One97 – From selling Astrology services over the phone to a Global Fintech Unicorn

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A glance at the infographic with the top global Fintech unicorns[1] (as of Q3), fired several thoughts. Gold and bronze position to Chinese born giants, Ant Financial and Lu. The top seven Fintech unicorns that could fit their balloons which reflect their relative size in USD, included no European born companies. The US gave birth to four out of the seven Fintechs, which still operate mostly locally – Stripe, Coinbase, Robinhood, and Sofi.

One97 with a $10bil valuation, sitting right in the middle, was the only one that I honestly didn’t recognize with a blink. Once I started looking into the entity, I realized that a visit to New Delhi is long due. India is where One97 Communications operates. It is the leading mobile internet company offering mobile content and commerce services to millions of mobile consumers. Vijay Shekhar Sharma is the founder of this Unicorn which was launched in 2000!

One97 is endorsed by international big brand name investors:

  • Alibaba Group and Ant Financial (AliPay), own 40% of One97 shares.
  • Japan’s SoftBank became a shareholder in May 2017, injecting $1.4 billion in One97 for a 14.2% stake.
  • Berkshire Hathaway invested $356 mln in One97 (3%-4%) on the 28th October 2018, which brought the valuation up to $10bln[2].

One97 Communications is the mama of the flagship Paytm, born in 2010. This is the brand name that we all recognize.

PAYTM, at a glance

Paytm is a leading payment solutions provider to e-commerce merchants using a semi-closed wallet, approved from the Reserve bank of India.

Paytm started off in 2010 as a prepaid mobile and recharge platform and added a data card, postpaid mobile and landline bill payments.

In 2014, it launched the Paytm Wallet, and the Indian Railways and Uber added it as a payment option. It continued into E-commerce with online deals and bus ticketing.

In 2015, Paytm broadened its services with use-cases like education fees, metro recharges, electricity, gas, and water bill payments. It also started powering the payment gateway for Indian Railways.

In 2016, Paytm launched movies, events and amusement parks ticketing as well as flight ticket bookings and Paytm QR. It later launched rail bookings and gift cards. Paytm in India is considered the pioneer of QR based mobile payments.

In 2017, Paytm became India’s first payment app to cross over 100 million app downloads. It launched Paytm Gold, a product that allowed users to buy as little as ₹1 of pure gold online (₹ the new Rupee sign as of 2010).

It also launched the Paytm Payments Bank and ‘Inbox’, a messaging platform with in-chat payments among other products.

In 2018, it started allowing merchants to accept Paytm, UPI and Card payments directly into their bank accounts at 0% charge.

It also launched the ‘Paytm for Business’ app, allowing merchants to track their payments and day-to-day settlements instantly.

The company also launched two new wealth management products – Paytm Gold Savings Plan and Gold Gifting to simplify long-term savings. And an Indian robo-advisor. Paytm Money with various mutual fund products.

It also stepped into gaming with a mobile games platform Gamepind.

Just a glance at the Economic Times under One97, is sufficient to realize how it continues to make the headlines:

Paytm registers 600% growth in UPI transactions in 6 months

Now, you can pay LIC premium through Paytm

One97 Mobility Fund, the ecosystem play

While One97 Communications is the proud mama of Paytm, they have launched a $100M fund that invests in early stage mobile companies  – the One97 Mobility Fund (OMF). Their portfolio currently includes:

  • Paytm
  • TheMobileGamerPublisher of mobile social games for South East Asia reaching out to over 500M mobile users.
  • Ciqual: enables Mobile Operators to improve their data services through customer insights.
  • RainingCloud Technologies: develops AppSurfer (previously known as DroidCloud), a platform enabling Android access across multiple devices like non-android phones and PCs.
  • Dexetra: focuses on Artificial Intelligence around personalized Search and Mobility.
  • Plivo: a cloud telephony solution which helps enterprises and service providers setup, manage and run their own private or public telephony clouds.
  • IImjobs: A job portal run focused on mid-to-senior level placements.
  • CRAFTBY PRODUCTS: Engrave is an India-based design collective engaged in the pursuit of creating lifestyle products with fine craftsmanship.
  • Santa Claus Couriers: is an Indian eCommerce platform
  • MobiSwipe Technologies: allows merchants to use Android mobile phones or tablets as Point of Sale.
  • Zepo Technologies: helps small business owners to setup their online shop.

Why One97?

197 was the telephone directory number in New Delhi. Vijay Shekhar Sharma launched a call center selling Astrology services over the phone, which he named as One97. Eighteen years later, One97 Communications is the 4th Fintech unicorn on the global marketplace. An Indian mobile internet company which has earned the liking of international large investors and which acts like an ecosystem.

[1] Included in the Redefining Financial Services newsletter

[2] Source: https://www.cnbc.com/2018/08/28/reuters-america-update-3-berkshire-hathaway-takes-stake-in-indias-paytm.html

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Blockchain Weekly Front Page: Legacy Finance, Big Tech and Government move into Blockchain

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Last week our theme was “Silvergate Bank Plans to go Public.”

Our theme for this week is “Legacy Finance, Big Tech and Government move into Blockchain,

For more about the Front Page Weekly CXO Briefing, please click here.

