Divvy mines gold in employee expense management

In late 2017 I had the fortune of interviewing Divvy founder Blake Murray, which I published on Daily Fintech – have a read here.

At the time, the Utah based employee expenses management fintech had recently raised US$7M. The business has gone from strength to strength since, with news out this week that they had raised a further $200M after banking close to $45M in funding in 2018 alone.

Why is employee expense management so hot, you might ask?

Well, I have a few thoughts about that.

Firstly, it’s one of those boring processes that gets no love internally in a business, and no compelling solution currently exists. This means you’re not displacing something existing, but providing a cure for an awful job that literally no one loves. And if you can automate it out of everyone’s hands, no one is going to be complaining or blocking that sale/implementation.

It also provides line managers, who are often in charge of managing or overseeing employee expense budgets insight and control into how they manage team spend. It’s scary handing over a credit card to an employee, no matter how much you trust them, and Big Brother Divvy takes that fear away.

And subscriptions? What. A. Nightmare. Keeping track of business subscriptions, managing trial periods and that leaky financial tap the SaaS economy creates (but conveniently neglects to mention in their sales pitch) is a business admin hell hole. Divvy allows you to create virtual cards for each of your subscription services, and provides a way to manage and see all of them from your dashboard. I actually want that for my personal life…but that’s another story.

Solving problems that don’t already have any solutions is where the gold is to be found for sure. And Divvy seems to have struck more than $200M of it.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

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

`You Can Marcus`

Goldman Sachs is one to watch.

It is an example of how sticky a banking brand name is – It has shredded off scandals in the past and the recent Malaysian state-run fund scandal seems no different. Sack Goldmans – a 2010 slogan – did not stick.

Goldman Sachs is an example of how an incumbent builds a Fintech business positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end[1].

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation of this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competences to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by rebundbling additional services (e.g. adding robo-advisors to loans, or deposits to trading, ect).

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

I have written about Marcus several times.

Just after the launch of Marcus in late 2016, Will Goldman become a verb? Watch the Marcus ads!

Just after the Marcus rebranding and UK launch in Fall 2018, Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

Screen Shot 2019-04-25 at 10.01.03.png

I must however, confess that I have no idea how to interpret the new Marcus Campaign ‘You Can Money’.  Is this an example of new Fintech language? If you have other such rarities, please send them to me, as I collect them. Maybe we can tokenize them, with the hope that they become the next non-fungible craze.

[1] A Seeking Alpha article that includes several links, for anyone who wants to dive into more details https://seekingalpha.com/article/4251792-buy-goldman-sachs-apple-card

Sources: CNBC, Barrons, Financial Brand, Crowdfundinsider, The economist

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

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).

Will Bitcoin go from Crypto Winter to China Crisis?

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Last week our theme was “Governments with weak currencies may overcome their fear of Bitcoin and so usher in a new global currency.“ Our theme for this week is “Will Bitcoin go from Crypto Winter to China Crisis?”

TLDR. Bitcoin’s popularity has grown over the last decade and has become an increasingly attractive target for adversaries of all kinds. One of the most powerful potential adversaries is China, which has used its capabilities to influence it. This time around China is considering a ban on Bitcoin mining in response to environmental concerns, about the process of creating cryptocurrencies. It has been suggested that a Bitcoin mining ban in China could have a profound impact on the Bitcoin network, as China is home to the majority of global Bitcoin mining operations. But the result of a ban might be completely different than what you might expect.

Earlier this month, China’s National Development and Reform Commission (NDRC) released a revised list of 450 industrial activities making suggestions to promote, restrict and eliminate various sectors. Bitcoin mining was labeled as one of the industries that needs to be “eliminated”, citing environmental issues as the primary reason.

Most media outlets that covered this story, leaped to the conclusion that China wanted to ban cryptocurrency mining, just like it did in 2017 with ICOs and domestic spot trading. The reality is that there is no set timetable for Bitcoin mining to be eliminated. A public consultation is be open until 7 May, giving the citizens the chance to give their input. Even if the agency’s proposal is finalized in its current form, this would not automatically amount to an outright mining ban. When finalized, and assuming mining remains in the elimination section, some Chinese provinces may choose to avoid prioritizing this motion.

Today, China has 70 percent of the world’s crypto-mining capacity. China’s cheap energy, that’s largely powered by coal fueled power plants, make the cost per kilowatt the one of the cheapest in the world. This makes China a very cost effected and profitable place to mine Bitcoin.

