What do you want a post #Coronavirus world to look like?

Shiva Coronavirus.001We are learning what words like disruption, creative destruction and viral really mean. They are not just words on a pitch-deck any more. 

The Greatest Generation were tested in the Second World War. Baby Boomers (like me) had it easy thanks to their bravery & sacrifice. Now we are being tested (more than other generations because this virus is worst for older people).

This too shall pass.

In our Coronavirus series, we started with a description of the destruction to the financial system – the destructive part of creative destruction

This post envisages what a post #Coronavirus world could look like – if we make it happen. 

If you want data about the spread of the disease or what you can do to avoid getting it or how to boost your immune system (all good subjects), this post is not for you.

Nor is this about politics or public health policy. These matter and we may have strong opinions, but that is not the subject today.

If you simply want to look at cat videos to escape this damn subject, that is cool too.

Future posts in this series will look at tech and media solutions.  The world is awash in amazing tech & media solutions.  The more urgent question is what do we want to do with what is on offer? What is a positive future that we can envisage?

A post Coronavirus world based on 10 core principles will help create a better world:

1. The end of our obsession with growth at all costs. If we only see this as an interruption to business as usual, Coronavirus will be all destruction and no creation.

2. A more sustainable planet. As a Gen Z person put it to me recently, “this stopped us talking about Climate Change”. Pictures from space showing reduction of pollution in China & Italy are inspiring – if we can end our obsession with growth at all costs.

3. Truth matters however uncomfortable it is. We can go online to have every crazy opinion validated, but a virus does not care a damn about our opinion.  An amazing thing is happening – we are searching for people who tell the truth. For example, Dr. Anthony Fauci, is somebody who I believe, but I also think technology will give us new ways to aggregate facts in a way that is not opinion-driven or controlled by institutions that may be controlled by people who do not have our best interests at heart,

4. We are all in this together.  That mantra used to come with moral or spiritual overtones. Coronavirus makes this totally practical. If I have a huge stockpile of hand sanitizer, so that you have none – I will get the virus from you.

5. Use communications tools to communicate not to isolate or brag. Communication can mean singing from balconies or using FaceTime to communicate with distant loved ones or remote yoga or passing true information (or cat videos) around to loved ones. 

6. The power of love needs to replace the love of power. That is an old hippy mantra (aka boomer in their younger idealistic phase). Without that, fear mongering fascists will seize power because the Coronavirus certainly inspires fear that they can exploit.

7. Hyperlocal means loving the one you are with. That can mean in your home or in your neighborhood or your country depending on the current extent of the restrictions. Working from home can either be isolating or a powerful motivation to build strong local relationships depending on how you approach it.

8. Billions of people making a living is more important than a few people making billions. If billions of people cannot make a living they will back revolutionary leaders who will seize power (and use that power for selfish ends rather than helping the people). We need to get rid of our obsession with growth at all costs, but there are still billions of people who need to make a living without destroying the planet

9. We are all the same under our skin. A virus doesn’t care about our skin color, nationality, religion, sex or sexual preference. Neither should we.

10. Human-powered emergent solutions driven by decentralized technology. This is where already today we can see people changing their behaviour when faced with the awful reality of Coronavirus. In the future we see this behaviour going mass scale, powered by  decentralized technology.

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This Week in Fintech ending 20 March 2020

this week in Fintech .001

This weekly summary from our 6 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

Ilias Hatzis started his first company, an internet search engine, during the dot-com era & now focusses on crypto.

Efi Pylarinou worked for top tier Wall Street firms and is now a top global Fintech influencer.

Jessica Ellerm is CEO of Zuper Superannuation & previously worked for a top Fintech startup, Tyro.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners.

Sheldon Freedman is a Fintech lawyer at Hassans International Law Firm

Bernard Lunn is the CEO of Daily Fintech author of The Blockchain Economy, advisor, serial entrepreneur and blogger

If you want to continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form. Or fill in the same sign up form at the bottom of this post.

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy.

Monday Ilias Hatzis @iliashatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) wrote The Crypto-Coronavirus Opportunity

We are facing challenging times globally, that affect all of us economically and for some even our existence. The Coronavirus is a global pandemic that has brought the world economy to a grinding halt. While we do not know how bad it may turn out to be, a crisis can alway be an opportunity. It can help us reshape and implement digital strategies and create new opportunities that accelerate the application of new technologies. How will Bitcoin and cryptocurrencies fare during this chaos?