Bitcoin and every cryptocurrency has dropped like a sack of potatoes, hitting lows they haven’t seen in over a year. The Bitcoin Cash fork war, the U.S. Justice Department probe into price manipulation by Tether and the Mt. Gox trustee that takes a big Bitcoin dump every now and then, are hard to ignore and have been causing tremors.

The market cap of all crypto is just $121.5 billion, and the entire ecosystem is hurting. Ripple overtook Ethereum in the number two spot, as ETH looks like it could drop below $100, something we haven’t in a while. This dip is hurting blockchain startups. Altcoins have difficulty showing product market fit, that would allow them to build the momentum they need to truly succeed.

Depending on the country they operate in, most miners have been drained by the continuous price decline on 2018. With the dropping prices, mining crypto has become an expensive proposition.

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Has the market bottomed out yet? I have no idea, I am not in the speculation business.

Yet, some are even claiming crypto funerals are coming in 2019. Well, that just ain’t true. In the long-term, Bitcoin’s declining price could actually be a good thing for the market. It could rid us of all the shitcoins that are obsolete and don’t serve a real purpose.

The recent price drops have exposed for one more time, the delicate nature of cryptocurrencies and their perceived values. Personally, I think they show a complete lack of investor understanding of what is going on in the market. Last year we saw an irrational bull market, that’s been followed by this year’s irrational bear. Its crazy, considering all the market developments and positive sentiment in 2018.

Amazon sees a lot of opportunity with blockchain technology. Amazon introduced two new blockchain products for its AWS customers. It will offer Quantum Ledger Database and Amazon Managed Blockchain for developers, using its cloud-computing services. Customers will be able to deploy a blockchain network with a few clicks, that can scale to support thousands of applications running millions of transactions.

Switzerland’s national railway completed a proof of concept (PoC) digital identity pilot, to ensure railway construction workers had the appropriate qualifications to work on the railways. A year ago the City of Zug introduced a digital ID, that uses similar technology. In conjunction with Lucerne University, they used the IDs in a voting test at the end of June.

Today, December 2nd, marks the 10th anniversary of Satoshi Nakamoto’s whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System. This is a unique point in the history of money. Over the last decade. we have build a way where a few people no longer can control the wealth of people.

Crypto markets are undeniably down right now, and prices will always go up and down. What is important now, beyond any price, is to lay the foundation for more widespread adoption.

Bitcoin’s original vision is largely dependent upon the integration and adoption of new technologies that are still being built and tested. Solutions for decentralized exchange protocols, scaling and privacy, as well as better user interfaces, are all critical for overcoming Bitcoin’s current price volatility and gaining mainstream trust.

I think its not the time to give up on the market, be scared or let crypto critics that lack any sort of objectivity, influence your decision making. Do your research, understand what crypto is where it going and I think you’ll be able to make the right choices.

It might take another decade to get there, but in its first ten years, Bitcoin has become a potential alternative currency, and the game has only just begun.

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

From Treaty of Westphalia (start of national sovereignty) to global Blockchain governance to a more practical outcome =  arbitration clauses

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People who geek out on code is law and law is code (I plead “guilty as charged your honour”), will love this. Busy entrepreneurs and executives may want to jump to the practical takeaway about international arbitration clauses.

The problem today is summed in the old schoolyard dialogue:

“I am right and you are wrong”

“Yea, who says?”

“I say”

“Yea, you and whose army?”

Law has to be backed up by credible force. Which is an issue when there are 195 countries, each claiming national sovereignty.

The Blockchain borderless alternative is not yet working, as we explore in the chapter of the Blockchain Economy book entitled why non state governance for bitcoin, ethereum and other cryptocurrencies is so hard. Irony aficionados enjoy the fact that about a year later after raising what at the time was record amount for an ICO to solve governance by code, Tezos collapsed into ye olde courtroom battles.

TL:DR. the legacy system is broken and the replacement system is not ready. Fortunately there is a practical hack which is international arbitration.

Treaty of Westphalia.

For historians and international jurisdiction lawyers, the Treaty of Westphalia in 1648 is the seminal event that led to the rise of the Nation State with the principle of Westphalian sovereignty. This is the principle in international law, enshrined in the United Nations Charter, that each nation state has exclusive sovereignty over its territory.

When I used to run an enterprise software company I recall the sometimes heated negotiation about which jurisdiction  was used in the contract. This was not an academic debate. In a dispute, you want to be on your home turf in a language and legal system that you are familiar with. That is a tough enough conversation  between two parties. What on earth do you do when the participants in a Blockchain contract maybe from hundreds of countries and the issuer maybe from an offshore jurisdiction (where there are simply not enough lawyers and judges to cope)?

Binding Arbitration

Our Advisory Services are known for their combination of big picture thinking with pragmatic execution. So, enough of the big picture thinking, lets move onto the pragmatic execution. If the legacy system is broken and the replacement system is not ready, what is the practical hack? The answer is a Binding Arbitration clause. 

Binding Arbitration is is a clause in a contract that requires the parties to resolve their disputes through an arbitration process, outside the courts.

