This Week in Fintech ending 3rd July 2020

https://dailyfintech.com/2020/07/03/this-week-in-fintech-ending-3rd-july-2020/

this week in Fintech V3 with HT.001

This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

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

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) @iliashatzis wrote Wirecard’s $2 billion disappearing act

On January 7th, 1918 Harry Houdini performed his “Vanishing Elephant” illusion where he was able to make a 5 ton elephant disappear before the eyes of a packed theatre in New York. But what Wirecard to pull off, even Houdini couldn’t have managed. Wirecard is a payment processor. Their mantra was simple, to build a cashless society that did not use notes or coins any more. When you go online to buy something you would give them your credit card details. They process the information, collect the money for the purchase and make sure merchant gets paid. To be honest, this is a pretty simple business and lots of companies are trying to do it. Wirecard’s promise to its investors was that they developed some of the best technology that allowed them to grow faster and make more money than their competitors. Wirecard offered their payment processing services around the world, in the countries where it didn’t have its own licenses, it would use these third parties. The money from these third parties, instead flowing into Wirecard’s account, it would sit in special escrow accounts in the Philippines. At least that’s what it told its auditors. At the end of last year Wirecard claimed it had 1.9 billion euros in cash sitting in these accounts. When EY checked with two banks in the Philippines asking about Wirecard’s account balance, the banks had no clue what they were talking about. 

Editor note: Ilias examines the implications of the Wirecard bankruptcy on the crypto debit card industry. 

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote The missing WHY of Robinhood

I had not planned to write two posts on two high growth, high valuation Fintechs in an atmosphere that has turned sour because of the demise of Wirecard and its potential domino effect. And of course, I am unhappy that such business practices have been adopted from Fintechs and especially publicly traded ones. Wirecard was part of the DAX index and was also included in several large ESG ETFs because of this[1].

Last week I wrote about my disappointment with certain business practices of the digital bank Revolut. Today I will focus on Robinhood and will make every effort not to discuss the very emotional suicide incident triggered from a very common issue with forward and option trading (i.e. position netting is delayed).

Editor note: Efi looks at another Fintech that does NOT have a positive impact on our troubled world. An addictive casino game is hardly the way to improve financial health for those with few investable assets. 

Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Tuesday 30th June

This weekly snapshot is the news that matters in the Stablecoin market. Alan looks at Central Bankers turning positive on CBDCs, as a way to combat Libra.

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote New Business Banking Startup Zeller Set For Australian Launch

Business banking hasn’t had a lot of competition in Australia.

That is set to change, with news a former Square, Visa and NAB executive is set to launch a new offering for Australian SMEs, Zeller.

The business will reportedly help SMEs streamline business bank account opening, payments and cash flow management, however it will not pursue its own banking licence in the foreseeable future, taking a leaf out of local consumer neobanking startup Up.

Editor note: The Chinese word for “crisis” is frequently invoked in Western motivational speaking as being “danger-plus-opportunity”. That describes business banking today. We wish Zeller a lot of success.

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote AI- hot water for insurance incumbents, or a relaxing spa?

The parable of the frog in the boiling water is well known- you know, if you put a frog into boiling water it will immediately jump out, but if you put the frog into tepid water and gradually increase the temperature of the water it will slowly boil to death.  It’s not true but it is a clever lede into the artificial intelligence evolution within insurance.  Are there insurance ‘frogs’ in danger of tepid water turning hot, and are there frogs suffering from FOHW (fear of hot water?) 

Editor note: Pat analyses an oft unspoken worry by incumbents – that AI will disrupt them more than enable them.

Thursday Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL: scrapping quarterlies, explaining AI and low latency reporting

Editor note: This weekly snapshot is the news that matters in the XBRL market. This week we note two news stories showing how XBRL could lead to the old print hangover of quarterly reporting going the way of the dinosaur

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote: Alt Lending: Asset Values Heading South

Editor note: This weekly snapshot is the news that matters in the Alt Lending market. This is Howard’s second post as News Curator, in which he focusses on how Alt Lending Fintech is being tested by the economic cycle.

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https://dailyfintech.com/2020/07/03/this-week-in-fintech-ending-3rd-july-2020/

Alt Lending: Asset Values Heading South

https://dailyfintech.com/2020/07/03/asset-values-heading-south/

Alt Lending Image.001On Friday 27th June the retail property site Intu went into administration  and Doorstep lender NSF issued a warning that it would need an injection of funds from its shareholders to continue as a  going concern. On Saturday 28th.  Sunny Loans one of the biggest payday lenders in the UK said it was on the brink of administration. Not bad for one weekend. At the same time the ex governor of the Bank of England was giving his, slightly disturbing, longer term view about the state of Western economies. All of these stories have at least one common thread running between them which is the rapid deterioration of asset values and credit risk right across the board. Under the circumstances I decided to focus this week’s stories on the deteriorating financial situation.

Here is our pick of the 3 most important Alt Lending news stories during the week:

1. Covid debt timebomb could trigger new financial crisis, warns Mervyn King

“The world is facing a coronavirus debt timebomb as countries borrow trillions of pounds to fight the pandemic, former Bank of England Governor Mervyn King has warned.”

Why this matters : –  This was economist Liam Halligan interviewing ex Bank of England CEO Mervyn King. As this weeks stories are all about the rapid decline in asset quality Mr. King’s views really ought to be listened to.  While he concentrates on the integrity of the banking sector he sees the risk of multiple defaults by big business and even sovereign borrowers as a real risk. What goes for the banking sector is even more pertinent to the Alt lending field. While he takes the view that the UK and the US banking sectors are currently reasonably robust he has serious concerns about the Eurozone which is now “utterly dependent on the ECB” . He also thinks that there is no democratic support for fiscal union across Europe. Hence the strength of the glue holding the Euro together is going to be tested. If the Euro broke up of course then we would definitely be in uncharted waters and all bets would be off. As far as Fintech lending platforms are concerned  these are interesting times. Most of the lenders have appeared since the funding crises following the US subprime problems. They have therefore not experienced the full cycle. They are about to find out that getting money back is a lot more difficult than dolling it out.

2. Shopping centre giant Intu on brink of administration

“The owner of some of the UK’s biggest shopping centres, Intu, has warned that it is likely to call in administrators.

The firm, which owns the Trafford Centre, the Lakeside complex, and Braehead, said it had not reached an agreement in financial restructuring talks with its lenders.”