Editor note:Read this post to learn about some proximate causes of why Bitcoin crashed so much harder than other asserts and to learn which very credible technologist is saying that it is a good time to buy Bitcoin. From the perspective of the end of the week, after a price rally, you might wish you had read this post and acted on it.

Bernard Lunn, CEO of Daily Fintech, author of The Blockchain Economy, advisor, serial entrepreneur and blogger wrote A Bug Is Crashing The Financial System And Decentralization Is The Best Way To Fix It

Yes that is a play on words. Software programmers borrowed a medical word – bug – to describe an error that could crash their software systems.

Now a bug from Wuhan is crashing the financial system. Yes global finance is a system and systems are vulnerable to bugs.

Editor note: This, the first in a series on the world that comes after the coronavirus crisis, focusses on the destructive part of creative destruction by looking at how our financialized economy is being destroyed.

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Time to check US Consumer debt, delinquencies, and refinancing applications

It was only a month ago that economists were talking about interest payments on debt for individuals in the US (the top G7 indebted country on a personal basis) being low and manageable as the job market was strong.

Fast forward to today and the same numbers have to be interpreted differently. The global economy is taking a hit and both businesses and individuals are at risk. We need to look at the facts & figures and then see what can be done by banks or fintechs.

Editor note:Efi reports on data that was troubling pre Coronavirus and may turn into crisis in April. Both Banks and Alt Lender Fintechs will be tested in this economic cycle.

Bernard Lunn, CEO of Daily Fintech, author of The Blockchain Economy, advisor, serial entrepreneur and blogger wrote the XBRL news for week ending 17 March 2020 

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Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote Niche Fintech Could Catch The Coronavirus Bug

After being the darlings of the fintech space for so long, startups in the payments space have been some of the first stocks to feel the full force of the economic punch that is the coronavirus.

Around the world retail, hospitality and tourism are coming to a screeching halt, faced with a combination of forced lock down and pure consumer avoidance. With jobs on the line across multiple industries, discretionary spending is basically dead for the foreseeable future.

Editor note: Coronavirus is hitting all the fun stuff that economists call discretionary spending hard. Niche payments vendors rely on this. Consumers  may revert to legacy payment methods when panic buying at the grocery store

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote COVID-19 supplants InsurTech – moving lower on Maslow’s Hierarchy of Business Needs

Staff working from home.

Premium growth or reduction?

Staff being repurposed or subject to RIF.

Claims- virtual handling or on-site assessment?

Innovation efforts underway- suspend or continue?

Customers with reduced access to the firm or agents.

Supplies- how much to stock, if the supplies can be found?

Start ups- traction had been tough, now there is no friction.

VC’s and funding orgs- how can we support any investment?

Coverage determination for pandemic or microbial infestation.

Vendor partners- how to maintain relationships or leverage their skills?

Editor note: Pat raises the question of whether Coronavirus will lead to a slowdown in innovation. This did not happen in the 2008 crash, when early stage financing was (counterintuitively) strong. Read Pat’s fascinating insights at this time because Insurance is critical for everybody in these difficult times and Pat deals with the subject from the point of view of those with the difficult job of actually insuring us.

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Friday  Sheldon Freedman, Fintech lawyer at Hassans International Law Firm

wrote: Security Token news for Week ending 20 March 2020

Editor note: This weekly snapshot is the news that matters for busy senior people in the Security Token market.

Most of our posts this week had a Coronavirus theme. It is hard to avoid the elephant in the room, but this too shall pass.

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To continue receiving ‘This Week in Fintech’, the weekly recap of our articles, you will need to fill this form to give us consent to send this to you. Please note that Daily Fintech requires your organizational email address (e.g. corporate, educational or government) and your LinkedIn URL. This information is required for subscribers who want ‘This Week in Fintech’ for free. If you prefer to not provide this information, you can still receive all our content by becoming a paying member.

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Security Token news for Week Ending Friday 20 March 2020

utility security tokens.001

Here is our pick of the 3 most important Security Tokens news stories during the week:

One. Wave Financial to Tokenize $20M Worth of Bourbon for New Whiskey Fund

Digital asset manager Wave Financial is tokenizing a whole year’s production of Kentucky bourbon so global investors can gain exposure to the growing U.S. whiskey market.  Wave announced Wednesday it had finalized an agreement with the Danville, Kentucky-based Wilderness Trail Distillery to tokenize between 10,000 and 20,000 barrels of bourbon whiskey, worth up to $20 million, that will be made publicly available through a specialized digital asset fund.  By tokenizing it, Wave says investors can gain exposure to bourbon’s value appreciation and can also share some of the proceeds from when the whiskey is sold wholesale to merchants, three years after the whiskey is first distilled and tokens issued to investors.