It must be binding. All parties must accept the conclusion of the abitrators. If not, lawyers for one side will find a way to drive the dispute to the courts, making arbitration useless.

That means that the location for arbitration is critical.

Location for Arbitration

The location for Arbitration must meet these criteria:

  1. Big enough economy to have enough lawyers and expert witnesses. The disputes will be at the intersection of Blockchain technology and law and how many people understand enough of both to be part of a credible arbitration process?  Offshore jurisdictions usually fail on this score. The issuer jurisdiction does NOT need to be the same as the Arbitration Location.
  2. A rule of law that is globally respected.
  3. Good airports and plenty of flights (usually goes with 1).
  4. English language. It is the closest we have to a global language of business (much as we may not like the cultural erosion from less use of local languages).
  5. A time zone that works well globally.

Switzerland, where Tezos was adjudicated, met 1,2 & 3 bit not not 4 (although, as a Brit living in Switzerland, I can attest to the fact that English is widely used for global business done within Swiss borders). The Swiss brand around neutrality does help build confidence.

5 is where UK is better than USA, Canada or Australia, but it is a less critical criterium. I am seeing more arbitration clauses set in UK, which will be a boon for UK lawyers and expert witnesses (a smidgeon of good news among all the Brexit turmoil).

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

Check out our advisory services (how we pay for this free original research). To schedule an hour of Bernard’s time please click here to send an email

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Announcing the Daily Fintech Service: Book an Expert for an Hour

How many times have you read one of our posts and thought “I would like to pick up the phone and talk to the person with that knowledge and network”. Well now you can. You can book one hour for CHF 380 by simply sending an email to our Chief Commercial Officer (Julia Spiegel) requesting an hour’s consultation. We will schedule a time by email (we are in Europe, so we are time zone friendly for most of the world).  We will send you an invoice for your records by email and you pay for the hour by PayPal.

We start with one of the 6 Experts who write regularly on Daily Fintech. Bernard Lunn writes on Saturday from Switzerland about the Blockchain Economy. Bernard, CEO of Daily Fintech, is a serial entrepreneur, senior executive, adviser and strategic deal maker. He started in the engine room of Fintech for enterprise software companies (such as Misys, Temenos and ITRS). Bernard is the author of Mindshare to Marketshare and The Blockchain Economy and has used his media experience (for example as COO of ReadWriteWeb) to guide Daily Fintech since the first post on 29 June 2014. Bernard is a Brit who has lived in America, Singapore, India, London and Amsterdam and has done business in 40 countries. He currently lives in Switzerland.

We will be onboarding all the other people who write for Daily Fintech onto our Book an Expert for an Hour Service Service in the coming weeks:

Ilias Louis Hatzis writes on Monday from Greece about Blockchain, Bitcoin & Crypto. Ilias is an Internet entrepreneur who started his first company, an internet search engine, in the mid 90s during the dot-com era. Later on he founded several Consumer Internet and AdTech startups and went to work for Google and JWT. As well as still being an active entrepreneur, he mentors startups at the MassChallenge, MITEF and other startup accelerators and competitions. Having lived and worked in America, Ilias is currently back in his native Greece and is the Founder/CEO of Mercato Blockchain Corporation AG.

Efi Pylarinou writes on Tuesday from Switzerland about WealthTech and Capital Markets. Efi brings bold Wall Street experience (Salomon Brothers, Bankers Trust, SGCowen) in a broad range of asset classes (fixed income, structured products, hedge funds). She has lived and worked in the US, France, Greece, Canada, and Switzerland in investment companies, a university, an online education provider, and an executive consulting firm. She brings a strong academic background combined with a focus on breakthrough results. Efi is the author of Fixed income books with Frank Fabozzi.

 Jessica Ellerm writes on Wednesday from Australia about Small Business Finance. Jessica is CEO & Co-Founder of Zuper Superannuation, taking a new approach to superannuation savings. Previously she worked for Australia’s flagship Fintech startup and small business banking provider, Tyro. She is also a well-known expert on digital growth hacking and presents financial news and market updates for Australia’s leading online finance news provider, Finance News Network.

Zarc Gin writes on Thursday from China about Insurtech. Zarc is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.

Arunkumar Krishnakumar writes on Friday from UK about consumer banking.Arun has the experience and global mindset to cover innovation wherever it comes from globally and is equally comfortable in the world of big agile companies as well as scrappy upstarts. His big company experience includes Barclays and PWC. In his current role at Angels Unleashed, StartUp Bootcamp and Funding XChange, Arun works in the world of the scrappy upstart.


For those not familiar with CHF (the famously stable Swiss Franc) it is about par with the US$ today.

Many people requested an easy engagement model for our advisory service. Now you can start working with us by simply paying CHF 380 for an hour with one of our Experts. One day all consulting firms will make it this easy.

Request one hour of Bernard’s time for CHF380 by sending an email to Julia Spiegel (our Chief Commercial Officer)

Amazon vs Alibaba – the clash of the mighty techfins in numbers

We may have to soon rename ourselves as Daily Techfin. We have been focusing on the breaking of banks and their resistance to the Fintech avalanche, while Techfins have been slowly but surely capturing the FS world. Lots of numbers coming your way – so be warned.

