How does One Consume an Ocean of Data? A Meaningful Sip at a Time

So many data, so many ways to use it, ignore it, misapply it, co-opt, brag, and lament about it.  It’s the new oil as suggested not long ago by Clive Humby, data scientist, and has been written of recently by authorities such as Bernard Marr in  Forbes wherein he discusses the apt and not so apt comparison of data and oil.  Data are, or data is?  Can’t even fully agree on that application of the plural (I’m in the ‘are’ camp.)  There’s an ongoing and serious debate on who ‘owns’ data- is possession 9/10 of the law?  Not if one considers the regs of GDPR, and since few industries possess, use, leverage and monetize data more than the insurance industry forward-thinking industry players need to have a well-considered plan for working with data, for, at the end of the day it’s not having the oil, but having the refined byproduct of it, correct?

Tim Stack of technologies solutions company, Cisco, has blogged that 5 quintillion bytes of data are produced daily by IoT devices.  That’s 5,000,000,000,000,000,000 bytes of data; if each were a gallon of oil the volume would more than fill the Atlantic Ocean.  Just IoT generated bits and bytes.  Yes, we have data, we are flush with it.  One can’t drink the ocean, but must deal with it, yes?

I was fortunate to be able to broach the topic of data availability with two smart technologists who are also involved with the insurance industry, Lakshan De Silva, CTO of Intellect SEEC, and Christopher Frankland , Head of Strategic Partnerships, ReSource Pro and Founder, InsurTech 360″.  Turns out there is so much to discuss that the volume of information would more than fill this column- not by an IoT quintillions’ factor but a by a lot. 

With so much data to consider, it’s agreed between the two that
understanding the need of data usage guides the pursuit.  Machine Learning (ML) is a popular and
meaningful application of data, and “can bring with it incredible opportunity around
innovation and automation. It is however, indeed a Brave New World,” comments
Mr. Frankland.  Continuing, “Unless you
have a deep grasp or working knowledge of the industry you are targeting and a
thorough understanding of the end-to-end process, the risk and potential for hidden technical debt is real.” 

What?  Too much data, ML methods to
help, but now there’s ‘hidden technical debt’ issues?  Oil is not that complicated- extract, refine,
use.  (Of course as Bernard Marr reminds
us there are many other concerns with use of natural resources.)  Data- plug it into algorithms, get refined ML
results.  But as noted in Hidden
Technical Debt in Machine Learning Systems
, ML brings challenges of which
data users/analyzers must be aware- compounding of complex issues.  ML can’t be allowed to play without adult
supervision, else ML will stray from the yard.

From a different perspective Mr. De Silva notes that the explosion of
data (and availability of those data) is, “another example of disruption within
the insurance industry.”  Traditional methods
of data use (actuarial practices) are one form of analysis to solve risk problems,
but there is now a tradeoff of “what risk you understand upfront”, and “what
you will understand through the life of a policy.”  Those IoT (or, IoE- Internet of Everything,
per Mr. De Silva) data that accumulate in such volume can, if managed/assessed efficiently,
open up ‘pay as you go’ insurance products and fraud tool opportunities.

Another caution from Mr. De Silva- assume all data are wrong unless you prove it otherwise. This isn’t as threatening a challenge as it sounds- with the vast quantity and sourcing of data- triangulation methods can be applied to provide a tighter reliability to the data, and (somewhat counterintuitively,) with the analysis of unstructured data with structured across multiple providers and data connectors one can be helped to achieve ‘cleaner’ (reliable) data.  Intellect SEEC’s US data set alone has 10,000 connectors (most don’t even agree with each other on material risk factors) with 1,000s of elements per connector, then multiply that by up to 30-35 million companies, then by the locations per company and then directors/officer of the company. That’s just the start before one considers effects of IoE.

In other words- existing linear modeling remains meaningful, but with the instant volume of data now available through less traditional sources carriers will remain competitive only with purposeful approaches to that volume of data.  Again, understand the challenge, and use it or your competition will.

So many data, so many applications for it.  How’s a company to know how to step
next?  If not an ocean of data, it sure
is a delivery from a fire hose.  The
discussion with Messrs. De Silva and Frankland provided some insight.

Avoiding Hidden Debt and leveraging clean data is the path to a “Digital Transformation Journey”, per Mr. Frankland.  He recommends a careful alignment of “People, Process, and Technology.”  A carrier will be challenged to create an ML-based renewal process absent involvement of human capital as a buffer to unexpected outcomes being generated by AI tools.  And, ‘innovating from the customer backwards’ (the Insurance Elephant’s favorite directive)  will help lead the carrier in focusing tech efforts and data analysis on what the end customers say they need from the carrier’s products. (additional depth to this topic can be found in Mr. Frankland’s upcoming Linked In article that will take a closer look at the challenges around ML, risk and technical debt.)

In similar thinking Mr. De Silva suggests a collaboration of business facets to unlearn, relearn, and deep learn (from data up instead of user domain down), fuel ML techniques with not just data, but proven data, and employ ‘Speed of Thought’ techniques in response to the need for carriers to build products/services their customers need.  Per Mr. De Silva:

“Any company not explicitly moving to Cloud-first ML in the next 12 months and  Cloud Only ML strategy in the next two years will simply not be able to compete.”

Those are pointed but supported words- all those data, and companies need
to be able to take the crude and produce refined, actionable data for their operations
and customer products.

