity is clear. Solve the problems that matter, and be a champion for your customers. Fintech, when done right, should address inequities, not further them. If you can prosecute that case well, then you’ve earned the right to build a billion dollar business.

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 a commercial relationship with the companies or people mentioned as CEO and co-founder of Zuper. 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)

7 Participatory Budgeting use cases: CivicTech is global

 

DemocracyIt was only last week that I took my first deep dive into CivicTech, thanks to the Costa Vayenas, the director of the Procivis Think Tank and author of the book Democracy in the Digital Age.

As usual, there is no clear definition of what CivicTech is and there is a lot of debate which actually gets very political. We can start thinking of CivicTech as any technology that upgrades governments and community governance. So, you are allowed to think of it also as including technologies that reshape democracy. People even include any technology use case that is for common good.

I am only here to share a primer on CivicTech. It became very clear to me (through this first dive into CivitTech) that Social media, Smart Cities in platform economies with ever increasing Digital participation is the era that we live in.

In such a world, CivicTech will increasingly become important. Like it or not, Social media, Smart Cities in platform economies are shaping our identities and values whether we realize it or not. We – the end customers sort of speak – the individuals are demanding more and more rights and the lines of who does what and who is responsible for what, are blurring.

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Excerpt from the presentation of Prof. Sofia H. Ranchordás, Chair of European and Comparative Public Law & Rosalind Franklin Fellow, University of Groning

“This is Water” is a metaphor for the conscious awareness of others by David Foster Wallace’s commencement speech at Kenyon College.

`This is Digital` and we better become conscious of the ocean that we are swimming in:

Social media, Smart Cities in platform economies with ever increasing Digital participation.

digital human.jpgI focus mostly on Fintech, WealthTech, Regtech,….

CivicTech ties into all of these and much more. Chris Skinner presents to us the `Digital Human` in his recent book with the homonymous title. His subtitle `The fourth revolution of humanity includes everyone` ties into CivicTech that has clearly a role to bringing us all together.

Just a few specifics on how CivicTech is being piloted and used globally right now. Digital humans in participatory budgeting are being included in 3,000 municipalities around the world, according to Dr. Tiago Carneiro Peixoto, Senior Public Sector Specialist, World Bank’s Governance Global Practice.

Examples are live all around the globe. The father of Civictech is the UK project FixMyStreet and in the US, Change.org. These are using crowdsourcing community feedback, ideas and project requests to improve budgeting decisions.

Various technologies are being used in CivicTech, from text messages, to app like dashboards and online voting systems of all sorts. These are powered by chatbots, AI and even blockchain technology.

In Brazil in Porto Alegre, one of the most populated cities in South Brazil, the World Bank introduced participatory budgeting as early as 1989. Citizens present their demands and priorities for civic improvement. This use case is one of the longest standing CivicTech implementations. Because of the increased investment in sanitation and health, the processes have reduced infant mortality. In addition, the tax collection rate has improved by more than 30%. One of the learnings of CivicTech implementation in underdeveloped areas (where it is most needed) is that quantifiable results become evident typically after a 5yr period. So, these are not quick wins.

In Argentina the city of Rosario, has been the test ground for a gender-mixed participatory budgeting approach, aiming to involve more women in the participatory budgeting process, and to raise awareness around gender issues and the positive impact of female participation.

New York City has an interactive map – the Idea Collection Map – that any community member can submit an idea. Community volunteers, called Budget Delegates review the ideas and turn them into real proposals for a ballot, with input from city agencies. These proposals will be up for a community-wide vote. This Participatory Budgeting process is being used to directly decide how to spend at least $1,000,000 of the public budget in participating Council Districts.

In Belgium mini-publics are already being used to improve democratic processes and make them more transparent. Mini-publics are an assembly of citizens who are demographically representative of the community. The topics handled by mini-publics range from controversial science and technology issues to social issues like health and justice. Mini publics are now institutionalized in Madrid and in the German-speaking part of Belgium.

Paris has decided to allocate 5% of its investment budget to be handled through participatory budgeting. This started in 2014 and is planned for a 6yr period (until 2020) and encompasses a total of 0.5billion euros. The issues that have brought up by the community are urban agriculture, greening the city, and caring for refugees and homeless people.