With Bitcoin’s price hovering around $5,000, mining is not a profitable endeavor for many places around the world. According to research by JPMorgan Chase, in the fourth quarter of 2018, the production-weighted cash cost to create one Bitcoin averaged around $4,060 globally. For Bitcoin mining operations, electricity generally accounts for more than 60 percent of the total costs. Cryptocurrency mining requires huge amounts of electricity and costs vary from place to place, depending in the cost per kilowatt. Here is a list of countries and the cost to mine Bitcoin:

  • Albania: $3894
  • Ireland: $11103
  • Australia: $9913
  • Brazil: $6741
  • China: $3172
  • Canada: $3965
  • Chile: $9120
  • Norway: $7784
  • USA: $4758

There are various studies that analyze the power consumption that’s required to run the Bitcoin network. Currently, it is estimated that we need 54 TWh. Cryptocurrency mining consumes around 3 times more than the whole of Ireland, which uses as much as 18.1 TWh/year. These numbers sound shocking, and many journalists use them to scare the public.

The proof-of-work (PoW) consensus mechanism that is used in the Bitcoin network, is very energy-intensive due to the increasing mining difficulty. PoW has many properties, and it is the main innovation behind many cryptocurrencies. In simple terms, PoW makes sure that the network stays online and secure at all times. In order for PoW to work an intense hardware activity is required. PoW is performed by special nodes in the system called miners.

Bitcoin isn’t issued by governments or banks. It’s created by a decentralized network of miners, who mint about 3,500 new coins a day. Miners play a crucial role validating transactions. They allow the network to operate without a coordinating authority, like a central bank. The miners compete for the right to validate transactions to the Bitcoin’s universal ledger.

The best way to imagine how how a Bitcoin mining operation works, is to imagine thousands of computers rushing to solve a difficult math problem. The first computer that actually solves the problem, earns the next coin.

Mining consumes a tremendous amount of electrical power.  Companies and organizations in the industry are considering many alternatives to tackle the power consumption issue. One solution is to use cleaner forms of power, such as hydropower stations, burning trash or solar-powered mining. Others include changing PoW with other protocols like Proof of Stake (PoS). The new protocol like PoS would replace the PoW used on both Bitcoin and Ethereum, and reward miners in coins, not for solving cryptographic puzzles, but with transaction fees for helping to maintain the integrity of the network

Today, every time a miner verifies a block they earn 12.5 coins. In 2020, verifying one block of transactions to the blockchain will be worth only 6.25 coins. The next halving will see Bitcoin’s inflation reduced by 50%, and judging from past BTC halvings, Bitcoin is expected to rise in price in because of this.

Many countries around the world are looking favorably towards cryptocurrency mining and many Chinese Bitcoin mining companies are already moving their operations overseas.

Most recently, Bitmain Technologies set up a subsidiary in Switzerland, which will extend its branches, currently in Amsterdam, Hong Kong, Tel Aviv, Qingdao, Chengdu, Shanghai and Shenzhen. Bitcoin miners have also been attracted to the Canadian province of Québec because of its cheap electricity. Belarus is the latest on the list. This year, Georgia sold 45 acres of land to Bifury and established tax-free zones to allow crypto-centric businesses to commence operations. The San Francisco company aided the government to make use of blockchain for their land registry system.

China would prefer to take blockchain without Bitcoin. China may also hope to replace Bitcoin with its own digital currency. China’s crackdown has demonstrated that no one country can stop Bitcoin. That’s the beauty of the decentralized network. If one participant bows out, others pick up the slack. After China clamped down Bitcoin trading, much of it moved to Japan and South Korea.

If China decides to ban cryptocurrency mining, it will probably have a positive impact on prices. Historically, with news of this kind, we’ve seen price surges. When China created seemingly harsh regulations regarding the industry, banning its citizens from investing in ICOs during September 2017, prices were hit hard temporarily, but rebounded to record highs. History has shown that every time you try to whack Bitcoin and it doesn’t die, it becomes stronger.

A potential mining ban in China could be a good thing. It will address the Bitcoin energy consumption problem and its reliance on non-renewable energy to power mining operations. Being forced out of the nation by a ban will likely drive more miners to explore locations where renewable power is cheap and abundant.

Most importantly, it would make Bitcoin mining more decentralized. With China no longer able to dominate Bitcoin mining, the network will become more decentralized and safer. While China may still have motives to destroy Bitcoin, if the NDRC proposal goes through, it will not have the means.