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Money 2020 opened up in China, Hangzhou – the home of Ant Financial – for the first time this year. China is really were Fintech is happening at scale, and just by sheer numbers, the West look dwarfed. This is largely driven by the growth of Alibaba and Tencent.

Alibaba did $31 Billion in sales on Single’s day, and Amazon had its best sales in history through the 2018 thanksgiving period with 180 Million transactions.

Amazon haven’t announced exact sales revenues, but using Statista’s average online transaction size in 2017 of $81, their total sales could have been $15 Billion.

That just shows the scale of China vs rest of the world. Also, the total ecommerce sales number on Cyber Monday in the US was $7.9 Billion, that is just about 25% of what Alibaba achieved.

While the US Ecommerce market is set to reach $630 Billion by 2020, China’s is projected to be around $1.7 Trillion. Its fascinating to see how these two giants compare against each other in the ecommerce space. But, by Alibaba (Ant’s) own admission ecommerce and payments are just a foot in the door.

Some of the metrics discussed at Money2020 in China this year for different financial services that Ant offered were the following:

“1+N” – Onboard the customer with 1 QR-code – as payment technology. Cross sell marketing, training, cash management, loans, insurance etc.

“310” –  These are their KPIs for SME loans: 3 minutes for processing application, 1 second for monies in the bank, 0 manual work.

“212” –  Their KPIs for Insurance claims – 2 minutes for processing application, 1 second for review, 2 hours for insurance settlement to the account.

Stats Source here

This is only managed by cutting edge technology used with alternate data on consumers, to model their behaviour and assess risks in real time. I had already written about how Amazon helped an SME I knew, with a loan decision on the same day. Ant are just doing it better.

Now who is winning the battle? Amazon definitely have the global advantage. As of 2017 they had 2 Billion visitors per month, whereas Alibaba was at about 900 Million visitors per month. But that doesn’t necessarily translate into Financial Services that are provided by these firms.

In 2017 the number of Alipay users were 400 Million compared to Amazons 33 Million users, and as of September 2018, there were 520 Million Alipay users. Comparing transaction sizes is almost meaningless, as Alipay is light years ahead.

And all this with just 55% internet penetration in China (vs 78% in the US), with Alipay conquering 54% of China’s mobile payments. If payment services that the largest Techfin in the West does, is about 10% of that of the largest Techfin (of the East), it should give a perspective of what it means to other ancillary Financial Services such as lending, insurance etc., And if that is the comparison between the US and China, UK and European Fintechs perhaps won’t even come close.

I must confess that, I started this article wanting to just talk about Alibaba, China and Money2020. But when I started to look at the startling number differences between Amazon and Alibaba, I had to make it more of a comparison (although there is not much of a comparison).

An American friend of mine who recently visited China, mentioned that going to China felt like visiting the future. With the numbers that I have managed to dig out, China does feel like Wonderland when it comes to Fintech, thanks to its TechFins.


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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email


 

Pension Tech alive and well in Edinburgh

One of the winning teams from the FCA’s tech sprint

Yesterday I had the privilege of flying to Edinburgh to take part in the UK Financial Conduct Authority’s Pension Tech sprint event. The day was aimed at bringing together creative minds from inside and outside the pension industry in the UK, to try and tackle some of the biggest problems.

I’ve spent a week in London, and it’s been a good chance to get my head around where the local pension industry is right now, and the current dynamics. It’s especially interesting when comparing to where Australia is in its journey, and how the two can possibly learn or guide each other. While there is no doubt Australia is more advanced on a number of structural areas – both on the technology and regulatory front – the attitude and embracing of innovation in the UK, as witnessed at the FCA event was certainly unique and encouraging.

Prior to the trip I was fortunate to be the benefit of a private research report into the local pension sector. Below are some of the highlights that are worth being across, should you be seriously interested in this space.

  • The UK pension sector has seen revenue increase over the last 5 years – revenue is calculated by combining contributions and investment returns
  • Automatic enrolment is driving growth. It is estimated that revenue will grow at a compound annual rate of 3.3% over the next five years from £143.8 billion to reach £168.8 billion in 2022-23
  • 54.4% of the UK’s pension funds are based in London, with Scotland the second most important centre for pension funding, with schemes mainly located in Edinburgh and Glasgow. The region accounts for 12.3% of all pension funds
  • Occupational pension schemes hold 81.4% of all industry assets. Thanks to auto-enrolment they are expected to grow faster than personal pension schemes
  • There are now 41.1 million pension members in the UK, up from 39.2 million in 2016 and is the highest level ever recorded

Engagement with pensions seems to be mired by a lack of compelling reasons or useful and convenient online options. As a result:

  • 38% of employees have never viewed their pension online
  • Of those that have, 20% only do it once a year.
  • 19% of employees check their pension once a month, compared to 88% of people who check into their online banking regularly

Surprisingly, or perhaps not so surprisingly, if you think about the increasing importance of a pension as a source of stable wealth creation for younger people, Generation Z employees that were surveyed, the youngest respondents, were more likely to check their pension online than any other group. Only 3% of this group believe they are saving enough into their pension.