In terms of tackling Hidden Debt and ‘black box’ outcomes, Mr. Frankland
advises that points such as training for a digital workforce, customer journey
mapping, organization-wide definition of data strategies, and careful application
and integration of governance measures and process risk mitigation will  collectively act as an antidote to the two
unwelcome potential outcomes.

Data wrangling- doable, or not? 
Some examples in the market (and there are a lot more) suggest yes.

HazardHub

Consider the volume of hazard data available for consideration within a jurisdiction
or for a property- flood exposure, wildfire risk, distance to fire response
authorities, chance of sinkholes, blizzards, tornadoes, hurricanes, earthquakes
or hurricanes.  Huge pools of data in a
wide variety of sources.  Can those
disparate sources and data points be managed, scored and provided to property
owners, carriers, or municipalities? 
Yes, they can, per Bob
Frady
of HazardHub, provider of
comprehensive risk data for property owners. 
And as for the volume of new data engulfing the industry?  Bob suggests don’t overlook ‘old’ data- it’s
there for the analyzing.

Lucep

How about the challenge sales organizations have in dealing with customer requests coming from the myriad of access points, including voice, smart phone, computer, referral, online, walk-in, whatever?  Can those many options be dealt with on an equal basis, promptly, predictably from omnichannel data sources?  Seems a data inundation challenge, but one that can be overcome effectively per Lucep, a global technology firm founded on the premise that data sources can be leveraged equally to serve a company’s sales needs, and respond to customers’ desires to have instant service.

Shepherd Network

As for the 5 quintillion daily IOT data points- can that volume become meaningful if a focused approach is taken by the tech provider, a perspective that can serve a previously underserved customer?   Consider unique and/or older building structures or other assets that traditionally have been sources of unexpected structural, mechanical or equipment issues.  Integrate IoT sensors within those assets, and build a risk analytics and property management system that business property owners can use to reduce maintenance and downtime costs for assets of any almost any type.  UK-basedShepherd Network has found a clever way to ‘close the valve’ on IoT data, applying monitoring, ML, and communication techniques that can provide a dynamic scorecard for a firm’s assets.

In each case the subject firms see the ocean of data, understand the
customers’ needs, and apply high-level analysis methods to the data that
becomes useful and/or actionable for the firms’ customers.  They aren’t dealing with all the crude, just
the refined parts that make sense.

In discussion I learned of Petabytes,  Exabytes, Yettabytes, and Zottabytes of data.  Unfathomable volumes of data, a universe full, all useful but inaccessible without a purpose for the data.  Data use is the disruptor, as is application of data analysis tools, and awareness of what one’s customer needs.  As Bernard Marr notes- oil is not an infinite resource, but data seemingly are.  Data volume will continue to expand but prudent firms/carriers will focus on those data that will serve their customers and the respective firm’s business plans.

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).

SME lender financial engineers should look to Africa for inspiration

Credit models can be the live or die, make or break moment for a start-up lender.

Get one assumption wrong (or a number of them), and suddenly you have a serious arrears problem. One that can tip you into a death spiral, no matter what size your book is.

It’s something many fintech business lenders, despite the jazzy websites, and flash looking marketing, don’t implement well, from an infrastructure perspective. Instead many simply base their pricing on market forces. Of course, not many would tell you that to your face. Or their investors, for that matter.

Financial engineers are the sought after holy grail hire for a fintech lending startup. Not to mention founders than understand the importance of them. And while many of these engineers in the western world know their way around a balance sheet and P&L blindfolded, they would struggle in other markets, where the credit indicators of a business are significantly different. For someone with global ambitions, this local level of credit decision nuances makes this a serious challenge.

This week African lender Branch International raised $170 (5h 54m) million from big name funders Foundation Capital, Visa, B Capital, Andreessen Horowitz, Formation 8 and Trinity Ventures.

$100 (3h 28m)M goes to finance the growing book, and $70 (2h 26m)M is equity.

What makes Branch International interesting is something that makes all developing economy lenders interesting – their approach to assessing risk via what we in the west would consider ‘non traditional’ means. That is smartphone data, text messages, GPS information, who you call and who’s in your contact list, plus many more. It’s all a bit Black Mirror, but potentially significantly more powerful and insightful than any other rudimentary financial data point, like a consumer credit score. If it increases access to credit, surely that’s a good thing?

These data points don’t translate as elegantly into small business, but there is surely some room for experimentation here. Assessing credit risk in SME land is infinitely difficult, and continues to make it a risky play for new entrants, and a costly one for borrowers.

The financial engineers of the future, and founders looking for an edge should be closely watching this space with interest.

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.

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 `robos` in the front-office – takeaways from Swiss innovators


Watch the gap; between the Attention Economy and financial services.

 Market forces are fiercely at work to start closing this gap. I shared insights around this reality and ways that financial services players can participate successfully in this transformation, during my opening talk at the annual event by the Bank Innovation Competence Center[1], at Unil, HEC Lausanne. I also listened to different perspectives regarding `Les robots au front-office`.

Actual experiences and learnings from:

  • A Swiss private bank with a global outreach – Julius Bear
  • A Swiss online Bank with an in-house robo solution – Swissquote
  • A Swiss cantonal bank innovating through Fintech collaborations – BLKB/True Wealth B2B
  • A Swiss bank using chatbots – PostFinance/ELCA.

20190408_115830.jpg

Julius Baer, a 10yrold pure wealth manager[2], has already deployed a Digital Investment Advisory suite – called DIAS – in their Luxembourg operations and is in the process of adopting it in its home base. This is a technology stack deployed to empower the Relationships managers of JB so that they can focus on relationships, offer customized insights and reduce the burden of the ever-growing regulatory requirements.