Image Source

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

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

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

The SEC TKJ No Action letter re Utility Tokens – takeaways & questions for entrepreneurs

SEC TKJ.001.jpeg

TLDR On 3rd April 2019, the US Securities Regulator, SEC, issued a public response to TKJ (TurnKey Jet Inc) that stated unequivocally that the Tokens issued by TKJ are not securities. This may offer regulatory clarity for Utility Tokens, but the devil is as always in the details. This post is one entrepreneur’s attempt to parse these details to understand the legal landscape around Tokens.

Here is the original SEC announcement.

IANAL Disclaimer. I Am Not A Lawyer. Get proper legal advice. This is just one entrepreneur talking to other entrepreneurs.

This update to The Blockchain Economy digital book covers:

  • Takeaways from each of the points in the SEC notice
  • Case Law is different from Civil/Code Law
  • Choose your playing field – Regulated or Unregulated
  • Context and References

Takeaways from each of the points in the SEC notice.

Our takeaways in italics

  • TKJ will not use any funds from Token sales to develop the TKJ Platform, Network, or App, and each of these will be fully developed and operational at the time any Tokens are sold;

Don’t use Utility Tokens to raise capital. For that, use Security Tokens. TKJ was not raising capital. In venture terms, you need to at least have working code ie MVP (Minimum Viable Product).

  • the Tokens will be immediately usable for their intended functionality (purchasing air charter services) at the time they are sold;

In short, use Utility Tokens for marketing, not for capital raising. PrePaid Tokens work when supply is limited. This is clearly true for air charter services (which is what TKJ offers) and most analog physical world services. If supply is limited, customers are motivated to order ahead. This is very different from most digital services which are defined by being unlimited supply (because of almost zero cost to copy). Smart entrepreneurs will figure out how to create premium digital services with limited supply but with digital efficiency. An example might be a physical artefact with some special branding for fans.

  • TKJ will restrict transfers of Tokens to TKJ Wallets only, and not to wallets external to the Platform;

The term wallet is confusing here. The SEC definition seems to assumes open source crypto wallets that anybody can use. No problem, plenty of choice here. This is not like physical wallets where we can have multiple tokens (cash, loyalty cards, credit/debit cards) in a single wallet. In the digital realm, the equivalent to that physical wallet is our mobile phone. The term wallet as used by SEC is more like a combination of loyalty card with pre-paid card.

  • TKJ will sell Tokens at a price of one USD per Token throughout the life of the Program, and each Token will represent a TKJ obligation to supply air charter services at a value of one USD per Token;

SEC jurisdiction is America where USD is the currency, so their reference currency is USD.  For other jurisdictions the token will need to be priced in other currencies. The more fundamental point is that these tokens are non-fungible. You can ONLY use them to buy air charter services.

  • If TKJ offers to repurchase Tokens, it will only do so at a discount to the face value of the Tokens (one USD per Token) that the holder seeks to resell to TKJ, unless a court within the United States orders TKJ to liquidate the Tokens

This is a sensible precaution against ponzi schemes, where the issuer gives early buyers a guaranteed profit. Note the words “unless a court within the United States”. Our mantra at Daily Fintech is “bits don’t stop at borders but money has to show its passport”; financial regulation is jurisdiction dependent.

  • The Token is marketed in a manner that emphasizes the functionality of the Token, and not the potential for the increase in the market value of the Token.

Note that TKJ is NOT a cryptocurrency business; they are a business in the physical world that is using cryptocurrency technology to grow their business. This would be like selling Taxi Medallions as Tokens. The Medallion/Token buyer aims to offer a taxi service and may or may not be able to sell the Token/Medallion for a profit later. Utility Tokens are about marketing not capital raising. For a brief moment in 2017, entrepreneurs got a two for one deal in ICOs that enabled both marketing AND capital raising. Those days are over. Although the new rules seem like a limitation, the biggest issue for most ventures is marketing, not capital raising. So using Utility Tokens to reduce Customer Acquisition Cost (as we explore in this related chapter) is a big deal.

Case Law is different from Civil/Code Law

The SEC letter is no guarantee and the SEC staff reserves the right to change positions.

This is just how case law works.

The law in the USA & UK and many countries is case law (aka common law), where the law is established by the outcome of former cases (aka precedent). This is very different from what is sometimes called civil law (which I call Code Law for reasons explained below) in countries such as China, Japan, Germany, France

For more background on Case Law vs Civil/Code Law please read this.