Curator’s Note: The American whiskey industry has been steadily expanding production.  Whiskey is now the most exported US spirit.  Quality whiskey is an asset that has a long barrel life that tends to hold value and even appreciate with time. It is expected the fund administrator will valuate the inventory quarterly to provide a benchmark price for the whiskey-backed tokens, which will be tradable (after a one-year lockup period).

Two. BaFin Approves First Cross-Border STO in the EU – ParkinGO

This week, the German Federal Financial Supervisory Authority approved the first cross-border security token offering in the EU. The STO would give the mobility and airport parking sector giant, ParkinGO the ability to further its market dominance. The news demonstrates an expansion of the EU STO sector, as well as, a forward-looking stance on the part of BaFin.

As the first cross-border STO, the crowdfunding event would reach more EU investors than ever before…BaFin approved numerous other STOs in the past, but the ParkinGO campaign is unique in many aspects. For one, regulators allowed issuers to maintain their investors register on-chain. Additionally, the system permits secondary transactions with all rights attached to the digital asset.

Curator’s Note: ParkinGo, a large Italian parking conglomerate with a recognizable brand, provides airport, port and train station parking at 90 locations in 9 European countries, serving 2.7 million customers.  The token issuance platform is Luxembourg-based STOKR. The offering is to both institutional and retail investors and should be a highly visible token representing a brand European travelers know well. 

Three. Proptech KlickOwn Launches First Security Token Offering for Real Estate in Germany

KlickOwn has launched its first security token offering for real estate in Germany. Launched in mid-2019, the first digital security is for a building based in Lüneburg, Germany. The offering is debt-based seeking up to €1.5 million. As of today, the offering has raised over €350,000. Investors may anticipate a 5% annual rate of return on a “token-based bond.”

Curator’s Note: This small real estate token debt offering for a centuries-old landmark building is utilizing technology provided by Bitbond, which conducted the first German STO issuing its own digital bond. Germany-based KlickOwn recently launched its own security token offering as well. Security token players who have structured and managed their own STO’s issuing their securities earned the credibility and experience to perform in the STO marketplace.

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We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives. 

New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just US$143 a year (= $0.39 per day or $2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

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COVID-19 supplants InsurTech – moving lower on Maslow’s Hierarchy of Business Needs

Maslow biz

Staff working from home.

Premium growth or reduction?

Staff being repurposed or subject to RIF.

Claims- virtual handling or on-site assessment?

Innovation efforts underway- suspend or continue?

Customers with reduced access to the firm or agents.

Supplies- how much to stock, if the supplies can be found?

Start ups- traction had been tough, now there is no friction.

VC’s and funding orgs- how can we support any investment?

Coverage determination for pandemic or microbial infestation.

Vendor partners- how to maintain relationships or leverage their skills?

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

InsurTech funding efforts produced $6.6 billion globally in 2019, and plans for 2020 suggested a similar level of interest for this year.  That was until a few weeks ago, when coronavirus caused insurance companies to radically shift focus from growth, innovation, partnerships, and lowering performance ratios to a focus on cash conservation, staff support, changes in customer contact protocols, and concerns about pandemic coverage, maintaining policies in force, and stability.

The outbreak is a seismic strategic change event.  Not just issues, but fundamental concerns that suggest fundamental responses by the insurance industry, although I’ll admit there are too many ramifications to fully organize and upon which to comment.

Without question insurance incumbents and startups will feel the effects of Covid-19 on how business has been conducted in the industry during the past several years.  The relationships and collaborations between incumbent/InsurTech will be tested in significant ways, including:

  • Will financial support for innovation contract substantially as carriers move to protect liquid assets?
  • Will personnel investment in carriers’ efforts in effecting change be altered to better focus on customer needs and staffing challenges brought by the simple acts of existing in an uncertain world?
  • Startups that have not yet come close to revenue generation- will they be left to wither on the development vine as VCs reconsider asset allocations and reduced confidence in profitable scale up.
  • Will incumbents temporarily abandon new projects/innovations in order to concentrate on core functions?

It’s clear that in the current economy organizations will be moving down the business version of Maslow’s Hierarchy of Needs, from the optional to the basics, from discretionary spending to conservation of customer base.