Why this matters:  Intu is a great example of how problems in the retail sector are manifesting themselves in the financial arena. Intu owns some 17 major retailing hubs around the UK including Lakeside in Essex and the Trafford Centre in Manchester.   Traditional retail was already suffering largely from the impact of online sales and then along came COVID 19 and the shutdown. Analysts think that rentals received by Intu from its clients have received just 18% of rentals from its tenants from the last quarter.  Discussions with creditors broke down over a principal repayment holiday Intu built its portfolio largely on debt and there are some £ 4.7 million worth of listed bonds outstanding will continue to operate independently. Some of the stronger performers in the portfolio will be sold but government rules on evictions in the pandemic will leave any purchaser with little wriggle room going forward. Moody’s cited the fact that COVID 19 had altered the whole of the European Retail sector and made it far more challenging. This is not just affecting the giants of the business like Intu but will filter down to any property company with retail assets. A new price discovery cycle is going to begin and some lenders and investors look likely to get their fingers burned.

3. Covid pressure pushes Sunny Loans to brink of administration

One of the UK’s biggest payday lenders is on the brink of administration as a regulatory clampdown continues to shake up the sector.

Elevate Credit International – which trades as Sunny Loans – filed notice of intent to appoint administrators last week.

Why this matters: Low level financial service providers are once more caught in the crosshairs of COVID 19 and punitive regulation. Sunny Loans, the business name of Texas based company Elevate Credit international is one of the UK’s biggest payday lenders controlling one fifth of the market. The loans are small and made to individuals to tide them over until payday comes. This is a big market and two of its competitors have recently failed.  Unsurprisingly a whole lot of people who do not work for the government or who are not entitled for one reason or another to government assistance are feeling the pinch and do not have the money to make repayments. Nevertheless these companies do provide a valuable service to a deprived sector of the population. The alternatives are loan sharks and that is a really unacceptable face of capitalism.

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Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. 

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

https://dailyfintech.com/2020/07/03/asset-values-heading-south/

XBRL: scrapping quarterlies, explaining AI and low latency reporting

https://dailyfintech.com/2020/07/02/xbrl-scrapping-quarterlies-explaining-ai-and-low-latency-reporting/

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

1 FDIC considers scrapping quarterly bank reports

The Federal Deposit Insurance Corp. is moving to boost the way it monitors for risks at thousands of U.S. banks, potentially scrapping quarterly reports that have been a fixture of oversight for more than 150 years yet often contain stale data.

The FDIC has been one of the cheerleaders and case studies for the efficiency increasing impact of XBRL based reporting forever. Therefore it will be fascinating to observe this competition and its outcome.

2 XBRL data feeds explainable AI models

Amongst several fascinating presentations at the Eurofiling Innovation Day this week was an interesting demonstration on how XBRL reports can be used as the basis of explainable AI for bankruptcy prediction.

The black box nature of many AI models is one biggest issues of applying AI in regulated environments, where causal linkages are the bedrock of litigation etc. Making them explainable would remove a major headache for lots of use cases.

3 Low latency earnings press release data

Standardized financials from Earnings Press Release and 8-Ks are now available via the Calcbench API minutes after published.  Calcbench is leveraging our expertise in XBRL to get many of the numbers from the Income Statement, Balance Sheet and Statement of Cash Flows from the earnings press release or 8-K.  

The time lag between the publication of earnings information and its availability in the XBRL format continues to be a roadblock for the wholesale adoption of XBRL by financial markets until regulators require immediate publication in the XBRL format in real time. The Calcbench API is a welcome stop gap measure. 

 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

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

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

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

https://dailyfintech.com/2020/07/02/xbrl-scrapping-quarterlies-explaining-ai-and-low-latency-reporting/

AI- hot water for insurance incumbents, or a relaxing spa?

https://dailyfintech.com/2020/07/02/ai-hot-water-for-insurance-incumbents-or-a-relaxing-spa/

Frog-in-boiling-water

The parable of the frog in the boiling water is well known- you know, if you put a frog into boiling water it will immediately jump out, but if you put the frog into tepid water and gradually increase the temperature of the water it will slowly boil to death.  It’s not true but it is a clever lede into the artificial intelligence evolution within insurance.  Are there insurance ‘frogs’ in danger of tepid water turning hot, and are there frogs suffering from FOHW (fear of hot water?)

image source

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

The frog and boiling water example is intuitive- stark change is noticed, gradual change not so much.  It’s like Ernest Hemmingway’s quotation in “The Sun Also Rises”- “How did you go bankrupt?  Gradually, and then suddenly!”  In each of the examples the message is similar- adverse change is not always abrupt, but failure to notice or react to changing conditions can lead to a worst-case scenario.  As such with insurance innovation.

A recent interview in The Telegraph by Michael Dwyer of Peter Cullum, non-executive Director of Global Risk Partners (and certainly one with a CV that qualifies him as a knowing authority), provided this view:

“Insurance is one business that is all about data. It’s about numbers. It’s about the algorithms. Quite frankly, in 10 years’ time, I predict that 70pc or 80pc of all underwriters will be redundant because it will be machine driven.

“We don’t need smart people to make what I’d regard as judgmental decisions because the data will make the decision for you.”

A clever insurance innovation colleague, Craig Polley, recently posed Peter’s insurance scenario for discussion and the topic generated lively debate- will underwriting become machine driven, or is there an overarching need for human intuition?  I’m not brave enough to serve as arbiter of the discussion, but the chord Craig’s question struck leads to the broader point- is the insurance industry sitting in that tepid water now, and are the flames of AI potentially leading to par boiling?

I offered a thought recently to an AI advocate looking for some insight into how the concept is embraced by insurance organizations.  In considering the fundamentals of insurance, I recounted that insurance as a product thrives best in environments where risk can be understood, predicted, and priced across populations with widely varied individual risk exposures as best determined by risk experience within the population or application of risk indicators.  Blah, blah, blah. Insurance is a long-standing principle of sharing of the ultimate cost of risk where no one participant is unduly at a disadvantage, and no one party is at a financial advantage- it is a balance of cost and probability.

Underwriting has been built on a model of proxy information, on the law of large numbers, of historical performance, of significant populations and statistical sampling.  There is not much new in that description, but what if the dynamic is changed, to an environment where the understanding of risk factors is not retrospective, but prospective?

Take commercial motor insurance for example.  Reasonably expensive, plenty of human involvement in underwriting, high maximum loss outcomes for occurrences.  Internal data are the primary source of rating the book of business.  There are, however,  new approaches being made in the industry that supplant traditional internal or proxy data with robust analysis of external data.  Luminant Analytics is an example of a firm that leverages AI in providing not only provide predictive models for motor line loss frequency and severity trends, but also analytics that help companies expanding into new markets, where historical loss data is unavailable.  Traditional underwriting has remained a solid approach, but is it now akin to turning the heat up on the industry frog?