My take-aways from the trip

Auto-enrolment is great – and we know default systems can work – but many of the younger people I spoke to complained about having to enrol in a fund each time they changed jobs. We know multiple accounts are a significant cause of balance erosion. Not linking the plan to the person, but to the employer will create problems, especially for younger workers. For me this is a huge red flag.

One young man I chatted to said one pension fund forced him to withdraw his money, because he had been with the plan less than two years. He of course could have somehow found a way to add it to a new plan, but once money is out of the pension system and in our hands, the temptation to spend today is significant. Money inside a pension fund should not typically be accessibly until retirement age.

The pensions dashboard, which promises a view of all your accounts, online, could be a game changer, but only if every pension fund reports into it. At this point in time, from the discussions I had, it doesn’t appear there is a standardised reporting format or an onus on providers to comply. I could be wrong though. In Australia, the ATO Supermatch and Supertick service that provides this see-through and visibility for super fund members has been a big driver in engagement and consolidation.

Needless to say, there is significant opportunity for innovation in the UK around pensions, and they have a chance to possibly leapfrog or learn from the mistakes other more advanced pension markets, like Australia, have made. I certainly have some strategic thoughts about where the most significant opportunities lie, and it will be interesting to watch this market from down under over the next 12 months!

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.

Insurtech Front Page Weekly CXO Briefing – China opening up

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The Theme last week was Artificial Intelligence trends.

The Theme this week is China opening up its insurance market. This is actually a gradual process and now we are witnessing an upgrade from joint ventures to the approval of fully independent foreign insurers in China.

For more about the Front Page Weekly CXO Briefing, please click here.

Editors Note: Insurtech is normally Thursday. We changed to Wednesday this week because this news is big.

For this week we bring you three stories illustrating the theme of China opening up its insurance market.

Story 1: AXA to acquire the remaining 50% stake in AXA Tianping to accelerate its growth in China as the #1 foreign P&C insurer

Extract, read more on AXA press release:

“AXA announced today that it had entered into an agreement with the current domestic shareholders of AXA Tianping Property & Casualty Insurance Company Ltd (“AXA Tianping”) to acquire the remaining 50% stake* of the company.

Total consideration for the acquisition of the 50% stake would amount to RMB 4.6 billion (or Euro 584 million*), representing an implied 2.4x FY17 BV* multiple, of which, subject to regulatory approvals, RMB 1.5 billion (or Euro 190 million*) should be financed through a capital reduction of AXA Tianping to buy back shares from the current domestic shareholders.”

AXA Tianping was jointly founded in 2004 by AXA’s subsidiary in China and Tianping Auto Insurance. After 14 years, it has become the biggest foreign property insurance company in China. This purchase, if approved by Chinese regulators, will make AXA Tianping a fully-owned subsidiary of AXA group and help AXA move further in Chinese market.

Story 2: Allianz China unit given regulatory go-ahead

Extract, read more on Reinsurance News:

“Insurance giant Allianz has received approval from the China Banking and Insurance Regulatory Commission for the preparatory establishment of an insurance holding company in China.

Based in Shanghai, Allianz (China) Insurance Holding Company Limited will be the country’s first ever insurance company wholly owned by a foreign insurer.”

This happened a day before the AXA news. But Allianz’s plan was approved by the regulator already. The approach is different, since AXA is achieving it through equity acquisition while Allianz is starting from scratch. But the goal is same, to make presence in Chinese market.

Story 3: China moves closer to allowing foreigners to control insurance ventures

Extract, read more on Reuters:

“China will accept applications early next year from foreign insurers seeking to take control of their local joint ventures and is even weighing giving them full ownership earlier than flagged, people with direct knowledge of the matter said.

The regulator is expected to publish its final guidelines as soon as the first quarter of 2019 and would begin taking applications from interested foreign insurers soon after that, they said”

This article was released last Monday, and certainly it’s a signal. Our first two news proved that things are moving much faster in China.

China has already drawn its roadmap of opening up for the financial sector. Insurance industry is obviously executing the plans with efficiency and determination. I believe there are still huge potentials in Chinese insurance market and the future of insurance market in China will be shaped by Chinese and foreign insurers together.

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Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Can HODL5 help the SEC reverse the 9 denials of BTC ETFs?

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Last week was the launch party of HODL5 at the Swiss SIX exchange. Deborah Fuhr, CEO of ETFGI, a leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, flew over from London and top management of the Amun Group, was on stage.

We will all be watching how HODL5 trades, as it has the potential to become a retail darling and or an institutional darling. The first day of trading – Friday 23rd of November – saw 27,244shares ($400k) of volume. Flow Traders is the official market maker and a leading liquidity provider of ETPs.

#HODL5 is NOT an ETF – Exchange Traded Fund. It is a kind of ETP – Exchange Traded Product. With over $5 trillion in assets in ETF/ETP markets, we don’t pay attention anymore to details, do we?

Highlights ETFGI reports assets invested in ETFs and ETPs listed globally reached a new high of $5.12 trillion at the end of July 2018

  • Total Assets in ETFs and ETPs listed globally reached a record $5.12 Tn at the end of July
  • Net new assets gathered by ETFs/ETPs listed globally were $41.1 Bn in July
  • 4 ½ years or 54 consecutive months of net inflows into ETFs/ETPs listed globally  

Warning, ETFs are ETPs but not the other way around. I am sure you don’t confuse IPOs with ICOs. No need to highlight the differences between those.