Undoubtedly, the unbundling of financial services that have been instigated by standalone Fintechs, has essentially commoditized several aspects of financial services. Wrapping value-added advice around products and transactions is inevitable and that is what JB is aiming at. For now, and from JB`s experience, there has been no JB customer that has left from private banking to go to a standalone robo-advisor.

 Swissquote, the Swiss tech born online bank, has developed its own `robo` offering. Their heavily quantitative approach is well known from the suit of their financial products and services. An online automatic but discretionary approach to investing was a very natural extension of their successful e-trading business. One of their first learnings was that personalization is needed for the automation process. Through a close collaboration with Neuroprofiler, a Swiss-born behavioral finance risk profiler out of the Kickstart accelerator, they offer a dynamic automated risk profiling with gamification elements[3].

Swissquote`s robo is used by some of their end clients but also by asset managers and financial advisors that use the Swissquote technology. The two main learnings are that one of the main in-house uses of their robo capabilities, is from existing customers that leave cash in their accounts without doing anything. Think, for example, a customer using the Swissquote e-trading platform that has often cash that is not at work.

Evidence that robo-advisors can be of value-add to customers that leave cash sitting in their accounts due to inertia.

Swissquote is continuously improving their offering by experimenting with Big Data and AI that can enrich the interaction with customers beyond and in addition to their dynamic risk profiler. Think of an algorithm that sends an sms asking `Dear Efi, ahead of BREXIT, would you want to consider switching off the robo algorithm?`.

Digifolio, is the BLBK robo advisory offering powered by the B2B technology of True Wealth, a Swiss robo that also runs its own B2C offering. BLKB is the most innovative Swiss cantonal bank with an early online mortgage offering and a digital earthquake insurance offering. Digifolio was launched in the summer of 2017 (with a minimum requirement of 5k CHF). One of their main learnings up to now, is also that success can be clearly attributed to the effectiveness of Digifolio to move existing customers from cash in their account, into investing.

As early as 2015, I had introduced the concept of `Unadvised assets`[4] and since, have been looking at ways that Fintechs can `nudge` and grab the piles of cash.

3yrs ago, my 2min view

Digital Wealth management: a videographic update, March 2016

In addition to robos, Oh, the things you could do with the enormous Cash pile! November 2016, in which I looked at `competing` unbundled Fintech offerings.

Thanks to the market feedback shared at the BAICC event, I will be updating the `Unadvised Assets` perspective to check if there has been any noticeable impact on the cash pile possibly from rise automated investing offerings at the B2C and B2B2C level.

PostFinance, a Swiss financial service provider that has been investing in Fintechs for a while, has launched a text chatbot in collaboration with ELCA, a Swiss IT company. Postfinance is the first Swiss bank launching a customer-facing chatbot on its website. This is part of their business goal to offer 24/7 service with no queuing (as in the case of live online chatting with an `agent`) as one of the advantages of text chatbots is the simultaneous handling of requests.

The global chatbot market is expected to reach $1.23 billion by 2025according to a recent report by Grand View Research[5]. The challenges however to adopting chatbot technologies are not negligible. As ELCA explained, there needs to be a clearly defined business goal before designing a suitable chatbot, that of course, needs to be trained with the relevant content. Add to this, the complexity in the chatbot market because of the incompatible between text chatbot interfaces and voice user interfaces. In simple words, the language used and the content for training text chatbots is very different from that of voice chatbots. For example, in text chatbots often answers are provided in the form of links, which cannot work in voice chatbots.

Tech integration is always more complicated than it seems at the surface. Both because of legacy system integrations but also because experimentation maybe needed until the suitable product fit is determined in each use case. Pictet has been using chatbot technology internally, to modernize communication between the front office and compliance. This is a functionality that is also built behind the scenes of the JB DIAS system too.

[1] Agenda BAICC – EE – Seminar Robotics in FS – Agenda f (master). http://www.baicc.news/a-propos-baicc/

[2] JB separated in 2009 from its asset management business.

[3] Neurprofiler is a MiFIDII-compliant customer risk profiler for Financial Advisors.

[4] Salivating for Unadvised assets: a videographic, Nov. 2015

[5] https://www.techradar.com/news/support-agents-versus-conversational-chatbots

Book one hour with Efi – Ask me anything (AMA) for 0.10BTC – Efi@dailyfintech.com

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).

Unadvised Assets ’16

SEC reducing signal to noise ratio for ICOs

1_RGTPvD9z6idguv5RP2Ijsg

Last week our theme was “Is a 51% attack a real issue?

Our theme for this week is “SEC reducing signal to noise ratio for ICOs.”

Bitcoin’s price has jumped close to 30 percent since last weekend, peaking at $5,300 on several big crypto exchanges. Reports in the news attest that the recent surge was triggered because of buy orders for 20,000 Bitcoins, worth $100 million. With 412 days to go until the block reward halving, some analysts are claiming this is normal and historically Bitcoin price tends to surge a year before its halving starts.

Last year was a brutal for everyone in the space. The free fall we witnessed, truly tested our beliefs in cryptocurrencies and their potential. While I think that at some point we’ll see Bitcoin and other cryptocurrencies go far beyond December 2017 prices, I don’t think that we’ll see it happen the same way it did before. I expect that we’ll see some bullish runs, followed by selling pressures that will make us take a couple of steps back, but always settling on higher ground, each time.