The COVID-19 environment has by default prompted a dramatic increase in virtual claim handling techniques, changing what was not too long ago verboten- waiver of inspection on higher value claims, or acceptance of third party estimates in lieu of measure by the inch adjuster work.  Yes, there will be severity hangovers and spikes in supplements, but carriers will find expediency trumps detail- as long as the customer is accepting of the change in methods.  If we consider the recent announcement by US P&C carrier Allstate of significant staff layoffs as an indicator of the inroads of virtual efforts then there seemingly is hope for that figurative frog.

Elsewhere it was announced that the All England Club has not had its Wimbledon event cancellation cover renewed for 2021 (please recall that the Club was prescient in having cancellation cover in force that included pandemic benefits).  The prior policy’s underwriters are apparently reluctant to shell out another potential $140 million with a recurrence of a pandemic, but are there other approaches to pandemic cover?  The consortium of underwriting firms devised the cover seventeen years ago; can the cover for a marquee event benefit from AI methodology that simply didn’t exist in 2003?  It’s apparent the ask for cover for the 2021 event attracted knowledgeable frogs that knew to jump out of hot water, but what if the exposure burner is turned down through better understanding of the breadth of data affecting the risk, that there is involvement of capital markets in diversifying the risk perhaps across many unique events’ outcomes and alternative risk financing, and leveraging of underwriting tools that are supported by AI and machine learning?  Will it be found in due time that the written rule that pandemics cannot be underwritten as a peril will have less validity because well placed application of data analysis has wrangled the risk exposure to a reasonable bet by an ILS fund?

There are more examples of AI’s promise but let us not forget that AI is not the magic solution to all insurance tasks.  Companies that invest in AI without a fitting use case simply are moving their frog to a different but jest as threatening a pot.  Companies that invest in innovation that cannot bridge their legacy system to meaningful outcomes because there is no API functionality are turning the heat up themselves.  Large scale innovation options that are coming to a twenty-year anniversary (think post Y2K) may have compounding legacy issues- old legacy and new legacy.

The insurance industry needs to consider not just individual instances of the gradual heat of change being applied.

What prevents the capital markets from applying AI methods (through design or purchase) in predicting or betting on risk outcomes?  The more comprehensive and accurate risk prediction methods become the more direct the path between customer and risk financing partner also becomes.  Insurance frogs need not fear the heat if there are fewer pots to work from, but no pots, no business.

The risk sharing/risk financing industry has evolved through application of available technology and tools, what’s to say AI does not become a double-edged sword for the insurance industry- a clever tool in the hands of insurers, or a clever tool in the hands of alternative financing that serves to cut away some of the insurers’ business?  If asked, Peter Cullum might opine that it’s not just underwriting that AI will affect, but any other aspect of insurance that AI can effectively influence.  Frogs beware.

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

https://dailyfintech.com/2020/07/02/ai-hot-water-for-insurance-incumbents-or-a-relaxing-spa/

New Business Banking Startup Zeller Set For Australian Launch

https://dailyfintech.com/2020/07/01/new-business-banking-startup-zeller-set-for-australian-launch/

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

Business banking hasn’t had a lot of competition in Australia.

That is set to change, with news a former Square, Visa and NAB executive is set to launch a new offering for Australian SMEs, Zeller.

The business will reportedly help SMEs streamline business bank account opening, payments and cash flow management, however it will not pursue its own banking licence in the foreseeable future, taking a leaf out of local consumer neobanking startup Up.

Zeller is wading into the business banking market just as a seismic shift in payments behaviour is taking place – the move to a germ-free, cashless society. No doubt it hopes to capitalise on the new challenges this will bring merchants who have traditionally been slow to ditch hard currency.

The news comes as Australia’s largest business bank, National Australia Bank, ramps up efforts to bridge its own technology gaps, hiring Canadian heavyweight Andrew Irvine to run its business division. Ironically, for Zeller, Irvine has been touted as having helped develop a platform specifically aimed at helping his former employer, the Bank of Montreal, better understand their customers cashflow.

The Zeller announcement will have NAB on alert. It has seen a large outflow of senior executives to start up business bank Judo, one of the most notable new banks competing aggressively in the space. Keeping talent in the building to deliver on its technology strategy will be key.

All that aside, the road ahead won’t be easy for startups or existing players targeting businesses as customers. While Australia has mainly avoided mass COVID driven lockdowns, new flare ups in various states have forced multiple suburbs back into lockdown, border to re-close and many businesses, who had only just opened their doors, have found their doors forced close again, or lumped with severe trading restrictions. In addition, Australians are slowly tightening their wallets, and there is the chill of recession in the air.

Whatever the case – margins are under pressure across the board, and technology is a strategy everyone should be banking on.

New readers can see 3 free articles before getting the Daily Fintech paywall. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2020/07/01/new-business-banking-startup-zeller-set-for-australian-launch/

Stablecoin News for the week ending Tuesday 30th June

https://dailyfintech.com/2020/06/30/stablecoin-news-for-the-week-ending-tuesday-30th-june/

Stablecoins.001

Here is our pick of the 3 most important Stablecoin news stories during the week.

According to the Central Bankers Bank, the Bank of International Settlements (BIS), this week, CB speeches on Central Bank Digital Currencies (CBDCs) have turned net positive in 2020, either in their stance or because a pilot is mentioned.

But it had nothing to do with Facebook’s Libra announcement.  Yeah, sure!

Net support for retail CBDCs (or centralised, where people hold money directly with the CB) remains negative but its positive count is now similar to that of wholesale CBDCs (or decentralised).   There are very few negative takes on wholesale CBDCs.

CBDC SpeechesNo it’s not Facebook, Instead, the BIS, in a Chapter on digital payments of its annual economic report published Wednesday, said central bankers have come around to CBDCs because the technology presents an opportunity for them to shape the future of payments.

This article from Cointelegraph discusses the BIS paper and some of its implications including the change of heart.  Bank for International Settlements Calls CBDCs a Potential ‘Sea Change’

Also this week, the world’s oldest Central Bank, Sweden’s Riksbank weighed in with a lengthy 99 page report on the pro’s and con’s of the various designs of CDBC.  It looks at centralised, decentralised and a synthetic hybrid, which it comes down in favour of.  World’s Oldest Central Bank Reviews Possible Digital Currency With Mixed Results

Riksbank

The Riksbank report also has an interesting analysis of private money versus public money and suggests that public money, besides providing a regulatory framework for private money also provides competition to private money so they are not tempted to over issue!  Bitcoin’s design with a total issue restricted to 21m is perhaps good money after all, whilst certainly many ICO’s are obviously bad.  But what about the current issuances from the largest CB’s, the Fed and the ECB?  