ETPs are not ETFs and the reason you should care is that even a very successful #HODL5 exchange-listed product, won’t budge the SEC to approve any of the Crypto ETFs that have been rejected nine times already.

HODL5 is an exchange-listed product. It is a tracker which derives its value from an underlying basket of cryptocurrencies, the Top 5 by market capitalization, which is actively rebalanced on a monthly basis. These digital assets are held in custody (so HODL5 buyers don’t have to deal with that) and every time HODL5 shares are bought or sold, the underlying basket is adjusted.

The Amun Cryptobasket (HODL5 ticker) tracks five major cryptocurrencies: Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC). Amun AG, is a Swiss startup and Amun Crypto Index is managed by VanEck, the German index unit of investment management firm. VanEck is also involved in the new Bitcoin OTC Index called as MVIS Bitcoin US OTC Spot Index.

“The new index is called the MVIS Bitcoin US OTC Spot Index (MVBTCO) and leverages price inputs from OTC desks at Genesis Trading, Cumberland, and Circle Trade. MVBTCO gives institutions a reputable benchmark to reference, rather than having to individually ping each OTC desk to receive price information before deciding which counterparty to transact with.” Excerpt from my subscription of Anthony Pompliano’s OffTheChain.

HODL5 is the 4th tracker listed on a traditional exchange. The first two are Grayscale Investment’s crypto-indices and Coinshares’ Bitcoin and Ether trackers, both of which rely on different legal structures. HODL5 is the first “Crypto-ETP” fully backed by digital assets. Despite the fact that HODL5 gives broader exposure to the crypto market, since it is a basket, and is fully backed by the underlying assets; I don’t think it will help alleviate the SEC reservations about Bitcoin ETFs.

After nine iterations and public feedback, which has now been closed, the SEC’s refusal to approve any Bitcoin ETF is based on the fact that the crypto market is plagued by fraudulent practices and price manipulation and investor protection is tricky.

ETFs have proven to be great financial structures and have become so ubiquitous that we forget what is happening behind the scenes in order to for these products to work their wonders. Two years ago, I wrote a post around this topic – which was not at all triggered by crypto asset trackers – Are ETFs Trackers that Fintech can turn into Trucks with No Brakes? – in which I go through the Creation/Redemption process that is vital for ETFs.

In summary, for each ETF, one has to think of the Issuer (e.g. Vanguard, Blackrock), the Authorized Participant AP (DTCC reports that there are currently 50 AP firms) and the Market Maker, and the Custodian (e.g. JP Morgan, State Street). The Authorized Participants (APs) are the entities that create and redeem ETF shares and are sometimes the same as market makers; but not always. They are the usual suspects (large broker dealers) and have signed AP agreements with the ETF issuers.

ETPs don’t involve Authorised Participants who are those that make the “magic” Creation/Redemption process of ETFs happen. ETPs are “subordinate” in the liquidity hierarchy to ETFs.

I always remind myself that a derivate structure cannot be more liquid than its underlying asset. Corporate Bond ETFs are the simplest and greatest examples in conventional markets of this. Since the Subprime crisis, corporate bonds have been plagued with illiquidity despite several noteworthy Fintech attempts to solve this fixed income conundrum. Even for equity ETFs, don’t forget that they become illiquid and mispriced in incidents like the surprising Brexit election results. Betterment, the largest standalone robo-advisor, had to suspended trading on Friday of the Brexit result for almost 3 hours[1] because ETFs became misprices

The growth of a basket derivative cannot improve largely the liquidity and mispricing of the underlying assets? Even though, derivatives do add to the maturity of a market (futures, options, structured products) trackers have never actually led a recovery of a distressed market.

The SEC’s concerns will not be alleviated even if HODL5 volumes show strong natural demand. The SEC is watching rigging, insider trading and any kind of 51% attack. A crypto ETF not only needs several market makers to play the roles of the APs but also to convince the SEC that insider trading is less feasible, price manipulation is naturally arbitraged away. Four crypto trackers are not enough to move those needles.

[1] The Betterment/Brexit incident

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

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Blockchain Weekly Front Page: Silvergate Bank Plans to go Public

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Last week our theme was “Bitcoin Bulls & Bears have a very noisy party & bring back that famous volatility.”

Our theme for this week is “Silvergate Bank Plans to go Public.

For more about the Front Page Weekly CXO Briefing, please click here.

Twenty-four years go, Netscape released the first free web browser, giving consumers an easy way to access the Internet. But, Netscape did more than just revolutionize our Internet experience, it also revolutionized the model on how to build disruptive companies. Netscape’s IPO kicked off for the Internet era.

While cryptocurrencies prices crashed further yesterday, with Bitcoin reaching a new low this year around $3,500, several major crypto companies are attempting public offerings in hopes of raising billions of dollars to secure market share in the highly competitive cryptocurrency industry.