In China, a unique participatory budgeting project started in Chengdu in 2011. This is a city of close to 15million people. Since the start of this process, there have been 50,000 small projects approved. Most them are for basic local services in infrastructure, such as village roads and water supply. The unique design of the implementation is that the citizens have the choice to either spend the participatory budgeting resources on immediate actions, or to use them as a down payment on a collective loan for much larger projects. If the latter is chosen, then the loan is repaid by a part of the participatory budget in the following years.

In the US, Vallejo a city in California’s San Francisco Bay Area, has been using technology for participatory budgeting courtesy of the Stanford Crowdsourced Democracy Team since 2012. There have been 5 voting cycles to allocate over $8million to fund 27 projects. Vallejo reports that 20,000 residents of Vallejo have participated. Unfortunately, during a recent vote (Cycle 6) there was a loss of all votes due to human errors and people are asked to revote.

Conclusion

`This is Digital` and we better become conscious of the ocean that we are swimming in: Social media, Smart Cities in platform economies with ever increasing Digital participation.

This is a #TwitterDemocracy[1] kind of world. Social media alone, are a digital participation form 24/7. We are shifting from one-off events like voting to a very interconnected world. With smart cities, we will provide real-time feedback which swiftly makes the loop into all platforms and into our life. Technology can help us become more efficient and arrive at a consensus at local levels much faster and better than we are able today.

For this however to happen, we need to improve literacy at all levels. Digital literacy is paramount to include everyone in this new future world.

[1] I am using #TwitterDemocracy as a generic term.

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

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

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

 

Top 7 Crypto Exchanges for IEOs

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Last week our theme was “Bitcoin going parabolic. ALT Season is Almost Here!“ Our theme for this week is “Top 10 Crypto Exchanges for IEOs”

TLDR. Initial Exchange Offerings (IEOs) are picking up steam, capturing the interest of investors, project teams, and exchanges. IEOs have been breathing new life into the dying ICO model. While the first IEOs took place back in 2017 (Bread, Gifto),  the trend didn’t really take off until early 2019. The demand for IEOs has been considerable, and can be attributed to several factors. IEOs represent a radical shift in the ICO model, in terms of trust. Top cryptocurrency exchanges around the world are launching their IEO launchpads and are scrambling to attract interesting new projects that want to raise funds, by selling tokens directly to exchange’s user base. This article will walk you through the rise of IEOs, their unique nature, advantages and limitations and evaluate the IEO offering by some of the top Exchanges.

Since the Coinmaster token sale in 2013, ICOs have been the most popular way to fundraise. The ICO idea is simple. The project creates a digital token, based on the ERC20 protocol, and then offers it for sale in an initial offering. While ICOs have raised billions and the ICO model became the most popular way to raise money, there have been plenty of problems and the model has been slowly dying.

One of the issues most investors face, is how to predict if the project will work after launch and if it will be successful. But the biggest problem has been scam.

The total funding of coins and tokens in 2017 reached o $11.9 billion, with 11% ($1.34 billion) going to scams. A research study by Statis Group, revealed that more than 80% of ICOs in 2017 were scams. I am sure you all remember Bitconnect and their $2.6 billion Ponzi scheme (BTW, I just heard that Bitconnect is coming back and will go live in 42 days).

The trend has been changing and IEOs represent a safer way to invest in tokens. The most important advantage of IEOs is trust.

An IEO is just like an ICO, with the difference the tokens are sold only to the users of the exchange, that is conducting the token sale. IEOs offer plenty of advantages, over ICOs. An exchange can tap into its user base. The standards for due diligence are higher. The project gets an immediate listing on an exchange.

While, IEOs look very similar to ICOs, they offer more security and trust.

The exchange screens every project that wants to launch an IEO on its website. It analyzes the project’s whitepaper and tokenomics, marketing, product status and a few other things, to determine if the project is promising enough. If the project has legs, then a date is set for the IEO and exchange’s users can purchase the token. After the IEO completes, the token is listed on the exchange and is available for trading.

Binance kicked off IEOs early this year. In January, Binance’s Launchpad hosted a public sale of BitTorrent tokens, raising $7.4 million for the file-sharing service owned by Tron.

But major trading platforms like OKEx, Huobi, Bitrrex, Bitmax, Coineal, Exmarkets, KuCoin and others are joining the IEO bandwagon. The majority of the IEO platforms are currently held by Asian exchanges, however, European platforms are also getting ready to join the party.

Choosing the right platform to host an IEO is very important. Its give a project the best chance to achieve its fundraising goal. Some of the things to consider when selecting an IEO platform are: easy of use, safety and security, high liquidity, multi-coin support and strong technology.