These and other strategy thoughts found their way across my feed during the past week (with the author’s observations added):

  • Coverage for effects of pandemics have in general been excluded from cover for personal lines and commercial policies, physical, business interruption and liability covers. Simply too broad of a risk (akin to flood) for carriers to underwrite, and typically not direct physical damage.    Put the effects into a global context that affects almost every business and there will be push back.  Arbitrary actions on the part of carriers to afford coverage where there isn’t any has ramifications in uniform claim handling and fair practices- shouldn’t do for one that you can’t for all.  Unfortunately the insurance industry will be seen as the ‘bad guys’  for avoiding cover.  There will be efforts that are ‘fashionable’ to force coverage, for example the US state of New Jersey is considering suggested legislation that will require carriers in the state to provide coverage for the effects of the crisis.  Not the insurance commissioner, the legislature.  Not amending a condition like California’s commissioner did requiring full replacement payment for contents instead of actual cash value, but altering terms of the insurance contract after the fact, and outside the privity of contract.  No one wants customers to have unexpected costs of risk, but the legislators’ suggestion is fraught with many cascading consequences.  Those broad brush benefits reside within the legislature’s grasp, but not using insurance carriers as the delivery pool.

 

  • John Neal’s Lloyd’s of London office put out a request to its member firms for estimates of potential current and final losses from coronavirus. Certainly, that is good information to know, but it’s due time for Lloyd’s to be able to access those data with a few clicks of a mouse or database query.  Surely the firm’s exposure to probable maximum loss for a peril is a strategic data point to have at arm’s reach, and the unique nature of pandemic cover would suggest PML for any policies in force.  It seems the integration of Blueprint One cannot come soon enough for Lime Street.

 

  • Worldbank’s Pandemic bonds are on the verge of being triggered to benefit the poorest countries in the world. The primary criteria for triggering have been met, with proof of economic growth among the beneficiary countries remaining to be confirmed.  These bonds provide quick response finds for the countries, and have proven to be a successful alternate risk funding vehicle for capital markets.  This bond type and other cat bonds/ILS are a significant future source of risk financing, with reinsurers and bonding companies working in concert.

 

  • How insurers work has been shaken with the almost universal shift to remote work (work from home, WFH). Insurance consultant Alan Walker composed a fine list of questions within an article posted this week, “Covid-19: Implications for Insurers.” :
    • How will we plug the service gaps that will arise if a large proportion of staff falls ill at the same time?
    • How long will remote working be required?
    • Do any of our product wordings need to be changed to deal with the return of Covid-19 in future years, or possible future pandemics? (author’s note- perhaps it’s time for parametric cover to take a leading role in dealing with effects of broad effect perils/covers)
    • Do we need to reduce our reliance on people being co-located… and the degree of “remote working as standard?
  • Rosenblatt Securities published a short analysis of the Implications of COVID-19 and Market Disruption on Private Fintech, and while the report included many important concepts, there was a historic treatment in graphical form of the Correlation of S&P performance and private capital investment in the U.S. that caught the author’s eye:

S&P

This chart from the 2008-10 market recovery period indicates a six-month lag between market recovery and investment level recovery; the current outbreak is of such broad spectrum and probable duration that investment recovery will take longer than that.  Consider the outbreak disruption to last several months and investment confidence to take an even longer period to come back, and strategy decisions made now are even more important than in 2008.

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Niche Fintech Could Catch The Coronavirus Bug

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia

After being the darlings of the fintech space for so long, startups in the payments space have been some of the first stocks to feel the full force of the economic punch that is the coronavirus.

Around the world retail, hospitality and tourism are coming to a screeching halt, faced with a combination of forced lock down and pure consumer avoidance. With jobs on the line across multiple industries, discretionary spending is basically dead for the foreseeable future.

Of course, for many large incumbent payment platforms and acquirers, a drop in payments volume in one area can usually be set-off an uptick in another (i.e. we buy less shoes, but we buy more canned food). If anything, we’ll be more inclined to tap our phones than handle dirty, germ ridden cash, right? Coronavirus could longterm be good for business!

So, with a diversified customer base, a payments business should be expected to weather a black swan event like the coronavirus relatively well, all things considered.

But fintechs aren’t often that diversified. In fact, for many, their strength comes from their niche approach. Take the multitude of buy now, pay later businesses, that have emerged across the world. Many are firmly entrenched in retail and fashion, and cater to those who don’t have the capital to pay for goods up front – casual, young workers. Those same workers that could be the first to get laid off. It’s a perfect storm.