Finally, we have a discussion about how the Pandemic is hastening Central Banks efforts as they realise the limitations of the current system.  Coronavirus is hastening central banks’ efforts on digital currency plans to deliver faster pandemic stimulus

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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

https://dailyfintech.com/2020/06/30/stablecoin-news-for-the-week-ending-tuesday-30th-june/

The missing WHY of Robinhood

https://dailyfintech.com/2020/06/30/the-missing-why-of-robinhood/

Supermode_Tell_Me_Why_single_cover

Once you finish reading this article, I suggest listening to the Supermode song Tell me why

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

I had not planned to write two posts on two high growth, two valuation Fintechs in an atmosphere that has turned sour because of the demise of Wirecard and its potential domino effect. And of course, I am unhappy that such business practices have been adopted from Fintechs and especially publicly traded ones. Wirecard was part of the DAX index and was also included in several large ESG ETFs because of this[1].

Last week I wrote about my disappointment with certain business practices of the digital bank Revolut. Today I will focus on Robinhood and will make every effort not to discuss the very emotional suicide incident triggered from a very common issue with forward and option trading (i.e. position netting is delayed).

There is clear evidence that retail trading overall has been on the rise since 2019 and spike during Q1 2020. This is due to so much cash sitting around (M2 in the US is up 23% and we have to believe that some of it found its way into the stock market) and of course to what I have been calling the `Robinhood effect`. In plain words, the extreme commoditization of stock trading.

Scott Galloway is a clincal professor of marketing at NYU Stern university and a serial entrepreneur and wrote last week a great article Robinhood Has Gamified Online Trading Into an Addiction Tech’s obsession with addiction will hurt us all. According to his estimates of the online trading activity rise (mostly based on the rise of account openings not the size of the trades or volume) it is clear that Robinhood is leading this trend. The increase for Robinhood is x3 times, Schwab is x1.6 times, TD Ameritrade is x2.5 times, and Etrade is x2.7 times.

brokerage aaccounts

I have not found any figures that support the narrative floating around that retail trading has had a significant or even leading contribution to the stunning US stock market rally since its bottom in mid-March.

The figures that we can report is that the order flow business was very strong in Q1 2020 and Robinhood`s revenues from selling order flow is leading the pack.

Alphacution was the first to report Robinhood`s hidden revenue stream last year. I wrote about this in October 2019 in `What has triggered the explosion of payments for order flow? Not Fidelity`.

Now, starting 2020 there has been a new disclosure requirement around order flow business practices. As a result, we have concrete figures in hand from the entire industry, incumbents, and fintechs.

Frank Chaparro reported in mid June `New filing shows Robinhood brought in close to $100 million by offloading order flow in the first quarter`. So, Q1 revenues were $100million for Robinhood and Alphacution estimated $69miilion for the entire year of 2018.

I have two problems with these increased figures. One is a lack of transparency in terms of the Robinhood`s business proposition and monetization strategy. The narrative that has been left floating for years, is that Robinhood makes money from margin accounts and interest on cash. No Robinhood manager contradicted that or presented proudly their growing order flow business. And of course, since everybody else does it (except Fidelity) why not Robinhood. And this is where the irony comes in. How is Robinhood different than incumbents?

The second problem I have is that the details of the order flow disclosures (see here) show clearly that most of these revenues come from option trades rather than plain vanilla stock order. Needless to say that option trading requires more education and sophistication and is more risky than plain vanilla stock trading. And again all this didn’t matter, until it did.

In addition, back in December 2019 when Robinhood got fined by FINRA for violation of best execution practices, it didn’t matter. The question is when will it matter?

I rest my case, as I have always had a big question mark next to the value proposition of Robinhood. Evidently, it is around democratization of retail trading. But I have always struggled to come up with a solid argument on `Why` is this kind needed. I have yet to answer it. I do understand the `Why` for fractional shares, I do understand micro-savings into investing, crowd investing, social trading etc. and other propositions that over time develop better personal financial habits around investing.

I also understand various DIY offerings but this Instagram like tool does not address any core financial need. We need to manage budgets, invest wisely, save, plan retirement. What big need is Robinhood and its future roadmap solving?

[1] Failed Wirecard held by ethical ETFs

New readers can see 3 free articles before getting the Daily Fintech paywall. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2020/06/30/the-missing-why-of-robinhood/

Wirecard’s $2 billion disappearing act

https://dailyfintech.com/2020/06/29/the-2-billion-disappearing-act/

how-to-disappear

On January 7th, 1918 Harry Houdini performed his “Vanishing Elephant” illusion where he was able to make a 5 ton elephant disappear before the eyes of a packed theatre in New York. But what Wirecard to pull off, even Houdini couldn’t have managed. Wirecard is a payment processor. Their mantra was simple, to build a cashless society that did not use notes or coins any more. When you go online to buy something you would give them your credit card details. They process the information, collect the money for the purchase and make sure merchant gets paid. To be honest, this is a pretty simple business and lots of companies are trying to do it. Wirecard’s promise to its investors was that they developed some of the best technology that allowed them to grow faster and make more money than their competitors. Wirecard offered their payment processing services around the world, in the countries where it didn’t have its own licenses, it would use these third parties. The money from these third parties, instead flowing into Wirecard’s account, it would sit in special escrow accounts in the Philippines. At least that’s what it told its auditors. At the end of last year Wirecard claimed it had 1.9 billion euros in cash sitting in these accounts. When EY checked with two banks in the Philippines asking about Wirecard’s account balance, the banks had no clue what they were talking about. 

Ilias Louis Hatzis is the Founder and CEO at Mercato Blockchain AG.

Established in 1999, Wirecard was a pioneer in digital payment processing. Valued at around €24 billion and part of Germany’s prestigious DAX Index, it surprised and disappointed everyone when its auditors announced on June 18, that they found a black hole in the company’s books. More than two billion worth of cash, reported in the company’s balance sheet, had disappeared into thin air, or to put it more accurately , was never there to begin with.

Wirecard’s admission that €1.9 billion of cash was missing was the catalyst for the company’s demise. Founder and former chief executive Markus Braun was arrested on Monday on suspicion of false accounting and market manipulation, before being released on bail for $5 million.

In the summer of 2018, Wirecard shares reached €191 and traded as high as €104 last week. On Thursday the stock price fell to €3.

The German operation Wirecard AG has applied for insolvency proceedings in a Munich court, due to “impending insolvency and over-indebtedness.” It has also issued a statement about the company’s ability to continue to operate, after it was unable to reach a deal with lenders for loans that are due on June 30 and July 1, respectively for €800 million ($896 million) and €500 million ($560 million).

Wirecard’s business relied on licenses that allow it to connect customers with the international payments networks, by Visa and Mastercard. Wirecard Bank was licensed by both Visa and Mastercard, enabling it to both issue credit cards and handle money on behalf of the merchants.

So why is Wirecard important for crypto?