Civil/Code law originated in the code of laws compiled by the Roman Emperor Justinian. Civil law has codified statutes. I prefer the term Code Law to Civil Law as this style of law is what developers/coders prefer and instinctively assume. You can turn Civil/Code law into computer code in Smart Contracts. It is much harder to do this with case law where you will often be told “well, it depends” or “it will be judged on a case by case basis”. This is why you must consult a lawyer and why the SEC announcement has this boilerplate language:

”This position is based on the representations made to the Division in your letter. Any different facts or conditions might require the Division to reach a different conclusion. Further, this response expresses the Division’s position on enforcement action only and does not express any legal conclusion on the question presented.”

Choose your playing field – Regulated or Unregulated

Fintech Entrepreneurs have 3 basic regulatory strategies to choose from:

  • A. Full stack regulated. You ask for permission upfront. Budget for big legal and compliance bills. Compete directly with banks. Do this in every jurisdiction you want to do business in (state by state in America and country by country in Europe).
  • B. Full stack unregulated. This is what Uber, AirBnB and Skype did. You act boldly without upfront permission and either seek forgiveness or fight (depending on how powerful the regulator is). Banking is far more protected/regulated than taxis, lodging or telecoms, so this is a dangerous strategy in Fintech, but can work for some types of user for Bitcoin related services.
  • C. Lower in stack unregulated. Provide services to regulated companies north of you in the stack.

Bitcoin is C.  Companies northward in the stack provide the user facing functionality and can choose either A or B.

Context & References

Investing in Utility Tokens.

Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens

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

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

Subscribe by email to join 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 rise of Chief Behavioural Officer and how to hack customers’ mind

Financial Services has traditionally been a game of numbers, aggressive product (mis)selling, big bonuses and as a result too many “too big to fail”s. The rise of regulations and technology innovation within the industry has resulted in a course correction. The customer is now getting some attention. And more recently customers’ behaviour is.

Applying behavioural sciences to study how customers make their financial decisions has seen some recent traction. It is critical to bring together cognitive biases and behavioural anomalies and understand how these affect financial decisions. Add to that the impact these financial decisions have on an organisation’s PnL. An executive in a bank capable of doing that would be an ideal fit to as the Chief Behavioural Officer.

The rise of Fintech was accompanied and facilitated by the rise of friendly customer journeys. Today I spend so much, not realising how much money has gone out of my bank account with just a touch. The process is so frictionless that, the act of paying someone is invisible. When it is out of sight, it is out of mind. That’s the simplest way to make people spend more.

That is an example of how an existing process has been made less of a touchpoint. Recently, Merill Lynch conducted an experiment where they asked users to upload their photos. They would run a program to show what the users would look like in 30-40 years. That made the users more conscious of their retirement planning, and shifted their financial behaviour.

Another instance is where the Commonwealth bank of Australia launched an app for customers to set goals. The tool prompts customers to set personalised savings goals and breaks them down to smaller milestones. Since February 2019, users have created more than 250,000 savings goals – 27% of the goals being towards a holiday and 19% towards a property.

Human beings are irrational when it comes to financial decisions. An understanding of behavioural sciences is not just important to win over customers. It is critical to understand the biases that affect existing business decisions that are made within a firm. Leading valuations expert Ashwath Damodaran calls for the need to study these biases as much as the valuation principles used within investment banks.

All valuations are contaminated by bias, because we, as human beings, bring in ourpreconceptions and priors into the valuations. When you are paid to do valuations, that bias multiplies and in some cases, drowns out the purpose of valuation

Professor Ashwath Damodaran

We (my firm Green Shores Capital), recently did an event to identify top financial inclusion firms to invest/track for investments. One of the firms Confirmu, based out of Israel, study the psychological responses from a potential borrower to assess if they were trust worthy or not.

It is one thing going through the borrowers bank account, business plan and reasons for the loan. While all that could be genuine, a borrower might still not have a genuine intention to repay. Especially in countries where there are no credit bureaus, a system to predict the future behaviour of a borrower could be very handy.

While there are several tools to assess the ability to repay, there are very few to assess the intention to repay a loan.

Confirmu’s customer journey takes the users through a chat process, where the customers answer a few basic lifestyle questions, then choose their favourite between a bunch of images, and finally leave a voice answer to a question. Their machine learning powered algorithm gives a rating indicating the customer’s intention to repay.