One of them is Silvergate Bank plans to raise $50 million through the Initial Public Offering.  Silvergate provides financial infrastructure solutions and services to clients in the digital currency industry. Silvergate Bank has more than 480 digital currency customers, with 145 in the pipeline, and it estimates the financial services market for digital currency companies, to be $30-$40 billion. Silvergate Bank would be listed in the New York Stock Exchange (NYSE) under the ticker “SI”.

Bitmain, Canaan, and Ebang, the three biggest players in the crypto mining industry, are racing to be the first publicly offered cryptocurrency mining company in hopes of securing retail investors’ loyalty by being the first one offered on the public markets.

In August 2018, mining firm Argo Blockchain PLC, which offers consumers the ability to mine four cryptocurrencies (BTG, ETH, ETC and Zcash), became the first crypto company to join the London Stock Exchange (LSE), raising around $32 million on a valuation of $61 million. In Canada, HIVE Blockchain, with a market capitalization of $106 million today, when it debuted in September 2017, its stock price soared by 220%, from $0.30 to $0.97.

While we’ve all heard rumors in the past, about an initial public offering by Coinbase, the company announced that it won’t IPO any time soon. When Coinbase does decide to pursue an IPO in the U.S., it would give investors a way to gain exposure to a regulated crypto security.

The time is less than ideal for a public debut with crypto prices low, yet there is a clear trend unfolding among crypto companies to raise funds in the equity markets.

Its possible that the rise of crypto-fueled IPOs could shift the tide, as more exposure for the blockchain and leading crypto companies can benefit the industry. The decision by several crypto companies to pursue an IPO could add legitimacy to the industry. Public offerings by crypto companies could serve as a major step toward the mainstream adoption for the entire industry, enabling a large number of investors to get exposure to crypto-related projects on the public market.

Since ICOs became popular in 2017, there have been constant reminders of the financial risks involved for participants. Unlike ICOs, initial public offerings place regulatory scrutiny on companies and require them to meet certain transparency standards. Initial public offerings by crypto companies show an understanding by these organizations for a regulatory and legal framework, to attract long-term investment, legitimize their businesses, and accelerate growth.

When compared to last year, the last eleven months have been filled with so many positive developments. The first crypto IPO will be very important. The cryptocurrency market will bounce back and its first IPO could be the spark. It will serve as a very clear indication of what will follow and how the crypto industry will evolve.

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

7 mega waves in the Blockchain Economy and the dams holding them back

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This post is aimed at “buidlers”, to those in the Blockchain community who use a Bear Market to build solutions and to those who invest in those solution builders.

You can take these mega waves to the bank. More specifically you can take them to investors. These are trends that that are inevitable and we show why. This post also shows the dams that are holding back these waves today. Entrepreneurs look at these dams as their problems to solve by creating the sluice gates that let the water flow in a useful, controlled and profitable way. We also show the picks and shovels that are being used to build these sluice gates.

In each of these waves there are ventures who are building solutions. The sluice gates are under construction. This list is based on observations in the real world, not theory. Which ventures will win will depend on their execution capability, but we are confident that each wave will produce at least one big winner.

Wave 1:  Decentralized Exchanges

  • What:  A Centralised Exchange is an artefact of Legacy Finance and the Centralised Internet. If we went in that direction we would end with a duopoly like NYSE/NASDAQ. There are already hundreds of Decentralized Exchanges.The logic of decentralisation is that every wallet can exchange with another wallet or to put it another way that P2P Exchange is feasible. Although some Legacy Finance markets (such as Public Equities) work through Centralised Exchanges, many Finance markets today operate through decentralized OTC (Over The Counter) traders, so this is easy enough for Institutional Investors to buy into.
  • Why: Centralised Exchanges are a honeypot for thieves (even if the Exchange operator is honest). The only way to protect money when money is data is radical decentralization so that a thief only ever gets one person’s money (and if that is fairly hard to do, they won’t bother).
  • Dam = liquidity. If exchanges are decentralised how do we get best price when we want to buy or sell? How do we get the price transparency of a Centralised Exchange in a Decentralized world?
  • Picks & shovels: liquidity is fundamentally a broadcast messaging data problem and there are computer science solutions to this. There is likely to be a mix of offchain matching and onchain settlement. Hubs will  perform a critical aggregation function and not every wallet is equal – some buy and sell in huge quantities.  Data aggregation based on P2P broadcast messaging is a solved problem in computer science and does not require a scientific breakthrough.

Wave 2:  Decentralized Investing/Trading

  • What: The Legacy Fund Management fee model of AUM (Assets Under Management) plus Carry (aka profit share on exit) will move to a model of signals, decentralised exchanges, networks & syndicates. The big change is that the Legacy Fund Management fee model is based on first gathering assets from LPs then investing.  The Blockchain Economy Fund Management fee model reverses this. You start investing whatever you can afford, then you publish signals of your trades and people pay to follow those signals. The passive investor’s capital is kept under their control, there is no equivalent of AUM.
  • Why: Blockchain changes the rules of the game and the game has not been going on long enough for Legacy Fund Managers to show their track record. We need new compensation models for a new generation of Blockchain native active investors/traders.
  • Dam: How do you a) identify the new and emerging investors/traders b) how do you compensate them properly? How does a a new generation of Blockchain native active investors build trust with passive investors (fka LPs).
  • Picks & shovels: The Decentralized Investing/Trading world is being built using four tools – signals, decentralised exchanges, networks & syndicates. Signals are what an active Investor/Trader provides for a fee to passive Followers. Decentralised exchanges are critical so that we know what a signal provider actually bought and sold (avoiding the scammy promoters who say buy when they are selling etc). Networks are how Followers find Signal Providers. Syndicates are  how enough capital is raised quickly through these networks by aggregating Followers just in time; lets not forget that the purpose of Capital Markets is to fund innovation and new productive capacity.