  1. Binance Launchpad: Superior technology, partnerships and a seamless user experience, are the reasons for its high liquidity. Currently the exchange has the highest number of users in the world giving it a broader reach, supporting all devices and multiple languages.
  2. OKEx Jumpstart: The Malta based exchange, is one of the leading exchanges by tradING volume. To provide uniqueness to its platform, OKEx Jumpstart uses a subscription, plus allotment approach. The subscription opens for 30 minutes and it will close early if the oversubscription limit is reached. Once the subscription is over, allotment then follows.
  3. Huobi Prime: Huobi positions its launchpad as a Direct Premium Offering (DPO) platform. All coins purchased through Huobi Prime are immediately deposited into user’s accounts and are tradable on Huobi Global against Huobi Token (HT).
  4. Bittrex: Bittrex’s first attempt at an IEO didn’t go as planned. RAID, its first IEO had stop, due to some controversy with the project being funded.Unlike most other exchanges, Bittrex does not have its own token.
  5. Kucoin Spotlight: At start the only requirement to participate, was to have a verified account and the principle was “first-come, first-served”. Now the exchange plans to use a lottery model. The exchange’s native coins are used as an instrument in the IEO model.
  6. Coineal: A big exchange with almost $700M daily trading volume and a stronghold in the southeast Asian markets with investors in China, Japan, Korea, Vietnam.
  7. Exmarkets Launchpad: One of the newer aggressive exchanges in the race. The platform lists 9 completed IEO’s 4 ongoing and 3 upcoming.

To launch an IEO, most exchanges ask for an upfront flat fee and a percentage of tokens or the funds raised. In most cases, terms are determined through private discussions rather than standardized procedures. Several exchanges are making IEOs a priority and are no longer considering new or niche assets for general listings. When I was speaking with a new exchange a couple of days ago, they told me their strategy is for IEOs to be their main source of revenue.

With 260 exchanges listed on Coinmarketcap, the exchange business is profitable, however the market has become vert saturated and competitive. Exchanges are looking for new ways to earn and IEOs can boost their revenues and through listing fees.

During the ICO boom in 2017, many projects hit the market and a lot of money was invested. But because of high scam rates, several countries in order to protect investors, banned ICOs or placed strict rules to reduce potential fraud. IEOs solve many problems that existed in the ICO model. High levels of trust make the IEO crowdfunding process much more efficient. However the possibility of the project failing after raising funds from an IEO still exists.

Initial Exchange Offerings mark the end of a long crypto winter, bring more security to the blockchain fundraising, change the fortunes for most of these exchanges and ultimately protect investors from scammers and fake projects.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

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

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

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

pewdiepie.png

TLDR. Centralized media (Facebook, Twitter, Google/You Tube etc) is in a perfect storm of privacy concerns/regulation, censorship/deplatforming and the resistance to advertising due to adblockers and runaway bots. The idea of decentralized media via immutable permissionless Blockchain networks is appealing as a solution. Yet the status quo seems to prevail and radical decentralzsed alternatives such as Diaspora have failed dismally in the past. It is possible that a hugely popular gamer, PewDiePie, and his deal with Dlive could be an imperfect bridge to that decentralized world.

This update to The Blockchain Economy digital book covers:

  • What is DLive?
  • My censorship is good, your censorship is bad
  • The PewDiePie deals shows that DLive understands the real world
  • When will Fortnite use BTC for in-game purchases?
  • Context & References

What is DLive?

DLive calls itself a “disruptive live streaming platform”. It was built using Lino, a decentralized blockchain that was founded in 2017, funded with $20 million and launched in September 2018. It has about 30 employees.

DLive reports 3 million monthly active users and 35,000 active streamers. This is not a science experiment.

Dlive uses Lino Points to pay content creators. Each Lino Point is worth $0.012, and can be acquired through using PayPal, Xsolla, or cryptocurrencies. Content creators receive up to 90% of the Lino Points they earn (ie Dlive takes 10%, which is a lot more transparent than YouTube).

My censorship is good, your censorship is bad

What speech should the media owners censor in a polarised world?

Social media is now so mainstream that media owners have to face the awful choice of which extreme views they should censor in our totally polarized world. It is a lose/lose proposition; they will alienate one side and then to compensate for bias will alienate the other side.

Your vile content is my free expression and vice versa.

But who cannot love PewDiePie?  Not being of the gaming generation I sought an opinion on PewDiePie from that generation and got two thumbs up.