Banks have started to focus on technology much more than they have ever done. However, as Steve Jobs puts it – ” it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing”


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

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

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

InsurTech adherents must see- the Elephant is insurance

A common approach to InsurTech- describing insurance by parts, not the whole

I’ve noted in the past that InsurTech is not dissimilar to the fable of six blind men describing an elephant solely on touch- each man ‘sees’ the elephant from the perspective of his narrow exposure to a very large creature. One sees a rope because he has grabbed the tail, another a tree because he’s grabbed a leg, another a snake due to the feel of the trunk, and so on.

InsurTech is that similar situation- many firms ‘touching’ the initiative from a narrow perspective. Not blind, surely, but not from a vantage of ‘seeing’ the entire concept. Of course it would be very daunting to try to grasp the industry from all angles, and very expensive too.

So,
there are the individual firms describing their unique parts- underwriting,
pricing, distribution, administration, claims, agencies, customer acquisition,
etc. And designing and/or applying technology- artificial intelligence
(AI), machine learning, IoT, algorithms, data science, actuarial science,
behavioral economics, game theory, and so on. Using technology and new
methods to help them see their part of the beast that is insurance innovation.

We get caught up in the thinking that InsurTech is a discrete concept– because each involved player has his unique approach to defining how change will be effected (and we can’t have multiple terms to describe what the movement is.) In the end each is convinced the efforts being made in their firm are defining the term. A recent article penned by Hans Winterhoff, KPMG Director, 3 Lessons European Insurers can Learn from Ping An, provides suggestions for legacy insurers based on successes Ping An has had in the China insurance market. The author makes three apt points but as with simply grabbing the Beast’s trunk and calling the animal a snake, is Ping An’s approach to insurance innovation the best InsurTech perspective for mature insurance markets?

Can the best innovative methods be applied to incumbent markets if a carrier’s staff are not engaged adequately in the evolution? 

Legacy markets are populated with customers who are content with the Beast that is insurance, and in spite of some years of InsurTech efforts the market penetration of innovative companies remains low.  Not that these customers don’t deserve the latest and best methods (surely most would trade the bureaucracy and cost of existing health care for the ease of service provided by a Ping An kiosk), but change must also come from within insurance company organizations.  If one looks at Fortune magazine’s best large employers by employee survey and finds two of the insurance market’s biggest employers, Allstate and Geico, not in the top 500 firms, one must consider absent employee engagement then innovative change may be inhibited for those major companies and their customers.

Virtually
every week there is a significant conference of InsurTech enthusiasts,
thousands of attendees per month, all seemingly with an idea of what InsurTech
is, where it’s going, and how they will capture innovation lightning in the
bottle they have designed. There are some very smart persons who are seen
as champions of the effort, and these persons publish/travel/post and remind
the industry of where it has been and where it’s going. They are adept at
describing the beast in terms that most can understand, and in terms that help
the holder of the ropy tail to see that there also is a snaky trunk, and that
the two parts are of the same beast.

What
is cool about how the InsurTech movement is evolving is that a solid
recognition is being realized by most (not all) that InsurTech is comprised of
multiple, important and integral parts, and even if your firm is not working
with idea A, it can leverage the knowledge in developing idea B. We pick
at the theories others espouse, nay say, comment, maybe even doubt or
criticize, but at the same time all the knowledge is to the common goal-
improving a product for the existing and as yet unidentified insurance
customers.

And
without belaboring the theme, we can be reminded that the elephant is not
InsurTech; the elephant is insurance. InsurTech is the trappings with which the
elephant is enhanced. And the elephant is the contractual agreement that
comprises insurance, and the elephant’s handler must be the customer. 

Let’s
all describe the beast well from our unique perspective, with the understanding
that in the end the elephant’s handler- the customer- must be why we are touching
the beast at all.

 

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).

Australia’s Judo ‘NAB’s’ banking licence to service SMEs

Judo Capital is the second fintech to be issued an Australian banking license this week, following Volt’s line honours in early 2019.

Xinja is another in the race to the licensing finishing line, with a longer tail of startups following up the rear.

Judo Bank (as they can now claim title to) will be listed as an authorised deposit taking institution (ADI) without restriction. It marks just under a year in processing time for the new bank, who lodged their application with the regulator in May 2018.

Founded and staffed by a number of ex-NAB (National Australia Bank) bankers, the bank focuses exclusively on small business banking, redesigning the banker/business relationship for the modern, digitally enabled world.

According to a report published by Judo, Australian SMEs face a $80 (2h 47m) (2h 47m) billion funding shortfall, with 9/10 claiming to have no meaningful relationship with their bank. The two biggest issues faced by SMEs include banks’ insistence the family home be used as collateral, and the turnaround time for credit approval.