Money that used to go on another pair of Adidas shoes will now need to be redirected to plug lost wages, or saved for future medical expenses.

In Australia, buy now, pay later fintech Afterpay, has shed over half its value in 5 days, dropping from AU$26.22 on the 12th of March to just under $13 today at the close of trade today. The business was trading close to the $40 mark only a few weeks ago.

But it’s not just buy now, pay later that is feeling the corona chills. Niche fintech acquirers like Tyro, that specialise in small businesses payments, are also exposed. The company is trading at AU$1.415, down from a high of $4.49 on the 11th of Feb.

It must be said, much of the market is in ‘panic’ mode, rather than ‘rational’ mode. Good businesses will survive. One thing is for sure though, never before have the realities of supply chain dependencies and diversification of revenue been more front of mind than now, no matter what business you’re in.

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XBRL news for Week Ending Tuesday 17 March 2020

Announcing the Daily Fintech curated news on XBRL

Here is our pick of the 3 most important XBRL news stories for the week.

One. New digital tool launched by Government to simplify SECR reporting

The taxonomy will enable businesses to report using the XBRL global framework commonly used in business accounts. It marks the first time the format has been utilised so businesses can capture environmental data in annual reports.

Curator’s Note:  Streamlined Energy and Carbon Reporting (SECR) is important for those who like this planet. XBRL helps ensure reporting accuracy and this tool from the UK Government makes that accurate reporting easier to create.

Two. MSRB Proposal to Enhance the Transparency of the Timing of Issuers’ Financial Disclosures on the EMMA® Website

The proposed feature would provide a new informational box on the Security Details pages of EMMA including:

  • A link to the disclosure of annual financial information and/or an audited financial statement for the most recent fiscal period;
  • The end date of the financial period detailed in that disclosure, such as the fiscal year end date; • The date the disclosure was posted to the EMMA website; and
  • A static calculation of the number days between the posting of the first disclosure for that fiscal period and the end date of the financial period detailed in that disclosure

Curator’s Note: The Municipal Securities Rulemaking Board, (MSRB), is a regulatory body which creates rules and policies for investment firms and banks that  issue municipal securities aka “muni bonds”. Their Electronic Municipal Market Access (EMMA®) website is critical to this $3.8 trillion market, particularly for retail investors who rely on the free information. The calculator they are announcing does not require any new data to be submitted by issuers. However note that this a proposal that the SEC has to approve.

Three. SEC Adopts Investor Disclosure Improvements for Variable Annuities and Variable Life Insurance Contracts

In addition, the Commission adopted amendments to require the use of the Inline eXtensible Business Reporting Language (Inline XBRL) format for the submission of certain required disclosures in the variable contract statutory prospectus.

Curator’s Note: The SEC change makes it easier for retail investors to understand offerings in plain language.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

You get 3 free articles on Daily Fintech. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

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Time to check US Consumer debt, delinquencies, and refinancing applications

Bad-Credit-Student-Loan-Consolidation

It was only a month ago that economists were talking about interest payments on debt for individuals in the US (the top G7 indebted country on a personal basis) being low and manageable as the job market was strong.

Fast forward to today and the same numbers have to be interpreted differently. The global economy is taking a hit and both businesses and individuals are at risk. We need to look at the facts & figures and then see what can be done by banks or fintechs.

`Consumer debt was approaching $14-trillion after the second quarter of 2019, according to the New York Federal Reserve. It was the 20th consecutive quarter for an increase.`

Debt.org

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

You get 3 free articles on Daily Fintech. Get all our fresh content and our archives and participate in our forum, by becoming a member for just US$143 a year.

Americans love credit cards and even if we get rid of the physical cards, credit card debt isn’t close to being shaken out of the system.

NPR’s Chris Arnold and Lucia Dunn professor from Ohio State University reported that close to 10% of credit card debt is over 90-days delinquent. These are levels approaching those of the great recession and could be sounding an alarm in a weak economy.

These delinquencies are concentrated in the 18-29yr old age group, which, unfortunately, also the age group with significant amounts of student debt too.

Student debt has 20% of double 90-days delinquencies, double that of credit card debt.

In other words, young people are overloaded with debt and delinquency rates have been increasing to dangerous levels. These are numbers before COVID19 and its impact.

The FRED reports that credit card debt has grown to $1 trillion (from debt.org) and another $1.6 trillion of student debt loans.