Despite the fact that most of the news this week is focused on crypto prices, the big story is about the SEC clearing the air about ICOs, that want to sell their tokens in the US. The SEC issued its first “no-action” letter, allowing ICOs to sell tokens in the US, under certain conditions.

TurnKey Jet, a jet-leasing business, got the SEC’s “approval” to sell its token in the US, without having to register with the regulator, as long as:

  • Token holders won’t be granted an ownership stake in the company.
  • Any funds raised from the token sale will not be used develop the platform or app.
  • When the tokens they are sold,  they must be usable immediately for their intended functionality.
  • Transfers of the TKJ tokens are restricted only to TKJ wallets. External wallets are not allowed.
  • TKJ tokens will be priced at 1 USD per token. Each token will essentially function as a pre-paid coupon for TurnKey’s air charter services. If TurnKey wants to buy back the token (coupon), it must do so at a discount (less than 1 USD).
  • The token must be marketed in a way that emphasizes its functionality, and not its potential to increase in value, over time.

The SEC’s letter resolves some uncertainty about ICOs, but at the same time hugely limits them. You won’t see TKJ tokens on an exchange like Binance or Coinbase. The non-transferable nature of TKJ tokens, makes their actual utility extremely limited.

Earlier this week, the SEC also released “Framework for ‘Investment Contract’ Analysis of Digital Assets.” The framework is interesting, because it gives some guidance to new token issuers, whether a token is or isn’t a security.

The crypto industry has been pressing the SEC for a set of rules that companies can follow. Both the No-Action Letter and the Framework are reasons only for reserved optimism, if that. They are non-binding, as far as future decisions are concerned. The Framework states: “… it is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content …”.The crypto market in the US can be harmed by lack of or bad regulations.

Does it make sense to do an ICO, STO or IEO?

In 2018, 1,132 Initial Coin Offerings (ICO) and Security Token Offerings (STOs) were successfully completed, twice as many as in 2017 (552 in total), as shown in the fourth ICO / STO report by PwC Strategy in collaboration with Crypto Valley Association (CVA). ICOs raised $11.4 billion in 2018!

Fundraising for Initial Coin Offerings in Q1 of 2019 has been declining, based on data from TokenData. ICOs only raised $118 million so far in 2019, a huge drop when compared to the $6.9 billion raised in 2018, in the same period. Dropping prices and volatility have been deadly for ICOs.

1_uOX1R5ivQKRSMq2fZn7Yhg.png

The declining prices of cryptocurrencies, were not the only reason people did not invest in ICOs. People found other vehicles… STOs gained popularity in the cryptocurrency industry. Although, STOs are not fundamentally different from ICOs, they are a more regulated version. In the end it boiled down to regulation.

The first 2 STOs that started the idea in 2017, raised around $22 million. In 2018, STOs grew exponentially to 28 and $442 million in funding. In 2019, the dominant trend is STOs and asset tokenization, the conversion of real-world assets to the blockchain.

But, the biggest problem for most STOs, is finding an exchange capable and verified to list security tokens. Imagine an STO by a company in Asia, listed on an exchange in the US and a trader from Europe that wants to buy or sell the security token… A regulatory nightmare!

We are seeing even more changes to the ICO landscape, because of the problems with both ICOs and STOs. Initial Exchange Offerings (IEOs) are like ICO’s, with one difference, fundraising takes place directly on a crypto exchange. At its core, an IEO is basically an ICO but run through an exchange, as the intermediary conducting the sale. The first ever IEO was Tron’s BitTorrent, that raised $7.2 million in 15 minutes on Binance’s Launchpad platform.

In 2018, a staggering 58% of ICOs did not manage to raise $100,000 and only 2% of all ICOs announced their token was listed on an exchange. Potentially IEOs could be a game changer for the crypto market.

The long-awaited SEC ICO framework and its impact on the ICO landscape (and IEOs), potentially makes it easier for startups to raise capital. But it has left many questions unanswered, so we’ll have to see how it plays out. There are plenty high-quality projects and teams in the crypto market right now. Clearly defined rules and regulations, make the process much more transparent, credible and let crypto investors sort through all the noice.

For now… baby steps, slow and steady!

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).

 

Blockchain Front Page: SEC reducing signal to noise ratio for ICOs

1_RGTPvD9z6idguv5RP2Ijsg

Last week our theme was “Is a 51% attack a real issue?

Our theme for this week is “SEC reducing signal to noise ratio for ICOs.”

Bitcoin’s price has jumped close to 30 percent since last weekend, peaking at $5,300 on several big crypto exchanges. Reports in the news attest that the recent surge was triggered because of buy orders for 20,000 Bitcoins, worth $100 million. With 412 days to go until the block reward halving, some analysts are claiming this is normal and historically Bitcoin price tends to surge a year before its halving starts.

Last year was a brutal for everyone in the space. The free fall we witnessed, truly tested our beliefs in cryptocurrencies and their potential. While I think that at some point we’ll see Bitcoin and other cryptocurrencies go far beyond December 2017 prices, I don’t think that we’ll see it happen the same way it did before. I expect that we’ll see some bullish runs, followed by selling pressures that will make us take a couple of steps back, but always settling on higher ground, each time.

Despite the fact that most of the news this week is focused on crypto prices, the big story is about the SEC clearing the air about ICOs, that want to sell their tokens in the US. The SEC issued its first “no-action” letter, allowing ICOs to sell tokens in the US, under certain conditions.