No surprises there.

So what will Judo’s secret sauce be? The human touch and bucket loads of capital to execute on their vision.

Late last year the bank raised $140 (4h 52m) (4h 52m) million, which was claimed to be the largest pre-revenue funding round done to date in Australia.

It’s heady stuff, and SME’s will be saying about time. To date the only other player in the SME banking space exclusively is Tyro, who’s lending product is suited to small businesses who accept EFTPOS payments as their predominant revenue collection model.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

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

Breeding Dolphin organisations instead of Sharks & Piranhas

Entrepreneurship, innovation, and disruption are terms that we think we understand and agree on what we mean when using them. Not so. Several thought leaders and influencers have highlighted this issue when arguing about technologies and or business models and whether they qualify as `disruptive` or `innovative`. Clayton Christensen`s 25yr old theory Disruptive innovation, Guenther Dobrauz-Saldapenna`s Apetite for Disruption interviews are just two sources that focus on these distinctions.

Distinctions work

After the WEF this past January, serendipity connected my insights around Sharks & Piranhas in financial services with Dolphin-like organisations. Dr. Mihaela Ulieru, scientist, advisor, president of the IMPACT Institute for the Digital Economy attended my CryptomountainRocks talk at the piano bar of Hotel Europe.

Sharks Dolphins

My metaphors of incumbents and fintech startups as Sharks and Piranhas, while discussing tokenization of real assets; fired up a connection with Miguel Reynolds Brandão through Mihaela Ulieru.

 

Miguel R. Brandao is an entrepreneur, author of `The Sustainable Organisation` book already in its second edition and co-creator of the #SORG index and much more.

sorg

  • The SORG Index, is a sustainability algorithm. It is simple and can even be used by startups.
  • The Dolphin Ranking is a global list of Sustainable Organisations that the group of these Sustainability Devotees including Miguel R. Brandao, call ‘Dolphins’. This list promotes organisations that are truly sustainable to inspire hope, change and best practice. Much like dolphins these organizations take care of their resources and are less focused on promoting themselves.

Sustainability is a philosophy not a marketing tool; it is a purpose not a KPI!

Miguel Brandao, articulates all this better. Enjoy our podcast.


sorg-dolphins-ranking-home

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).

Governments with weak currencies may overcome their fear of Bitcoin and so usher in a new global currency

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TLDR. For Governments, the only thing more scary than Bitcoin is getting their country destroyed by sanctions and other heavy-handed behaviour by bigger Governments. Bottom up traction for Bitcoin as a global currency is coming from sovereign countries with weak Fiat currencies; the people are taking action despite what the Government is saying/mandating. This is no surprise because innovation always comes from the edge, from those excluded from wealth & power by the current system. What is interesting now is how this innovation is coming both bottom up (by the people despite what their government tells them to do) and from top down (initiatives from governments to use Bitcoin). The recent news that shows that this top down innovation may be happening is that 3 countries (Afghanistan, Tunisia and Uzbekistan) are telling the IMF that they want to issue Bitcoin bonds.

This update to The Blockchain Economy digital book covers:

  • Innovation always comes from the edge aka the Excluded
  • Bitcoin is totally different from a Central Bank Digital Currency (CBDC)
  • Commodities other than Gold as collateral
  • The critical role of the IMF
  • The dreaded v word – volatility
  • Context from other Chapters

Innovation always comes from the edge aka the Excluded

I have been a fan of John Hagel for a long time. I first talked to him 10 years ago when I was COO of ReadWriteWeb (here is an interview from that era). John Hagel, perhaps best known for his book The Only Sustainable Edge, has been one of the leading strategic thinkers for decades. Today he edits The Edge Perspectives blog as a driver for Deloitte’s Center for Edge Innovation.

Hagel focusses on the importance of the edge as a source of value creation and strategic advantage. This insight – that traction comes from people who have been excluded from the current system – may seem obvious, but so many companies do the exact opposite (they compete to win market share among those who have lots of alternative services).

In the Blockchain Economy, innovation comes from people, businesses and countries that have have not done well from Legacy Finance – the excluded.

Bitcoin is totally different from a Central Bank Digital Currency (CBDC)

A Central Bank Digital Currency (CBDC) means a) government controls supply (ie can still print as much as they like b) transaction verification is done using DLT (Distributed Ledger Technology) rather than in a ledger in the central bank’s core accounting system. There may be some efficiency advantages for the central bank from using DLT and some PR boost, but no real advantage for citizens.