Wave 3: Stablecoins and other hard asset Tokens

  • What: You can buy/sell them like any Token, on Exchanges, but their value is tied to hard assets in the Legacy Finance world (such as Fiat currencies, gold, diamonds, real estate etc).
  • Why: If you are trader/speculator, volatility is your friend. If you are using Tokenomics to fund a venture, volatility is also your friend; you sell Tokens into a rising market in order to fund the business. In most other situations (such as payments and investing), volatility is your enemy and stability is your friend.
  • Dam: Stablecoins and other hard asset Tokens exist at the intersection of Legacy Finance and the Blockchain Economy. It is not simply a matter of clever code. Interfacing to that Legacy Finance world is not easy.
  • Picks & shovels: a new generation of Stablecoins are entering the market to meet these needs. These exist at the intersection of  Legacy Finance and the Blockchain Economy and the winning formula seems to be “audit heavy/tech lite” (in the words Balaji Srinavasan, the ex Andreessen Horowitz Partner and now Coinbase CTO which he says around 37.40 to 42.3 during  this panel on YouTube with Vitalik Buterin).

Wave 4: Safe & Easy custody/storage

  • What: As easy as putting money in a bank, but as safe and unconfiscatable as your own private keys in your own vault.

 

  • Why: Safe must mean decentralised to avoid the centralised honeypot problem and to avoid the danger of confiscation. That is job number one. To cross the chasm from early adopters with their hardware wallets, brain wallets and other nerd friendly stuff, it must be easy to use for the mainstream.

 

  • Dam:  Insured banks don’t store crypto assets today, so the problem has to be solved technologically so that a trustless/uninsured ecosystem of custodians emerge.

 

  • Picks & shovels: we need digital version of the old bank vaults, hardened against both physical and cyber attack and an easy way for them to interface into the world of investing/trading.

Wave 5: Whitelisted Wallets = your ID

  • What: A self sovereign Digital ID wallet that stores all our assets including our personal data and our reputation assets. Part of our reputation defines what type of assets we can buy and sell.
  • Why: if every wallet can trade with every other wallet through Decentralized Exchanges, it is critical that some form of Whitelisting emerges where  we trust that the wallet we are transacting with is doing things legally and is owned by a person “of good standing”. Even if you are of the libertarian school and believe that the solution must be free markets not regulators, you want some quick and easy way to spot the good guys from the bad guys.
  • Dam: self sovereign Digital ID wallets exist today but are only used by a small number of very early adopters
  • Picks & shovels: Self sovereign Digital ID technology already exists, there is no scientific breakthrough needed.

Wave 6: Security Tokens particularly Early Stage Equity Tokens

  • What: Legacy Finance has Debt + Equity. The core building blocks of The Blockchain Economy are Utility Tokens + Equity. We already have Utility Tokens (albeit often controversially, with many that are scummy and illegal). What is coming are Security Tokens that enable Early Stage Equity to be traded like Tokens.
  • Why: Just ask a) any entrepreneur fed up with the current process of early stage fund raising or b) any early stage investor who wants liquidity and price discovery.
  • Dam: Security Tokens are regulated by Securities Law and this is complex and changes slowly.
  • Picks & shovels: Tokenisation is the easy part and Security Tokens will be able to use all the tools and techniques of the Blockchain Economy. The tricky bit, as with Stablecoins, is the interface with the Legacy Finance world which currently controls Securities.

Wave 7: Credit Card dominance era is coming to an end

Note: this maybe the most controversial mega wave. I am saying that the Peak Credit Card dominance era is coming, not that Credit Cards will soon cease to exist. It is like saying we may start using a lot less oil, but we will still be using some oil for a long time (ie oil will be less dominant but will remain part of the economy).

  • What:  Credit Cards are replaced by Blockchain based payment networks (on chain and offchain).
  • Why: Credit Card payments are expensive for both buyer and seller (which is why Credit Card Networks are so profitable)
  • Dam: integrating credit at the point of sale is hard and the reason why Credit Card Networks are still so dominant today). But it is a solvable problem.
  • Picks & shovels: the dam may first break in niches that are a) cross border (where fees are highest b) for digital products (where there is no return dispute resolution issue) c) where the buyer does not need credit.

There are two ways the water gets past the dam. One way is the regulated way – via the sluice gates in the dam. The other way is the unregulated way – there are no sluice gates and the water goes over the dam, eventually breaking the dam. Regulators and lawyers and technologists, conscious of the threat of a dam breaking are working overtime to build those sluice gates.

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

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