TurnKey Jet, a jet-leasing business, got the SEC’s “approval” to sell its token in the US, without having to registered with the regulator, as long as:

  • Token holders won’t be granted an ownership stake in the company.
  • Any funds raised from the token sale will not be used develop the platform or app.
  • When the tokens they are sold,  they must be usable immediately for their intended functionality.
  • Transfers of the TKJ tokens are restricted only TKJ wallets. External wallets are not allowed.
  • TKJ tokens will be priced at 1 USD per token. Each token will essentially function as a pre-paid coupon for TurnKey’s air charter services. If TurnKey wants to buy back the token (coupon), it must do so at a discount (less than 1 USD).
  • The token must be marketed in a way that emphasizes its functionality, and not its potential to increase in value, over time.

The SEC’s letter resolves some uncertainty about ICOs, but at the same time hugely limits them. You won’t see TKJ tokens on an exchange like Binance or Coinbase. The non-transferable nature of TKJ tokens, makes their actual utility extremely  limited.

Earlier this week, the SEC also released “Framework for ‘Investment Contract’ Analysis of Digital Assets.” The framework is interesting, because it gives some guidance to new token issuers, whether a token is or isn’t a security.

The crypto industry has been pressing the SEC for a set of rules that companies can follow. Both the No-Action Letter and the Framework are reasons only for reserved optimism, if that. They are non-binding, as far as future decisions are concerned. The Framework states: “… it is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content …”.The crypto market in the US can be harmed by lack of or bad regulations.

Does it make sense to do an ICO, STO or IEO?

In 2018, 1,132 Initial Coin Offerings (ICO) and Security Token Offerings (STOs) were successfully completed, twice as many as in 2017 (552 in total), as shown in the fourth ICO / STO report by PwC Strategy in collaboration with Crypto Valley Association (CVA). ICOs raised $11.4 billion in 2018!

Fundraising for Initial Coin Offerings in Q1 of 2019 has been declining, based on data from TokenData. ICOs only raised $118 million so far in 2019, a huge drop when compared to the $6.9 billion raised in 2018, in the same period. Dropping prices and volatility have been deadly for ICOs.

1_uOX1R5ivQKRSMq2fZn7Yhg.png

The declining prices of cryptocurrencies, were not the only reason people did not invest in ICOs. People found other vehicles… STOs gained popularity in the cryptocurrency industry. Although, STOs are not fundamentally different from ICOs, they are a more regulated version. In the end it boiled down to regulation.

The first 2 STOs that started the idea in 2017, raised around $22 million. In 2018, STOs grew exponentially to 28 and $442 million in funding. In 2019, the dominant trend is STOs and asset tokenization, the conversion of real-world assets to the blockchain.

But, the biggest problem for most STOs, is finding an exchange capable and verified to list security tokens. Imaging an STO by a company in Asia, listed on an exchange in the US and a trader from Europe that wants to buy or sell the security token… A regulatory nightmare!

We are seeing even more changes to the ICO landscape, because of the problems with both ICOs and STOs. Initial Exchange Offerings (IEOs) are like ICO’s, with one difference, fundraising takes place directly on a crypto exchange. At its core, an IEO is basically an ICO but run through an exchange, as the intermediary conducting the sale. The first ever IEO was Tron’s BitTorrent, that raised $7.2 million in 15 minutes on Binance’s Launchpad platform.

In 2018, a staggering 58% of ICOs did not manage to raise $100,000 and only 2% of all ICOs announced their token was listed on an exchange. Potentially IEOs could be a game changer for the crypto market.

The long-awaited SEC ICO framework and its impact on the ICO landscape (and IEOs), potentially makes it easier for startups to raise capital. But it has left many questions unanswered, so we’ll have to see how it plays out. There are plenty high-quality projects and teams in the crypto market right now. Clearly defined rules and regulations, make the process much more transparent, credible and let crypto investors sort through all the noice.

For now… baby steps, slow and steady!

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).

 

A Bitcoin Maximalist describes a real issue to worry about – it is not what the Bitcoin sceptics tell you

worry

TLDR. As somebody who is long term bullish on Bitcoin, I often speak to mainstream investors who are sceptical but interested. They want to know if the issues that famous  Bitcoin sceptics tell you about in the media should worry them. This chapter of The Blockchain Economy book tells you why these issues are not real worries. They are like straw man arguments – easy to knock down. However, this chapter describes another issue that few analysts talk about but which I believe is more of a real issue for a Bitcoin investor to worry about. This issue is how Node Operators are compensated.

Personal bias disclosure: I am a Bitcoin Maximalist, for reasons outlined in this chapter of the Blockchain Economy book.

This post addresses long term investors who look at the fundamentals of Bitcoin. Short term technical traders have many other resources.

The usual arguments from Bitcoin sceptics

  • Bitcoin does not have thousands of years of history as a store of value. So it cannot be worth anything. The first sentence is obviously true. The second sentence betrays a lack of understanding of disruptive technology. Many Tech giants, obviously worth a lot of money, have a lifespan of only a few decades.

 

  • Bitcoin cannot be stacked in physical piles like gold bars. So it will be useless if we no longer have the Internet. Both statements are true but in the unlikely event that we no longer have the Internet a) have a few gold bars/coins just in case (nobody says Bitcoin will totally replace gold) b) in that dark apocalyptic scenario you will have other worries that are much more pressing (such as shelter, safety, water, food). Lack of Internet is an extremely unlikely scenario. North Korea is an exception that proves the rule. Even when dictators attempt a shutdown (for example in Egypt in 2011) it is temporary.