The much more radical alternative is a government issuing bonds denominated in Bitcoin. That means they have no control over supply. Although that loss of  control is scary for governments, it is better than issuing debt using two alternatives as currency:

  • their own Fiat currency which investors don’t want (whether it is settled using DLT or traditional methods).
  • the Fiat currency of another Government (eg USD or EUR) that may be imposing sanctions or taking other actions they deem harmful. 

Commodities other than Gold as collateral

In ye olden days, money was an IOU backed by gold as collateral. In 1971, Nixon changed all that and money became Fiat currency backed by nothing more than a promise to pay.

So a poor country issuing a bond denominated in a currency with a fixed supply like Bitcoin is a really big deal for some investors. Rather than getting paid back in a depreciating currency that could spiral into hyperinflation, investors are repaid in a strong currency.

This begs the question, what if the country does not repay the loan aka sovereign debt default.

In ye olden days, investors simply presented their IOU (aka paper currency) and demanded repayment in Gold.  If you are a poor country with a weak currency, such as Afghanistan, Tunisia and Uzbekistan, you cannot simply buy a lot of gold as collateral for your currency. However you may have other tradable commodities that can be used as collateral. For example:

– Afghanistan can use lithium as collateral

– Uzbekistan can use cotton as collateral

The critical role of the IMF

Sovereign Bond Investors have historically demanded very high interest rates to compensate for the risk of a Sovereign Bond from a country such as Afghanistan, Tunisia and Uzbekistan. The idea of issuing a bond denominated in a currency with a fixed supply like Bitcoin and backed by a tradable commodity as collateral is a big innovation.

Last week’s news is only that these three countries are discussing issuing Bitcoin Bonds with the IMF; it is not yet a done deal.

The IMF has a critical role to play because Bitcoin is a global currency so investors will look to a global institution to give the bond issuance some credibility.

Stay tuned – this will be interesting to watch.

The dreaded v word – volatility

The devil is as always in the details, which in this case are:

  • What if Bitcoin increases dramatically in value?  A small increase in value is good news for investors and manageable for issuers. A  dramatic increase in value is, on paper, great news for investors, but such a disaster for issuers that default is likely.
  • What if Bitcoin declines in value? Investors may demand too much interest to compensate for this.

In short, this use case for Bitcoin falls foul of the dreaded v word – volatility

A stablecoin pegged to a basket of currencies could offer a better alternative.

Context from other Chapters

For context please read these chapters of The Blockchain Economy digital book

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

The Path To Mainstream Adoption Of Bitcoin Is Not Through Legacy Finance Institutions It Is Through The Excluded.

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

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

Subscribe by email to join 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 IPO: who will be first & when will it happen?

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TLDR. The first IPO by a Blockchain venture will signal that the next cryptocurrency bull market is in good shape. One question is which Blockchain venture will be the the first to IPO. Candidates include Binance, Coinbase, Silvergate & TZero. Looking at the macro conditions and the IPO process offers some clues about when this will happen. Another question is what the first IPO by a Blockchain venture will tell us about the wider transition to The Blockchain Economy. For investors, our aim with this post is to give some context before the frenzy of IPO pricing and roadshow. Bitmain had a failed IPO process. Investment Bankers will be trying hard to overcome the Bitmain bad news story and write the story of the first successful Blockchain IPO .

This post includes:

  • Why this will signal a sustainable cryptocurrency bull market

 

  • Who are the candidates for the first Blockchain IPO

 

  • The Bitmain bad news story

 

  • When Part 1: understanding the IPO Process

 

  • When Part 2: Macro market analysis

 

  • Legacy IPO vs Blockchain STO

 

  • Being No 2 maybe better but the macro window is small

Why this will signal a sustainable cryptocurrency bull market

  • The investment bankers advising the companies will time it for when they are confident that we are in a cryptocurrency bull market and they have all the data to guide this decision. So when we see a successful Blockchain IPO, we can be confident that we are in a cryptocurrency bull market.
  • The marketing of the IPO will push that bull market to new heights by bringing new investors to the table who see the IPO in mainstream media.

The first IPO by a Blockchain venture will tell us a lot more about the price direction of cryptocurrencies than all the Technical Analysis (TA) put together. The investment bankers will look at TA among many other signals before making their big timing & pricing bet.