Screen Shot 2020-03-16 at 11.35.00

Personal loans have also been growing faster than student and credit card debt. CNBC reported $300billion as of Q2 2019 which represented an 11% yoy increase.

The black hole of consumer debt (homes, auto, student, credit card, …) is getting bigger and bigger. Low and down trending rates helped support an entire Fintech Refinancing and consolidation subsector that served consumers in great ways. However, none of these non-bank lending fintechs has helped reduce the outstanding debt and this is a Big issue now that the `shit hit the fan` (pardon my French).

More facts to keep in mind as we navigate through these unchartered waters

 As the Fed stepping in with two emergency rate cuts already bringing rates down to zero, that does not mean that these have already trickled down to consumers. Everybody (including Fintechs) is not immediately lowering mortgage rates or other rates. Refinancing applications of all sorts are spiking.

Anthony Sherman, CEO and cofounder of Simplist, a fintech digital mortgage marketplace, reported facts and figures around the mortgage market and the current Refi potential.

`$10 trillion of mortgage backed securities debt are outstanding in the US market.

80% roughly is refinance-able`

Beware, lenders cannot handle this, simply because it will generate sudden accumulated losses and the origination capacity is no more than one third the demand.

Figure Technologies, the blockchain-powered lender that I covered last month, reported a 300% spike in applications for new mortgages and refinancing of HELOCs and student loans. And this was after the first Fed cut. HELOC holders are demanding more cash in hand, already.

Already homeowners have been taking out huge amounts from cash-out refinances. Black Knight reported that 600,000 homeowners withdrew about $41 billion in equity from their homes via cash-out refinances in Q4 2019. This was the largest quarterly volume since mid-2009.

Non-bank lenders are at great risk in these absurd market conditions and so are consumers.

These are also the conditions that alternative credit scoring will be stress tested.

Sources – NPR: U.S. Credit Card Debt Hits All-Time High, And Overdue Payments Rise For Young People Feb 13, 2020

Low mortgage rates driving cash-out refinance to 11-year high

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A Bug Is Crashing The Financial System And Decentralization Is The Best Way To Fix It

coronavirus

Yes that is a play on words. Software programmers borrowed a medical word – bug – to describe an error that could crash their software systems.

Now a bug from Wuhan is crashing the financial system. Yes global finance is a system and systems are vulnerable to bugs.

For light relief, watch this parody of sounds of silence:

In this post I look at:

  • What happens when the real economy meets the financial system

 

  • How Bill Gates warned us about this 4 years ago

 

  • We cannot manage complex non-linear systems with linear thinking

 

  • This too shall pass

What happens when the real economy meets the financial system

For years we got used to the mantra that the financial system (stock markets etc) was totally disconnected from the real economy (jobs, shops, restaurants etc). The reality of the real economy is now hitting the financial system. Take just two simple examples:

  • Revenue drives the E in Price Earnings (PE). Financial analysts deal with normal recessions by looking at Cyclically Adjusted Price Earnings (CAPE); they look at valuation over a cycle that includes a recession. The problem is that this Coronavirus recession is not a normal recession. Think about the revenue impact of a total lock down. That is not about cutting back. It is about stopping totally.
  • Revenue drives the cash flows that are used to repay Debt. In the past,  company managers could keep bond holders happy by pulling the lever called reduce dividends. That would simply decimate equity prices.However a total lock down, after years of stock buybacks enabled by Debt, creates a more existential threat; there is very little spare cash for emergencies.

Company managers know how to pull cost levers. It is much harder to pull revenue levers -and  almost impossible in a lockdown.

Don’t panic. It does not help. This too shall pass. Before we can get to that, let’s analyse the problem a bit more.

How Bill Gates warned us about this 4 years ago

Bill Gates become the richest man in the world by creating software with a lot of bugs. Then he applied that ferocious intellect and his massive wealth and his humanity to making the lives of billions of people better. So we can forgive him for all those Windows bugs that messed with our productivity. 

So Bill Gates knows what he is talking about and we should have listened when he warned us about this 4 years ago.

Did people in power pay attention? No. The reason people in power did not pay attention is that getting politicians to pay attention to even basic facts and 20th century science is difficult enough as this dark and prescient British humour from the 1970s illustrates so well:

So forget about getting politicians to understand 21st century complexity science to understand that we cannot manage complex non-linear systems with linear thinking

We cannot manage complex non-linear systems with linear thinking

The science of the 21st Century is Complexity Science. Complex systems have many different components that interact with each other in ways that are hard to predict. They are characterized by the phrase “a butterfly flapping its wings in China can create a hurricane inn Florida.”. This “butterfly effect” is a bit of popularized science that suggests that minor perturbations can set off a string of escalating events that can lead to something significant.