 

  • Quantum Computing will make Bitcoin’s cryptography easy to crack. This can be fixed at the technical level using the same Quantum Computing technology, but there are some risks before Quantum Computing becomes commonly available. It is a nuanced issue, for a good discussion watch this video.

 

  • Nobody is in charge. Fierce battles and forks show that the governance of Bitcoin is totally broken. Ahem, nobody is in charge of the Internet. Trusting a free market is hard for some people. For more, please go to this chapter.

 

  • Bubbles prove that Bitcoin is a ponzi scheme. This also shows that trusting a free market is hard for some people (particularly those who have relied recently on Central Banks printing money to make sure market assets are kept at a high level). Bitcoin is like a startup where the market priced the startup’s valuation from day one. Imagine Facebook’s price volatility if the market had priced Facebook from the days when it was a Harvard dorm room project!

 

  • Bitcoin cannot scale. At Layer 1 this is true. Layer 2 technologies such as Lightning Network are now coming on stream which will enable scaling far beyond current payments rails. For more, please go to this chapter.

 

  • Bitcoin is not yet useful as a currency. This is true if you live in a country with a) a stable currency b) functioning bank payment rails. There are many countries where this is not true. For more, please go to this chapter

 

  • Lots of fraud. This also true in Legacy Finance (Madoff, Enron, Mortgages, etc, etc). Change is coming from a) the market (eg investors avoiding centralised exchanges) b) technology eg Decentralized Exchange protocols) c) regulation and insurance.

 

  • Wash Trading inflates trading stats. True, but even if you strip out all the fake trades you get a real number over $270m daily trading volume – not bad for an asset/technology that is only just over 10 years old!

Rear view analysis is not useful for investors

The Economist is a great magazine that I have been reading for decades. Occasionally they get it wrong – for example in their support for the second Iraq War. In their most recent edition, dated 30th March, their article on The madness of crowds gave a lot of reasons why cryptocurrencies are like tulip mania – worthless. A few days later the price started rising. Rear view analysis is not useful for investors, which is why our ambition at Daily Fintech is to be News Forecasters.

Lets see how many sceptic articles there are just before the next bear market appears.

The real issue to worry about is economic incentive for the people who run Bitcoin Nodes

Miners are  rewarded by receiving Bitcoin, but there is no similar incentive for running a full Node. This is a problem, because Nodes are vital to the Bitcoin network and, like mining, involve real costs. Bitcoin enthusiasts say that you “should” run a Bitcoin Node. The problem of course is that “should” does not work at scale. It worked during Bitcoin Phase 1 when the Cypherpunks, Anarchists & Libertarians (who created the early traction that got Bitcoin from an obscure message board to the possibility of mainstream adoption) were motivated by rewards other than money. Should is irrelevant to Bitcoin traders/investors today and to future mainstream users.

This is why Ethereum has Gas costs. When I first encountered Ethereum in 2014, just after starting Daily Fintech, I struggled to understand the difference between ETH and Gas. At that time it seemed like a needless complication. Now I can see that Vitalik Buterin had learned from studying Bitcoin. When you pay for something via the Ethereum network, you pay in ETH. That transaction is processed on a decentralized computer. You pay for that computation in Gas (and Gas is paid in ETH). If Bitcoin had something like that, then Node operators could get paid in fees. For more on how Ethereum Gas works, please go here.

Yes, Governance is a tough issue for Bitcoin.

This Chapter describes Why Non State Governance For Bitcoin Ethereum And Other Cryptocurrencies Is So Hard. Fixing some code in Bitcoin is relatively easy in comparison to fixing an economic incentive issue; there is a super competent team to fix code issues. The market will also fill in the gaps that Satoshi Nakamoto deliberately left in there (such as a User Interface). However it is possible that the economic incentive for full node operators was a mistake by that legendary founder(s). Many commentators say there should be fees for full node operators, but it is hard to see how such good exhortations get translated into reality.

This problem also applies to Lightning Network – which could fix it

Lightning Network also requires node operators to be compensated. The good news is that Lightning Network is a protocol where the governance allows the problem to be fixed at Level 2 (because Lightning Network is funded by commercial interests). It would not fix the problem at Level 1 but it would makes that problem smaller.

Do you trust the free market to fix this problem? How do you see this problem being fixed?

Image Source.

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

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

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

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

Image Source

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

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

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

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

Michael Miebach, Chief Product Office, Mastercard

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

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

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


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

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

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Innovation from the Customers’ Needs Backwards- InsurTech Startups that Found Service Nails that Needed Hammers

In the interest of full disclosure this column was not the
planned piece for this week, but as the original plan became an exercise in
distilling a wonderful volume of great information down into 1200 or so words,
I was thankful for a discussion with an insurance startup I had where this
observation was reiterated by a founder:

“We did not want to be
a hammer looking for a nail.”

That phrase reminded me why the research for a following week was conducted- there are InsurTech companies that have made great efforts in seeing customer or service needs- that exist- and devising innovative ways to deal with the respective issues’ pain points and taking the innovations to market.  So why not wait to publish that theme?  Well, because the industry needs constant reminders that innovation needs a purpose, and that there are startups who are purposing real service needs.  So I took my own advice with the topic- be the finder of the nail, first.

There are many InsurTech startups across the global market,
and one can’t place the spotlight on all. 
The approach for this column is discussion of four companies that in
their own unique way have found an unmet purpose (nail) by research or
accident, have dug into the issue, and produced a solution (hammer) that is
tech-based and somewhat unique.