Crypto users want to be able to use crypto like money, turning their crypto into actual money, without waiting days to get the cash. Crypto cards leverage the existing Visa and Mastercard infrastructure that is widely used across the world, enabling holders to pay in crypto for any product or service that can be purchased via a cashless payment, either in-store or online. Several crypto companies have issued crypto-backed debit cards, that tap into the user’s crypto balance.

Enter Wirecard, that operates crypto Visa debit cards for Crypto.com and TenX. Following the Wirecard’s insolvency filing on Thursday, cryptocurrency debit cards were frozen for both Crypto.com and TenX. On Friday the situation got even worse, when the FCA ordered Wirecard’s UK entity to suspend access to accounts, directly impacting several companies and their customers, like Curve, Pockit, and ANNA Money.

Those familiar with the space may remember what happened a couple of years back, with WaveCrest, a Gibraltar-based fintech. WaveCrest worked with several crypto companies providing prepaid crypto cards with access to the Visa and Mastercard networks. In January 2018, WaveCrest’s relationship with Visa abruptly ended because it did not comply with Visa’s operating rules, causing problems to companies like TenX, CryptoPay and Bitwala.

The whole situation with WaveCrest left a void in the market and now we are seeing the same void again, because of the problems Wirecard. As cards issued by Crypto.com and others are unusable, many of these companies will be looking other options to continue offering customers their services.

While crypto debit cards hold enormous opportunity to make crypto useful, they also raise the question of how wallets and exchanges will be able to  satisfy anti-money laundering and “know-your-customer” regulations. The regulatory environment around crypto has been evolving, and some wallet providers and exchanges now operate with official blessing under specially-devised compliance rules. But most still exist in regulatory vacuums, and criminals who are technically sophisticated can operate wallets without any oversight at all. The question is whether a new company will step in to fill Wirecard’s shoes and how.

Image Source

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https://dailyfintech.com/2020/06/29/the-2-billion-disappearing-act/

This Week in Fintech ending 26 June 2020

https://dailyfintech.com/2020/06/26/this-week-in-fintech-ending-26-june-2020/

this week in Fintech V3 with HT.001

This weekly summary from our 8 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

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

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

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) @iliashatzis wrote What does the perfect wallet look like? Smarter!

In major media outlets, references to Bitcoin and other cryptocurrencies have become commonplace, yet crypto adoption still needs to overcome several hurdles. From exchange hacks and scams to building a clear case that makes a convincing argument about crypto’s value proposition for most people. But, the biggest hurdle is the simplicity of the user’s experience. On one end wallets need to empower people, giving them full control of their coins, and on the other managing private keys needs to be simple and seamless. For most people, managing your own private keys or mnemonic phrase is a difficult proposition. I am sure you’ve heard the phase “Not Your Keys, Not Your Bitcoin“. What this means is that if you store your crypto assets on an exchange or with any kind of third-party custodian, you have no guarantee of ownership. The reality is that most people today aren’t ready to be their own bank. If there is one thing you want to do with your money is that you want to keep it secure. Security is the first and most important principle for crypto to appeal to mainstream users. 

Editor note: A crypto hot wallet that is both secure and easy to use on a smartphone is technically feasible, but it is not easy to do well, because it needs some UI magic. Whoever cracks this one will do very well.

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Grown-up Fintechs have done very little in transforming banking culture

We live in a world that has increased its expectations from the corporate sector in terms of their social responsibility now and going forward. We monitor closer and expect much more from leaders in `large` companies. The items that have moved up to our top ten `social responsibility` items, now include

  • How management treats employees in these tough business conditions?
  • What actually matters as much or more than profit, to the business now that things got tough?
  • Who is innovative in a way that solves the current unusual circumstances?

The list, of course, is much longer, but in a nutshell, it is all about caring, ethics, values, and what matters. So, I cannot stop from asking the question `Have grown-up Fintechs lived up to the current circumstances and if not, what can we learn from these failures?`

Editor note: Efi points out that even if a venture scores on convenience for users, if it does not also serve the people who create the service then we cannot judge it a success.

Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Tuesday 23rd June

This weekly snapshot is the news that matters in the Stablecoin market.

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote  Banking-As-A-Service for Corporations The Next Wave

Just like you don’t need to be a qualified journalist to build a blogging empire, or train as a professional photographer to be become a high earning Instagram influencer, now you don’t need to be a bank to offer bank like services.

Moving swiftly into this new niche is Amazon – earlier this month the eCommerce giant announced it had partnered up with Marcus, the fintech offspring of Goldman Sachs. The Wall St giant will work with Amazon to underwrite digital credit lines for the platform’s sellers.

Editor note: Facebook has run its Libra tank onto the banker’s lawn. Now Amazon, with help from Goldman Sachs, is also doing this. Different focus, same nightmare for bankers.

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote Life insurance in the digital age, well, digital/analog age

There’s good news for the life insurance market and there’s the same news- the market potential is dramatic, the product mix is profitable, customers understand the basic product pretty well, there’s not much for a carrier to do once a policy is sold, benefits aren’t paid for years, and there are clever folks coming up with digital improvements to sales acquisition.  Why then is the product’s penetration level contracting in many markets?

Editor note: This post is required reading for anybody in the Life Insurance business, where there is a coverage gap worth $trillions for what could be a simple parametric product backed by data science. 

Thursday Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL: the power of algorithmic contracts, ESEF tools & sample report.

Editor note: This weekly snapshot is the news that matters in the XBRL market.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote:  Alt Lending:Mini Bond Sales, Infrastructure, Credit Card Lending

Editor note: This weekly snapshot is the news that matters in the Alt Lending market, the first post by our new News Curator, Howard Tolman.

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https://dailyfintech.com/2020/06/26/this-week-in-fintech-ending-26-june-2020/

Alt Lending:Mini Bond Sales, Infrastructure, Credit Card Lending

https://dailyfintech.com/2020/06/26/test/

Alt Lending Image.001

Here is our pick of the 3 most important Alt Lending news stories during the week

 1. Mini-Bonds Fiasco Shows FCA asleep at the Whee

“Protecting Consumers. Enhancing market integrity. Promoting competition” There’s no end to the heroic work of the Financial Conduct Authority. If only it had lived up to the hype. A better strapline might be ” Welcome to the home of rearview mirror regulation” 

Why it matters: When banks were actually in the lending business you knew who you were dealing with. The same cannot be said of some of the more shady members of the alt lending family. While it is largely tagged as a regulatory failure in that it took fully 15 months for the FCA to implement the ban it shows the futility of trying to regulate against potentially criminal activity. It also reminds us that arms length involvement with the Financial Conduct Authority or any other governmental quango that purports to make investing less risky is far short of a guarantee. There will always be Fast Eddies cold calling on the telephone offering astronomic yields and representing plausible sounding companies. London Capital & Finance (LCF) was such a company preying on vulnerable, mostly, pensioners to the tune of £ 237million. There have been a string of such cases that all have the same characteristics. This will not be the end of them. Caveat emptor applies no matter who is regulating. Chasing yield is not a strategy. Remember the Icelandic Banks?  