Payment in BTC not BAT or Steem Or LINO

An early attempt at decentralized media via immutable permissionless Blockchain networks is Steem. While I love the mission, I am a sceptic/bear on Steem for reasons I outlined in this post. The TLDR summary, the flaw is funding via a SpeculationCoin (aka Tokenomics). Another Tokenomics approach is Brave (with their BAT token) and they are hitting issues as Gab is forking Brave.

Dlive may suffer from the same problem. Creators get paid in LINO points. If this is an ERC 20 Token that is easily convertible to BTC or whatever cryptocurrency you think has value, then cool. In short, fungibility matters.

The PewDiePie deals shows that DLive understands the real world

Here is the news about PewDiePie and DLive,

PewDiePie, the Swedish gamer  whose real name is Felix Kjellberg, has nearly 94 million YouTube subscribers. He is a star, perched atop the digital power law. PewDiePie has been critical of YouTube. So it was a smart move for DLive to do a deal to bring PewDiePie to this decentralized Blockchain based competitor to YouTube.

This is not the sort of move that Diaspora made and that is one reason why Diaspora never made it outside the techie visionaries/early adopters.

When will Fortnite use BTC for in-game purchases?

Fortnite is getting massive traction in the gaming world. If you love PewDiePie you probably love Fortnite.

If Fortnite use BTC for in-game purchases (rather than a proprietary token), then decentralized  media will go mainstream. Dlive could be an imperfect bridge to that world.

Context & References

Blocks of disruption hit the media business as privacy finally hits the front page

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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.

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

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Silicon Valley Stock Exchange and the Saints of Wall Street

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enjoying a cool discussion of InsurTech carrier Lemonade, not too sweet, not too sour

Lemonade- it’s not just a drink anymore

TLDR How can an interview with an insurance startup founder go from discussing InsurTech and innovation, and end up focusing on the concept of a Ulysses Contract, Game Theory, Prisoners’ Dilemma, and the Nash Equilibrium?  Simple- find some time to talk with Daniel Schreiber, serial entrepreneur and now CEO of Lemonade Insurance.  It’s certain that additional perspective would have been added by Daniel’s co-founder, Shai Wininger, but we’ll focus on Daniel’s views for this article.

Lemonade has been under intense scrutiny since its entry into the insurance world in 2016, and Mr. Schreiber has been the guest of many interviews since then.  As is expected for any figure that resides in a legacy industry, finances and insurance ‘stuff’ have in general been the main topics of those discussions.  It seems all the questions related to insurance accounting and finance had been asked, and those at Lemonade have been rather public in getting out their ideas of what the industry should know about the company, so I was not interested in simply conducting another ping pong contest of convention versus innovation.  In planning for this Daily Fintech interview I thought I’d take a different approach- ask others what they would want answered by the CEO of this very public startup- so I crowd-sourced the questions.  More questions came than there would be time to ask, but the questions were shared with Daniel ahead of time so we figured we could sort out some key points.

Spring boarding off a recent optimistic posting by the firm’s Chief Insurance Officer,  John Peters  (read that here ), Daniel was asked of his impression of Lemonade in the insurance market- customer impressions, marketing, industry reaction, any factor that was meaningful.

The primary response- gratification that the insurance incumbency is tolerant but somewhat unimpressed based on ‘backhanded’ compliments, e.g., “they are good at PR,” “have a delightful APP,”, “they don’t ‘get’ insurance,” “Lemonade is not serious,” and the like.  Not ‘getting’ insurance is due to the app that is at the core of change in insurance, with invisible to the eye analytics, transformed user experience (UX), and predictive risk tools that are unavailable to traditional broker systems.  Not getting it means the firm’s approach is truly different/innovative.  And as time passed, the firm’s growth prompted comments such as, “if it grows like a weed it probably is one.”

The discussion led to a general touch on the first of the crowdsourced questions (answers quoted but paraphrased from Daniel’s remarks):

At the very beginning of Lemonade’s creation, what was the vision, who was the target customer, what value could you add to them?”

DS:         This, of course, touched on a primary reason for the firm’s existence- how could insurance be made available to customers in a way that was entirely different than the legacy system that was by some estimation, “A business that involves selling people promises to pay later that are never fulfilled?” (Urban Dictionary) .  Early on, per Daniel (and recounted by co-founder Ty Sagalow in his recently published book, “The Making of Lemonade”) , the founders of Lemonade worked to form an insurance company that aligned the interests of the carrier and the customers, in a fashion that was economically viable, applied cutting edge technology, and contributed to a common good.  Insurance is a need for most and is not a product that people yearn for, it is as is said, ‘sold, not bought’.  The vision was to be a 24/7 insurance company that delighted customers, and not one that irritated them.