Empowering Patients for Provider Choice

The unexpected needs of parents Cole Sirucek and Grace Park prompted
the sequence of events that resulted in the patient empowerment firm, docdoc
Now founders as well as parents, Cole and Grace identified a need for
medical patients to have better control over who provides them services than which
was traditional for the profession.  A
medical concern within their family highlighted that the medical profession
(including hospitals) held full sway over who provided service, even if the
provider was not the most apt choice. 
Working to ensure others wouldn’t have options when medical needs arose,
the company worked with a team of medical and tech professionals to develop the
largest, most comprehensive network of medical professionals in Asia, a network
that identifies professionals by characterizing what each does extremely
well.  Need knee surgery?  The network identifies a patient’s best
option, not only for an orthopedist, but a knee expert.  And why would this be important within the
medical services value chain?  Having the
best expert results in more positive outcomes, which results in less unexpected
cost and patient issues post op.  In the
bigger picture, docdoc has created a Knowledge Model that can be leveraged by
other health networks (not ‘here are the providers in your network,” but ‘here
are the best fit providers’).  Options
for the patient, networks for the providers, and less after-effects for the
insurers.  (contact:  Madhurima Dutta
)

Highest and Best Use of an Entrepreneur’s Time is not Getting Insurance Quotes

There are more than 7.5 million self-employeds in the UK.  That’s a lot of hard-working individuals (and
the number is growing), says Sherpa ‘s
CEO, Chris Kaye
.  And if averages are extended, each of
these folks shop for up to seven insurance policies annually, time spent
chasing what carriers provide, and not necessarily what the self-employeds need.   Chris Kaye (along with Sherpa founders Lachlan Gillies and
Greg McCafferty)
identified the need for these customers to have an insurance service that
covers them for all risks,
can be tailored to their lifestyle and keeps up-to-date as their life changes.  Not rocket science (seems intuitively like
what a good agent could do), unless one can promptly assess each customer and then
provide an AI-driven personal insurance solution. Here’s the firm’s tech
innovation- Sherpa’s “Brain,” a proprietary AI risk assessment
engine, takes data given by members and makes personalized recommendation
for what cover they need.  But- Sherpa is not an insurance plan, it’s a subscription
based membership organization, has a fully-digital process, wherein a Member
can be underwritten and get ‘on risk’ in about seven minutes, and Sherpa
charges a transparent, flat fee that gives members access to a personal
insurance solution that matches their advice. 
Of course the members benefit from cover provided by an affiliated
global insurance company, and have the comfort that as life changes occur their
personal choice for insurance cover remain. 
The firm’s intention is to not only broaden UK available lines from Life
and Critical Illness covers, but to other markets and other personal lines
covers.

Digitizing Life Insurance Claim Processes, No, Making Life Policies about the Beneficiaries

Benekiva founder Brent Williams had a
successful financial advisory business in which he continuously found issue- life
insurance settlements were an administrative nightmare for beneficiaries, typically
driving settlement periods to three months from the respective carriers’ notice
of policyholder death.  Brent served as
apologist for the carriers, and also found in addition to delays in benefits,
recipients of policy proceeds were reluctant to take that next step- financial
care of proceeds- because the claim processes were so convoluted.  In collaboration with the current Benekiva
team members and co-founders, Bobbie Shrivastav and Soven Shrivastav, (and after more
than two years’ research) Brent, et al, introduced a digital approach to claim
process that focused on beneficiaries’ needs backwards through the admin of the
policy.  In this case, an industry expert
collaborated with tech and innovation experts, jointly identified a customer
issue, developed universally applicable methods that carriers could implement,
and the end result is prompt payment of policy proceeds.  Sure, unclaimed property laws helped
facilitate the end result, but the digital answer to customer needs is the key.  Benekiva now works with carriers to streamline
what in great part are legacy process wrought with workarounds, and to the
benefit of the industry cut through the Gordian Knot of the paper chase.  Oh, and the firm is helping carriers with
Blockchain options for claim and beneficiary management.

Helping Leverage Customers’ Ownership of Data  

Customers don’t know what they don’t know, and for data collection and use (particularly telematics), that knowledge is lower in great part due to who has taken control of telematics- companies (including insurance carriers.)  If data are the next oil boom, then those who own the wells are not the current beneficiaries of the wells’ output.  That’s the identified service opportunity for RevdApp , best described by its founder, Filipe Pinto, thusly:

“to offer consumers a way to own and manage their
mobility records and to leverage them in a trustworthy marketplace where
service providers bid to offer them services without compromising their
privacy. We eliminate data silos and unleash value.”

What, you say, what has that got to do with InsurTech and insurance service?  Well, picture customer possession of an open ledger of performance within a digital ecosystem, data that can be provided by the customer to support value-based access to services?  Customer owns driving data, can leverage that data for insurance purchases, or perhaps more favorable lease pricing based on positive performance than someone who has a history of more risky behavior.  Telematics have to date been the bailiwick of companies who collect those data, and have been leveraged to the benefit of the companies in terms of user-based insurance (UBI), e.g., Metromile, Progressive (Snapshot), and Allstate (DriveWise), along with most other larger carriers.  RevdApp is developing a digital ecosystem where beyond UBI customers can benefit from the service value of trust- companies may extend favorable terms to those with relative good performance data ledgers, and surcharge those without.  Customers control their data, how it’s applied to services, and how it’s applied to pricing.  At this time the firm’s IoT data ledger service access is applied for exotic auto use, but customer focus can bridge to almost any partnered service.