Call for action on shovel-ready projects worth £ 4.1bn. 

2. Infrastructure. An opportunity for Alt Lenders Post Covid 19

“At least £ 4.1bn worth of ” shovel-ready” infrastructure projects to help the economy recover from the Covid 19 crisis are in the pipeline awaiting the governments green light, according to new research 

Why it matters: As all economies attempt to reboot their economies the same word comes to the forefront. “ Infrastructure”. The British Government is getting ready to approve over £ 4 billion of  “shovel ready projects” to help the kick start the economy. The same thing is happening all over the developed world. The interesting thing this time is that most governments are short of readies and are relying on artificial stimulants already. A lot if not most of these projects have some form of government involvement which should give potential investors some kind of confidence that the whole thing is real and that the motivation can be trusted. So why not try and put these projects on a commercial basis, put a prospectus forward identifying and monitoring the necessary components, information requirements etc. If the identifiable commercial revenues do not justify the risk then some form of conditional and limited credit support might be available to lift the funding to investment grade. Leveraging government support in this way could potentially open up a lot more private money in infrastructure.

3   US Non Bank Lender UPGRADE closes $ 40 million round with the help of Santander

Upgrade, the US alternative lender, has raised a $40m Series D funding round from investors including Santander InnoVentures.

Why it matters: I noticed that a US credit card company had succeeded in closing a  large capital raise suggesting that its growth rate was very substantial during the current pandemic. I am not a fan of the way that credit cards work in practice. As interest rates have fallen to almost or below sub zero levels, retail lending rates look to me like they are rising. The FCA in the UK have issued a yellow card to overdraft  providers after the four largest lenders introduced what looked suspiciously like a cartel which more or less doubled their current charging level. This was totally unjustified but reduced the spread between overdraft and credit card rates considerably. If you can hike rates to cover admin, capital costs, bad debts and client acquisition you’ve got it made. FCA please take note.       

 

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Howard Tolman is a well-known banker, technologist and entrepreneur in London,

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives. 

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

 

https://dailyfintech.com/2020/06/26/test/

XBRL: the power of algorithmic contracts, ESEF tools & sample report

https://dailyfintech.com/2020/06/25/xbrl-2/

ESEF is still the topic du jour, but something educational first …

1 The power of algorithmic financial contracts

The ACTUS Financial Research Foundation has published an open source algorithmic standard for financial contracts. The ACTUS contracts are the key generic building blocks of finance because they define the cashflow-patterns of all major banking instruments, which are the starting point for all analytics about the contracts. This perspective makes it possible to go beyond conventional point-in-time valuations by projecting future cashflows in a flexible and highly consistent way to enable a whole range of important analyses.

The focus of this column is structured data with its use cases in finance. One important such use case is unified financial analysis, an application of which is discussed by Willi Brammertz, lead author of the  eponymous book. 

2 ESEF tools widely available

XBRL International has conducted a survey of XBRL Certified Software™ vendors that offer report creation solutions for ESEF. ESEF is the European Single Electronic Format, a new requirement for public companies in the EEA and UK. In the UK ESEF is part of the Disclosure Guidance and Transparency Rules sourcebook. All public issuers that report in accordance with IFRS in their consolidated annual accounts must report in Inline XBRL for reporting periods commencing on or after 1 January 2020. In practical terms this means that some 5500 companies will need to produce Inline XBRL formatted reports no later than April 2021.

With ESEF entering the realm of practice, good tools are essential as practitioners evaluate and implement their reporting channels. The XBRL Certified Software status is certainly a helpful criterion in that respect. 

3 ESEF sample report – “one small step for Europe”

Leading by example, this week the Global LEI Foundation (GLEIF) published its annual report in Inline XBRL format. But GLEIF went further than that. The report has also been published on the ESMA website as an example ESEF report. The report conforms to the requirements set out in the ESEF Regulation and the guidance in the ESEF Reporting Manual.

Leading by example is always the best way to demonstrate leadership, not just in technology. This sample report is interesting in that it integrates the standardised Legal Entity Identifier (LEI) as well as the issuing entity’s digital signature. 

 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

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

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

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

https://dailyfintech.com/2020/06/25/xbrl-2/

Life insurance in the digital age, well, digital/analog age

https://dailyfintech.com/2020/06/25/life-insurance-in-the-digital-age-well-digital-analog-age/

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There’s good news for the life insurance market and there’s the same news- the market potential is dramatic, the product mix is profitable, customers understand the basic product pretty well, there’s not much for a carrier to do once a policy is sold, benefits aren’t paid for years, and there are clever folks coming up with digital improvements to sales acquisition.  Why then is the product’s penetration level contracting in many markets?

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

It’s estimated that the coverage gap for life insurance in the US alone is more than $12 trillion, and with current economic factors the market needs to grow almost 3% per annum, or $340 billion each year.  It’s a huge opportunity for an industry whose assets represent an amount equal to 20% of global GDP (top 20 countries noted below, per theglobaleconomy.com):

chart life assets GDP

There are even greater numbers of potential policyholders representing the life insurance coverage gap in Africa, LatAm, India, south and southeast Asia, and China.  It’s a market for product that is clear in its basic purpose- protection of the livelihood of beneficiaries to the policy.  Choose a face value, pay the premium for a set term, and upon the death of the insured person the policy pays.  Sure, there are variants to the basic premise, e.g., group life where an employer supports the policy payments, whole life (investment option as a well as death value indemnity), annuities, and others.  But at its root life insurance is the ultimate parametric product- benefit payable upon confirmation of a trigger.

Why then is there a multi-trillion USD market value deficit across the globe, and can InsurTech innovation be a significant force in addressing the shortfall?

I asked two finance and insurance tenured smart persons, Jake Tamarkin of Everyday Life, and Geoff Tetrault of InsureLife that and other questions as we discussed their respective life insurance startups.

The two firms approach the challenge from differing perspectives- Everyday life being a digital entrée to life products for insureds, and being a ‘partner service’ that helps insureds in the evolution of life products needs as time progresses.  The core of the firm’s innovation?  Clever (and proprietary) algorithms that in a few moments with indicative information produce suggested cover breadth and depth for the insured.  Yes, that’s been done before, but Everyday Life does not follow the aggregator’s path, but a path that takes the customer to underwriting by an A rated carrier.  It’s still a sold, not bought approach in many respects since the customer acquisition model is primarily referral by financial institutions as service value addition, but it’s a departure from a cold call, sell what the company wants tactic.