“What early action do you regret was handled in the manner in which it was?”

DS:         At the initial launch of the company we announced Lemonade as being the ‘world’s first P2P insurance company’, a designation that posed immediate issues.  First off, the phrase only made sense within the insurance industry, insurance customers didn’t know what P2P was and didn’t really care.  In addition, those within the industry questioned the definition and if Lemonade was truly peer-to-peer.  Rather than wrestle with semantics and the distraction we backed off from that marketing.

An important aspect of the firm’s make-up is the charitable contribution (up to 40% of premiums.)  Shouldn’t contribution levels be detached from an arbitrary loss ratio result?

DS:         We are very proud of the amount of premiums that Lemonade has shared with charitable organizations on behalf of our policyholders.   2018 found the contribution to be approximately 2% of premiums.  It’s understood that Lemonade is not the only company to make charitable contributions, but compared with other companies Lemonade’s efforts represent not a bilateral, traditional approach where a portion of a company’s revenues are donated to a charity, Lemonade expresses a trilateral approach- the policyholder, the company, and the designated charity.  As discussed, Lemonade’s financial operating model allows for a set percentage of earned premiums to be set aside for operations, a portion for reinsurance backing, and the balance for payment of claims.  When claim/loss payments have a favorable performance versus the set aside, the balance is apportioned by group to the respective policyholders’ choice(s) of non-profit.  As a B Corporation, or Public Benefit Corporation, Lemonade is proud of its efforts to be a social good that is also an insurance company.  

“When it’s said in Lemonade’s press and marketing that traditional insurance companies make money by denying claims, which claims do incumbents deny that Lemonade would pay?”

DS:         Lemonade clearly understands that an insurance policy is a contract between the carrier and the policyholder, and the intention is not to say that in handling claims from customers Lemonade will pay claims outside of the policy provisions.  What is being said is that for both parties to the contract incentives matter, and alignment of interests matter, and actions follow the incentive structure.  If there is a reduced temptation for the carrier to deny claims because the outcome is to do good, and there is a reduced temptation for the insured to embellish claims for the same reason, then the dynamic of denied claims, or incentive structure affecting both sides is reduced and in fact there becomes an even closer alignment of interest to do good.  In actuality the principle is a foundation of Lemonade- the Ulysses Contract and Game Theory (author’s note- these concepts will be addressed in more depth in a future article).  Just as Ulysses ‘tied his own hands’ to the mast due to his knowing that the sound of the Sirens would tempt even him, Lemonade ties its financial hands by setting a designated amount for operations, reinsurance, and claims, and the remainder is contributed to good.  There is not a unilateral financial benefit to denying claims (or arbitrarily not paying claims) because any excess is not the company’s.  And, customer knowing that if they embellish claims they are in essence reducing that which goes for the common good.  So it’s not that Lemonade is paying or not paying claims, it’s that the company has its own Ulysses Contract to guide its behavior.

“There are fans of the firm’s Instagram vids- How did you come up with the idea, and what else is the company doing like that to propagate your overall message of transparency and social good?”

DS:         Those videos with the pink goo and others are from a variety of sources, primarily from Lemonaders within the company.  The goo was an idea from a product designer, for example.  If you recall the publicity driven by the Banksy art piece that shredded itself in front of an auction audience not long after that a Lemonade quality assurance staffer came up with a quick homage here .  We are unafraid to encourage these types of contributions.

“A recent Forbes article and LinkedIn article by Chief Insurance Officer John Peters mentioned Lemonade’s loss ratio tracking in the high 80% range, a significant improvement/trend from the prior year’s results.  Is the reported ratio result being ‘subsidized’ by ceding premium and loss cost amounts to the firm’s reinsurers?

DS:         Lemonade are the guardians of the insurance ecosystem as established by the company, and operations are to the benefit of all stakeholders.  there is no financial ‘game playing’ to meet an arbitrary result.  The firm’s reinsurance agreement sets excess limits where the reinsurer accepts responsibility for claim costs above the set threshold.  There is recognition that traditional measures are what the market sees and holds as comparatives but we figure if the original business model is followed the results will speak for themselves.