Understanding one complex system is bad enough. The Coronacrash means also understanding how multiple multiple complex systems interact:

  • the financial system
  • the real global economy
  • the weather system (ahem remember climate change?)
  • our human immune system
  • software with thousands of components
  • social interactions
  • political systems 

Good luck with that. We are in uncharted waters and our compass is broken.

This Too shall pass

The 1918 influenza pandemic commonly called the “Spanish flu” infected 500 million people around the world (about 27% of a global population of less than 1.9 billion at the time) and is estimated to have killed between 17 to 50 million people. Nobody is suggesting COVID 19 will be that bad; health in 1918, after 4 years of war was terrible.

Yet even that passed.

Future posts will focus on the more hopeful scenarios – the good things that can be brought by this very ill wind. My fundamental thesis, explored in earlier posts before the crisis, is that decentralization is better than centralized systems.

Only via decentralized emergent systems can we get to the good combination of hyperlocal and global.

Decentralization is the only long term fix for the bug crashing all our systems.

That does not mean I am suggesting buying Bitcoin. Bitcoin suffers from the same debt (leverage in finance speak) as all other assets traded in the financial system. Using 100x leverage to trade an asset that often moves 10% in a day – what can possibly go wrong?

However Bitcoin is more than just another asset to trade in the financial system.

Bitcoin and other Blockchain based systems illustrate that decentralization is feasible. However decentralization is a much bigger story that will also play out in the social and political spheres.

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The post A Bug Is Crashing The Financial System And Decentralization Is The Best Way To Fix It appeared first on Daily Fintech.

The Crypto-Coronavirus Opportunity

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We are facing challenging times globally, that affect all of us economically and for some even our existence. The Coronavirus is a global pandemic that has brought the world economy to a grinding halt. While we do not know how bad it may turn out to be, a crisis can alway be an opportunity. It can help us reshape and implement digital strategies and create new opportunities that accelerate the application of new technologies. How will Bitcoin and cryptocurrencies fare during this chaos?

Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and a weekly columnist at DailyFintech.com.

Coronavirus has infected everything from stocks to Bitcoin. Despite the fact that cryptocurrencies work against the grain of the traditional financial system, because they operate without the need for banks, a couple of days ago cryptocurrencies were not immune to the downturns of traditional financial markets.

The price of Bitcoin witnessed a bloodbath on Friday. Bitcoin’s price dropped 52% in a single day, compared to a 6% drop for gold and a 9.5% loss for S&P’s.

Not only was Bitcoin was hit hard during the week, every asset class experienced its worst since 2008. For the second time in its history, the New York Stock Exchange stopped trading when a market drop triggered its internal circuit breaker, on March 13. This fail-sale system was put in place after the Black Monday stock crash of 1987.

This week Bitcoin’s price suffered and it was one of its most devastating crashes.

While market movements were primarily connected to developments within the cryptocurrency industry, such as favorable regulation being introduced, or rumors that a country is developing its own cryptocurrency, many considered tokens as a safe haven from the uncertainties of the broader financial markets. But the idea that Bitcoin’s price is unaffected by events like the political crisis between Iran and the US or the spread of COVID-19 was displaced this week.

Everyone was selling everything, just like in the financial crisis of 2008–2009. People were trying to minimize their risk across all asset classes. But one person that didn’t seem phased by the sudden drop in crypto prices:

Markets tend to be very emotional and susceptible to herd behavior. Cryptocurrency markets are no exception here. Crypto lovers and believers are likely to buy the dip, while most others will panic and dump their crypto assets.

When panic hits, most people gravitate away from risky assets and revert to survival mode. It’s only normal that people are selling off their Bitcoin to get liquidity, in case the coronavirus pandemic gets even worse. Cash is the only way to buy food and medicine. We can’t really use Bitcoin to pay for basic things, so its possible that retail investors may need to sell their BTC to make sure they have the money to buy extra food, medical supplies and cover other monthly expenses, when prolonged quarantines prevent them from working and making money.

But, cryptocurrencies may have not lost their safe-haven status.