InsureLife has found its path into a ‘pull’ transaction option, customers accessed via outreach triggered in part by life events and through omnichannel digital access to the platform.  Once reached a prospective customer prompts short video clips (20 seconds or so) that confirm/explain potential insurance products and lead the prospect to a salesperson who facilitates the transaction.  It’s not a commissioned shop- agents are on board to provide a path to what the customer expresses as a need (and not just life insurance), are paid for their time and a static amount for the transaction.  Customer acquisition costs are one fifth of a traditional call center or cold call, the firm represents products for many carriers, and the respective carriers own the customers policy and service after the policy is bound.  InsureLife, like Everyday Life, is appealing to the coming market that is accustomed to digitally native methods, one solving product features through digital tools, and the other solving distribution barriers through omnichannel digital methods.

As fine of strategic plans as the firms have, the problem of under-served customer base remains.  The fundamental customer perceptions of life insurance remain, including but not limited to:

  • It is too complex and takes too long to purchase
  • A medical exam is needed
  • The cost is too high
  • I won’t qualify
  • I don’t have time to meet with an agent, and I’ll be sold more than I need
  • I can wait until I am older
  • I have other things I need to spend my budget on

Without belaboring each point, the reader can understand that the biggest barrier to full capture of the market opportunities that are present in the life market is- customer education (and another point to be made later on).  The product simply doesn’t resonate like other financial products.

In the US participation in a company 401(K) program is at a higher rate than life insurance take up, in great part because the option is there.  Not much effort to join, and with employer contribution there’s a tangible growth to the fund. Often an employer provides group life benefits and few employees opt out.

Group life has existed for decades, but 401(K) only since the early 1980’s. Term life has existed for more than a century- why isn’t it a ubiquitous part of a family’s plans?  Will digital innovation change the thought process, or simply the distribution and administration of life products?

Both Mr. Tetrault and Mr. Tamarkin launched their firms based on a realization that insurance carriers were not making purchase of life products efficient or responsive to customers’ expressed needs.  Life products (including financial products like annuities) have been sold on a sell high to gain commission basis, or on a meet a quota basis.  It’s interesting in my discussion with Geoff Tetrault that his firm’s approach is a Ulysses Contract variant, as the sales reps ‘hands are tied’ from upselling to the carrier’s (and rep’s) benefit because commission is not part of the transaction.  It’s a less pure application than that spoken of by Dan Schreiber of Lemonade Insurance, but a variant none the less.  Action by the rep to help the customer acquire a benefit, but upon a more equal footing within the sales pitch.

Everyday Life needs to share its vision of life insurance needs changing over time with its distribution partners, and helping customers understand and leverage that concept- it’s an analog thing.  Jake Tamarkin knows his firm has a suitable digital tool but even with Everyday Life proving its customer acquisition costs dropping compared with the sector the challenge of scale remains to overcome.  A tie in with challenger bank Chime has potential in terms of being part of a nascent financial ecosystem.  As Chime’s customer base grows into millions of digital native customers with the exposure of life products as an expected part of financial life.

InsureLife recently was selected as the winner of a Solvathon contest sponsored by annuity firm and reinsurer Nassau Re, and with the other carriers beginning to populate the firm’s stable of insurers the digital strength of omnichannel sales response will be enabled to accommodate customers entering the market through apps, phones, tablets or computers.

The promise of innovation helping the life market grow, but the analog, educational, remove the barriers efforts must be joined in conjunction with clever technology.  As I often say, , and the other favorite, #innovatefromthecustomerbackwards also applies.  My thanks to Geoff Tetrault and Jake Tamarkin for their input and exuberance in sharing their messages.

Both founders have extensive finance and insurance backgrounds and exemplify the wealth of talent within the Insurtech community.  One must appreciate the enthusiasm and knowledge they bring to their firms and customers, yet at the same time there must be clear recognition that tech innovation in its best form facilitates analog service.  Service begets sales. Maybe $12 trillion worth.

This discussion has focused primarily on the US market; rest assured the vibrant life product carriers in other geographic markets will be a topic of future articles.  Different challenges but surely similar needs.

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

https://dailyfintech.com/2020/06/25/life-insurance-in-the-digital-age-well-digital-analog-age/

Banking-As-A-Service for Corporations The Next Wave

https://dailyfintech.com/2020/06/24/banking-as-a-service-for-corporations-the-next-wave/

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

Just like you don’t need to be a qualified journalist to build a blogging empire, or train as a professional photographer to be become a high earning Instagram influencer, now you don’t need to be a bank to offer bank like services.

Moving swiftly into this new niche is Amazon – earlier this month the eCommerce giant announced it had partnered up with Marcus, the fintech offspring of Goldman Sachs. The Wall St giant will work with Amazon to underwrite digital credit lines for the platform’s sellers.

Of course, Amazon is no stranger to the lending space, having already operated a small business lending program for a number of years. Partnering up with Goldman will no doubt provide it with additional funding and the underwriting expertise it needs to bolster, improve upon and expand its offering.

While Amazon is a disruptor in the true sense of the word, even it hasn’t found lending a complete walk in the park. In 2019 it was reported that the business was struggling to maintain growth in its loan book, reporting growth of only 2.6% in 2018, down from 4.7% in 2017.

The move by Amazon shows a willingness to not necessarily go it alone when it comes to financial services – as it has done for many other industries it’s taken on. It’s similar to the approach a number of other big tech players (Apple for example) who have also looked to partner rather than buy or build when launching financial services that augment their core offering.

Banks are truly becoming invisible and fintechs like Marcus are the enablers of this new world. We interact with a bank only to allow us to interact with the platforms and business’s we want to trade with. When we can do all of this with our trading partners directly, as many will with Amazon – why on earth will we want or need a bank in our lives? The answer is we won’t.

New readers can see 3 free articles before getting the Daily Fintech paywall. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2020/06/24/banking-as-a-service-for-corporations-the-next-wave/

Stablecoin News for the week ending Tuesday 23rd June

https://dailyfintech.com/2020/06/23/stablecoin-news-for-the-week-ending-tuesday-23rd-june/

Stablecoins.001

Here is our pick of the 3 most important Stablecoin news stories during the week

This week we saw Central Banks announcing new and more initiatives for Central Bank Digital Currencies (CBDC), we also saw them potentially working together and on a different use case to the one that is often reported and commented upon.  

Digital Money

This analysis by Bits on Blocks The Sweet Spot for Programmable Money – Bits on Blocks highlights that whilst often everyone is focussed on the consumer market a better spot to look would be the business sector both large and small or often referred to as B2B. 

That is the core thrust of the Central Bank of Thailand’s announcement this week. Bank of Thailand Launches Digital Currency Pilot Project   They have partnered with the largest cement and building material provider in Thailand, Siam Cement Group (SCG), and Thailand-based fintech firm Digital Ventures Company Limited (a fintech-facing venture capital wing of the Siam Commercial Bank that invested in Ripple in 2016) to pilot test their payment prototype system.