When Part 1: understanding the 7 step IPO Process

To get a handle on when will the first Blockchain IPO will happen, we need to understand the 7 step IPO Process:

  1. Prepare. Make sure the company is ready to IPO. This takes place behind closed doors with strict confidentiality enforced; with so many people involved it is a bit of an open secret. Typically this is 6 months pre IPO and the IPO may never happen so this open secret is not worth much.
  2. Tell. A PR charm offensive. This is the tease, when we get familiar with the name in public. The IPO word will be used but the official position will be Deny (see Stage 4). A PR charm offensive can also be used to raise  a big private round, so there is not a confirmation of IPO process till we get to at least Stage 3.
  3. Hire Announcement. Typical CXO hire pre IPO is a CFO who has “been there and done that” ie gone through IPO and reporting as a public company.
  4. Deny IPO. It is customary at this stage for CEO and other spokespeople to deny that there is any IPO. This is because an IPO process can be stopped at any stage prior to 6, so this prevents brand damage from a “failed IPO”.
  5. File with regulator. The filing with regulator  is called an S-1 if filing is with SEC in USA .This has information about the company but no price for the shares or date for the IPO.
  6. Price & Date.This starts the the roadshow ending in the IPO about 2 weeks later.
  7. Post LockUp Exit. This is when VCs and other Insiders can sell. It is is the real IPO as far as they are concerned. Step 6 is more of a marketing event than a financial event.

Any of these 4 things can change this planned process:

Acquisition. Before or after all of these 7 stages, an acquirer can come in. For example, Facebook could acquire Coinbase before or after they IPO.

Mega private round. This is like an Acquisition, because early investors and founders can at least partially exit.

Market tanks. The investment bankers can “pull an IPO” if a crashing market means they cannot get the target price.

Execution snafu. The company can do something that significantly reduces the value of the business or simply not meet targets or suffer some kind of attack. For example, a major loss from a scam will derail any of these Blockchain IPOs.

The Bitmain bad news story

Investment Bankers will be trying hard to overcome the Bitmain  bad news story in 3 ways:

  • Timing. Bitmain filed deep in the Crypto Bear market in September 2018 and “pulled it” after the 6 month expiry (during which they had to IPO or cancel) at end March 2019.
  • Business model. As a Miner, Bitmain gets paid in cryptocurrencies. When the trailing financials are from a bear market, they look bad.
  • Less controversial. Bitmain got too publicly embroiled in the Bitcoin Civil War, meaning that many influential crypto investors have a “over my dead body” attitude to buying Bitmain shares.

Investment Bankers don’t want investors looking at Bitmain as a comparable.

Who are the candidates for the first Blockchain IPO

All of these have the scale to do an IPO and have made some noises in that direction. To avoid any implied ranking, these are in alphabetical order:

Binance

Here is the IPO noise about Binance

Coinbase

Here is the IPO noise about Coinbase 

Daily Fintech earlier coverage about Coinbase IPO

Silvergate Bank

Here is the IPO noise about Silvergate 

Daily Fintech earlier coverage about Silvergate IPO

TZERO

Could be by a) Medici Ventures which owns TZero and some other Blockchain assets b) via Overstock (which owns TZero) selling their legacy e-commerce business leaving just Medici and TZero or c) via a spinoff of Medici or  TZero from Overstock

Here is the IPO noise about Tzero. 

Daily Fintech earlier coverage on TZero.

When Part 2: Macro market analysis

A Blockchain IPO needs a bull market in both Legacy Finance and in Cryptocurrencies. During 2018 we had a bull market in Legacy Finance and  a bear market in Cryptocurrencies. During 2019 we might have a bull market in both but the window may be tight and a lot of ventures crowding to get through that window (pity those poor Investment Bankers).

If we don’t get this window when both markets are healthy, the big Blockchain ventures lining up to IPO are likely to accept either an acquisition offer or a big private round (aka “private IPO”).

Legacy IPO vs Blockchain STO

When one big use case for Blockchain is Security Tokens that will disrupt Wall Street, it seems odd  to use classic Wall Street firms to manage a classic Legacy Finance process.

TZERO will be the most conflicted about this as they are most vocal about disrupting Wall Street, but all the ventures have this issue. We may see one of two variants:

  • A Security Token Offering (STO) using top tier IPO Investment Bankers and best practices from Legacy IPO.

 

 

Being No 2 maybe better but risky

The race to be first is driven by a) a short window when both markets are in bull market b) the consumer marketing impact of an IPO. An IPO is less about raising capital than getting mindshare of millions of potential customers. In some markets it pays to be second to IPO not first. The short window may mean such caution is thrown to the wind.

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

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

Subscribe by email to join 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).