It’s been reported that the reason behind the Bitcoin’s prize drop is a Ponzi scheme by PlusToken. In recent years, PlusToken has scammed cryptocurrency investors in China and Korea for roughly $2 billion, in Bitcoin and other cryptocurrencies. Sales of Bitcoin by PlusToken may have been a contributing factor, in starting the price avalanche, with the con artists behind the Ponzi scheme moving their crypto holdings in ways that would make it more difficult to track sales.

A crisis is always an opportunity. The coronavirus crisis provides the opportunity to change everything and do things we couldn’t do before.

From an economic standpoint, the coronavirus pandemic could be the perfect opportunity for global economies to wipe the slate clean and of past sins like unsustainable inflation and debt creation. The global economy is running out of options when it come to dealing with recession. Lowering interest rates to encourage borrowing and spending, only creates artificial credit bubbles.

The financial world as we know it, is now changing. Central banks will digitize money supply. Several CBDCs (Central Bank Digital Currencies) are being researched and developed in many countries globally. If the coronavirus didn’t hit Wuhan, China’s digital Yuan was to going to be released in the first quarter of this year. Digital surveillance and unmitigated printing powers, could allow financial policymakers around the globe to evade such things as negative interest rates.

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This Week in Fintech ending 13 March 2020

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This weekly summary from our 5 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

Ilias Hatzis started his first company, an internet search engine, during the dot-com era & now focusses on crypto.

Efi Pylarinou worked for top tier Wall Street firms and is now a top global Fintech influencer.

Jessica Ellerm is CEO of Zuper Superannuation & previously worked for a top Fintech startup, Tyro.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners.

Sheldon Freedman is a Fintech lawyer at Hassans International Law Firm

If you want to continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form. Or fill in the same sign up form at the bottom of this post.

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy.

Monday Ilias Hatzis @iliashatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) wrote What if Satoshi was a woman?

Satoshi Nakamoto is considered a masculine name in Japan. This is the pseudonym used by the mysterious creator of Bitcoin. Many of the popular figures in today’s crypto world are also men. There’s no surprise that there is a male-centric perception of the the blockchain revolution. But all we know about Satoshi, who has never been identified, is that he created Bitcoin. Is Satoshi black or white? Is he American, European, Asian or an alien? Is Satoshi male or female? 

Editor note: Ilias asks a good question during International Women’s Day. The blockchain bros narrative assumes Satoshi is male, yet one of the leading CEOs in this space (Elizabeth Stark of Lightning Network) is a woman. 

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote COVID-19 is a catalyst for business innovation

Psychological Safety and Emotional Intelligence are hot topics these days in the corporate world that feels the pain of COVID-19 and has chosen to call it a `Black Swan`. This post today is inspired by Duena Blomstrom, CEO of PeopleNotTech and EmotionalBanking.

The company has developed software that aims to increase team productivity by monitoring people and interactions and coaching them. Think of an app that increases each person`s EQ – the Emotional Intelligence Trainer – using data and AI and helps managers in leading teams.

Editor note: Efi looks at the positive second order impact of COVID-19 looking at how to make work from home a good reality for lots of people, beyond obvious tools such as teleconferencing. 

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Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote Wages-On-Demand startup Earnd Snapped Up By Greensill

Supply chain financing powerhouse Greensill, founded by Australian Lex Greensill, is making aggressive moves into the wages-on-demand space, purchasing Aussie fintech startup Earnd.

It’s not the first foray Greensill has made into the space. Last October it acquired FreeUp, a London based business with a similar offering to Earnd.

Editor note: Greensill buying Earnd is a good example of M&A as the pay window for entrepreneurs and early stage investors. Lots of M&A is a sign of a market growing up. 

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote Parametrics, alternate risk for outbreaks, and a Heartbeat in the Fog

It’s not often that a nexus of insurance/finance, and tech factors rises in prominence and promise, but seems the time is now.  Blockchain- parametric- captives- business interruption – AI/ML- coverage gaps- ILS- front and center!  Supply chain disruption due to collapse of integral parts of the pre-existing arrangements has rippled strongly through the global economy, and clever, innovative risk management and financing programs are now available for application, however from a previously under-utilized area of insurance.  

Editor note: Pat details the awful extent of Business Interruption (BI) losses from COVID-19, how hard this is to ensure and the outlines of a possible solution. If you work in Insurtech this is a must read. 

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Friday  Sheldon Freedman, Fintech lawyer at Hassans International Law Firm

wrote: Security Token news for Week ending 13 March 2020

Editor note: This weekly snapshot is the news that matters for busy senior people in the Security Token market.

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