“You’ve done great stuff, is there one thing of which you are most proud?”

DS:         The ability to create an insurance system that delights customers, allows growth, and generates data sets where the system begins to feed off the customer and claim experience.  Seeing the loop succeed gives us great pride.  90% of FNOL processed by Bot, and 100% of sales?  Validates our founding thesis.

So many questions, and not enough time for them all.

As I reviewed our conversation, recent results/articles, and Mr. Sagalow’s book several things were apparent:

    null
  • The company is ‘all in’ on allowing the data analysis approach to continue its development,
  • Growth within markets is driven as much by external forces, e.g., requests from European countries, as it is by internal plans.
  • The firm’s start and development benefitted greatly from the founders’ past experience in startups and connections developed therein,
  • Lemonade is impatient- that in itself is innovative in the insurance industry.
  • The firm remains too new to have financial trends that aren’t subject to variance from reporting period to reporting period.  86% loss ratio can be celebrated today but the vagaries of growth in a new carrier and claim volume can produce unexpected results, and some interesting ceding to reinsurers.  (keeping things grounded with ongoing analysis by Adrian Jones and Matteo Carboneinteresting summary here )
  • Customers who have provided service surveys like the insurance products and service they receive from Lemonade, see Clearsurance’s survey summaries here
  • There’s pride in how charitable contributions have been an important piece of the firm’s entry into the market
  • The entry into the industry is not a sprint- a carefully run marathon is what the firm needs.  The P&C business is a trillion-dollar (US) business and Lemonade holds a very small part of that; its operating premise is still fragile
  • There is strength and opportunity in the firm’s digital approach to operations

The original intention was to interview a CEO and produce a summary of the firm through crowd-sourced questions.  The interview came off well, the questions were presented in volume, where the problem arose was in the expansiveness of the firm’s concepts, the great interest in the entry and growth of the firm, and the author’s inability to distill the available information into one column.  The discussion with Daniel Schreiber did not change my status of being a pragmatic optimist where Lemonade is concerned, but many questions were answered.

I look forward to further examination of the Game Theory concepts as applied by Lemonade in a future column/posting. 

My thanks to those who provided questions in addition to my own (and apologies that not all could be addressed in this article):

Ben Baker Billy Van Jura Anand R (Lucep) Nick Lamperelli Pat West

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

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

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

 

Royalty, supply chain finance and Hollywood-esque mystique

With a name that sounds like it was lifted from the screenplay of Casino Royale, Lex Greensill, the London based, Australian entrepreneur betting big on supply chain finance, has scored a strong indication his bet might play out, with news this week his company Greensill had cashed in a $800 million equity injection from Softbank.

The
unassuming boy from Bundaberg (a town more famous for rum than financing) was appointed a
Commander of the Order of the British Empire in 2017, rubbing shoulders with king-in-waiting
Prince Charles, and is still involved with the family farm back in Queensland,
Australia.

So how
exactly does Greensill work, and what is the opportunity Softbank are
especially keen to get in on?

Launched in
2011, the business has experienced phenomenal growth, helping over 1.3 million
small businesses get paid sooner. It uses the credit-worthiness of their big-name
customers as part of the risk assessment model, freeing capital up to those who
are most under pressure, and thus ensuring the survival of businesses in places
as remote as Bundaberg itself.

The
Greensill model relies on the purchase of invoices or trade receivables from
small companies seeking early repayment. It packages these into short-term
bonds and sells them on to investors. Approximately 47 bonds are issued per business
day, supported by the banking arm in
Germany
and other fund managers.

Greensill
estimates approximately $55
trillion of cash
is locked up through inefficient payment terms and
structures.  Servicing this, and making a
tidy profit in the process, is no doubt part of the attraction for Softbank.
That and the fact that according to Greensill’s white paper, no investment-grade
corporate has defaulted on its payment obligations in the past 20 years. High
demand, low risk and few alternatives makes for an attractive ‘Golidlocks’
asset class

Competitors in the space include Taulia, Citi, Orbian (our interview with CEO here) and PrimeRevenue, with more eyeing off the space each year. It is certainly a fascinating space to watch, and an emerging asset class to consider, so long as the big boys keep paying their bills.

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 positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

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

Telecom Fintech innovation is spreading

Africa-Mobile-Money-Market

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

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

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

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

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

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

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

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

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

Telecoms and banking

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

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

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

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

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

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

[4] MTN is Africa’s largest telecoms operator

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

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

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

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

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

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