Are there many solution ‘hammers’ in the InsurTech orb looking for nails?  Sure are.  But there are many customer service ‘nails’ just waiting for observant entrepreneurs that can be open to understanding what solution is being called for.  The four examples noted above have unique starting points, and certainly unique solutions, but each developed from the kernel of an idea-  the need to #innovatefromthecustomerbackwards, and in spotlighting those I could keep my journalistic hammer tucked in my work bag- for another week.

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).

To license or not to license – are we asking the question?

In 2017, SME challenger bank OakNorth first came to the attention of Daily Fintech readers in a post from Bernard titled ‘Can challenger banks break the massive bank concentration in the UK?’.

Since then the bank has achieved some significant milestones, many of which have come to light in the press in the past few months. For starters, the bank has lent more than £2.5 billion to UK small businesses since 2015, and trebled its pre-tax profits in the past year, bringing in £33.9m in 2018.

Not bad going, and possibly why Softbank led a £440 million round into the fintech, which was announced back in February.

The company isn’t shy about expansion – who would be if you were making bank like they are. Oaknorth now plans to broaden its lending tentacles into the US. But rather than compete head to head with US banks, it wants to deploy its origination software, powered by its subsidiary OakNorth AI.

It’s very clever, and begs the question many of us in various corners of the world are thinking when it comes to challenger banking.

Is a license really worth it?

As more and more licensees for hire crop up to service the challenger banking space, and licensing is disconnected from platforms and technology, the value in owning the entire stack does need to be questioned. It’s counter to the way many investors and founders think – the ‘own it all’ mentality is strong and pervasive. In many instances it has been proven to work well and be a true value creator. But times are changing, and founders should continuously ask ‘why’ they are pursuing a certain product journey. In some instances, the vanity of being ‘full stack’ can be hard to shake.

In Australia, Up, a consumer facing digital banking brand born out of Ferocia, a financial software development business, has taken the front-end route. The interface leverages an existing banking license from Bendigo and Adelaide bank.

From a marketing and customer acquisition perspective, not having a license doesn’t seem to be preventing the company from acquiring customers. Many neobanks are hot on their footsteps, but most of them have had the added hurdle of overcoming licensing. Will it be worth it compared to time to market?

That, of course, is the multimillion dollar question many investors will be wondering.

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.

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Robo-advisory: Women, Freemium, and Subscriptions

subscription

Spring has brought lots of action even in the commoditized robo-advisory segment.

Three picks capture the flavor of the day in US robo-advisory.

  • Ellevest, the B2C standalone robo focused on women, raised $33million from a select group of investors[1].
  • Betterment, the hybrid standalone robo, drops account minimum for customized portfolios for retail clients too.
  • Charles Schwab adds a subscription-based financial planning offering (Not one size fits all).

Ellevest is in its 4th year and remains focused on empowering women. The offering includes a significant educational and coaching service for business women. What became clear from this recent funding round, is that the only viable part of the business is actually the HNW part. Ellevest Private Wealth Management is the premium service targeting HNW females and most of the capital raised will go into growing this business. This makes me believe that Ellevest doesn’t actually belong to the robo-advisory category but to the `Financial Wellness for Women in Business` category.

Betterment, on the other hand, has gone hybrid in two ways. Both in terms of offering a 100% DIY asset allocation service and with an advisor lite possibility; and having a B2C business parallel to a B2B business for financial advisors and for corporates (e.g. Uber). Financial advisors using the Betterment platform didn’t have an account minimum anyway. Now Betterment drops the 100k account minimum for individuals that want a customized portfolio allocation through the Betterment Flexible Portfolios offering. Their Premium service for 40bps now has no minimum. Betterment`s move comes in response to demand from existing retail clients to be able to customize their exposure in certain asset classes. The business decision of offering this flexibility at no cost, confirms that Customer is King and will remain so forever and ever.

Charles Schwab subscription service rhymes with Apple`s news service. For $30 a month, Schwab offers a financial planning package. Schwab Intelligent Portfolios Premium (rebranded name) is offered at $30 a month after a one-time $300 fee with a $25k minimum. Asset allocation is from a universe of 50+ ETFs, including a financial plan with a customized roadmap and unlimited one-to-one guidance from a CFP professional. Regulated financial-investment advice at $630 for the 1st year and $360 annually thereafter.

Schwab Intelligent Advisory (the original robo name) was at 28bps per annum 0.28% of assets.

Think of the 300,000 Schwab Intelligent Advisory accounts ($37 billion). Some will remain in the free, no-advisory offering. But a significant part will switch over to Schwab Intelligent Portfolios Premium and get advice. Evidently, any account with enough assets ($125k seems to be the magic number) will switch over.

What will this move do to the rest of the large players? When will Vanguard follow suit?

This is another discount brokerage moment in the investment industry. This is the subscription financial advice retail moment. Michael Kitces, the cofounder of XY planning Network XYPN, has deployed a successful subscription-based business for financial advisors, thus proving that it works at the B2B level. Now Schwab is pushing for a B2C implementation.

[1] Rethink Impact, PSP Growth, the Melinda Gates’s investment fund Pivotal Ventures; PayPal; Wynn Resorts co-founder Elaine Wynn; former Google and Alphabet chairman Eric Schmidt; former top aide to President Obama, Valerie Jarrett; and Mastercard. Source.

Sources: Schwab on Bloomberg; Betterment on FP; Schwab on ThinkAdvisor.

Book one hour with Efi – Ask me anything (AMA) for 0.10BTC – Efi@dailyfintech.com

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).