A similar theme is explored with the CBDC project from the Central Bank of China (PBoC) and the Governments Belt and Road initiative  Development of digital currency can help RMB go global: expert

The Government of Singapore has also realised that a better purpose for CBDC’s may be with Businesses and cross border payments and that their role should be to foster inter government cooperation, in this case with China so that local businesses can reap the benefits.   Singapore to Explore Central Bank Digital Currency With China

So rather than the more difficult political task of displacing cash, that brings with it all of the concerns about individual loss of freedom and privacy, a sweeter spot to focus with a quicker and more tangible return would be cross border payments for businesses who are busy creating jobs and satisfying consumer needs as importers and exporters.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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

https://dailyfintech.com/2020/06/23/stablecoin-news-for-the-week-ending-tuesday-23rd-june/

Grown-up Fintechs have done very little in transforming banking culture

https://dailyfintech.com/2020/06/23/grown-up-fintechs-have-done-very-little-in-transforming-banking-culture/

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

We live in a world that has increased its expectations from the corporate sector in terms of their social responsibility now and going forward. We monitor closer and expect much more from leaders in `large` companies. The items that have moved up to our top ten `social responsibility` items, now include

  • How management treats employees in these tough business conditions?
  • What actually matters as much or more than profit, to the business now that things got tough?
  • Who is innovative in a way that solves the current unusual circumstances?

The list, of course, is much longer, but in a nutshell, it is all about caring, ethics, values, and what matters. So, I cannot stop from asking the question `Have grown-up Fintechs lived up to the current circumstances and if not, what can we learn from these failures?`

I must admit that this is probably the first time I am writing a post from a pure negative point of view or better said from being disappointed. I will explain the reasons I am disappointed with two Fintech unicorns, and while I share my point of view, I invite you to consider how this can be mitigated going forward and also rethink whether this kind of innovation is what we need and what we asked for, or have we de-railed from the original intention. Fintech innovation was and is all about democratization, financial inclusion, customer centricity, disintermediation, ect.

Revolut is one of the top unicorns in the digital banking sector. I am a client (as an individual, not my business). I chose to add Revolut to the other dozen (not kidding) financial providers I have (some more active than others) because I travel in Europe which means already three currencies (CH my residency, Euro for all EU countries, GBP for London) and I often make payments in USD for various reasons. The user interface is superb. The seamlessness of exchanging one currency to another is yummy. Revolut has spoilt me in that respect and whenever I do an FX transaction with another financial entity, I feel I am back in the stone ages.

And now that I am spoilt and Revolut has grown up (5yrs old in July) I can also voice my disappointment. As Lauren Nizri, founder of the Paris Fintech Forum, said on his on stage interview of Nik Storonsky, CEO Revolut, at the Feb 2020 forum ` I don’t have a crystal ball to tell which is the next Revolut, and I surely didn’t know that Revolut would become the unicorn it became back when Revolut was at the Paris Fintech Forum 2016 somewhere in a secondary stage hidden`.

To date, Revolut has been generously funded with just over $900million, and let’s not forget that the $500million (Series D) was just closed in February 2020. What a timing, in retrospect! This tripled its valuation that was already in the unicorn club and reached $5.5 billion from $1.7 billion.

This mega funding is for Revoluts global expansion. The company`s decision to reduce staff is a business decision that was not well communicated at all. A high growth company with a mega-round recent funding, reduces staff only if its business expansion is being revisited and slowed down. My expectation of Revolut, is to hear directly from the digital native CEO a communication that is of the current era. David Brear and the 11FS team, did it the right way with this blog post and a live session and a very empathetic Twitter sharing from him and other members of the team (Leda Glyptis being one of the leading ones).

Town hall 17th June 2020: Business update from David • Blog • 11:FS 

The 11FS way of course is not the only way. On top of it, Revolut should have been much more emotionally intelligent regarding its staff and its public image. Back in 2019 already there were damaging reports about unpaid workers, a toxic workplace with unachievable targets, and high-staff turnover.

Revolut insiders reveal the human cost of a fintech unicorn’s wild rise via WIRED

There have been multiple media articles around the toxic workplace at Revolut. This is not a recent issue that was badly managed during the crisis, it actually is over one year old and there has been plenty of time to show actions to fix it.

My disappointment with Revolut is mainly a cultural one. A digital-only bank with over 1,000 employees now does not deserve a differentiation from incumbents as a lean organization. A digital-only bank whose working culture is more or less “Get Sh*t Done” and whose cost savings Human resources strategy is widely criticized, requires `getting their act together` and demonstrating how their share the value creation of the company with their workers and how they are innovating in delivering the digital-only experience.

Eight execs leave Revolut as virus fallout tests culture – Financial News  via @FinancialNews

Revolut staff claim they’ve been told to quit their jobs or be fired WIRED

It is not enough anymore to provide us (retail or business clients) with a slick interface, an efficient experience (faster and cheaper) when transacting.

Digital banking has to have many more points of differentiation from traditional banking.

It has to be also cultural and organizational.

If the innovation of a grown-up Fintech stops at the online experience level, then I must say that nowadays I expect more. I expect from a unicorn with a $5billion valuation, transparency, emotional intelligence in the way the organization is managed and a focus on original values. Much like we are shifting to consuming products that are bio or ethical grown, we need fintech companies that are raw models of how sustainable, resilient, and good businesses are run. Your products and services are better than the ones before, but as your technology is not the secret sauce, we want to be customers of a corporation that is better than the ones before.

Revolut needs additional emotional intelligence training, to explain to us all their decision to introduce a paying service for FX transactions above certain limits. I am perfectly fine with the introduction of new, additional services that are paying but I am not fine with the introduction of FX fees when the core narrative of Revolut was free FX. It is as if, God forbid, Robinhood introduces next week fees for stock trading orders above a certain size.

Revolut has a serious cultural problem that has not changed.

Revolut admits fabricating stats for Spotify spoof ad following FCA referral  via @thedrum

If we are apathetic to all this, then we only care about our own convenience and let’s stop talking about the Black sheep of Wall Street, the evil banking incumbents, financial inclusion and democratization. Let’s call it by its name – only CONVENIENCE matters.

Ask yourself if you care that a 5yr old well funded `innovative` brand:

– Is no different from the incumbents, when it comes to compliance and the army of employees needed

– Nurtures a toxic working environment for its employees and shows no empathy, in the name of growth

– Reduces freemium services to keep their VC investors calm

– Is not innovative by any stretch of the imagination, in the way it runs its organization

New readers can see 3 free articles before getting the Daily Fintech paywall. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

https://dailyfintech.com/2020/06/23/grown-up-fintechs-have-done-very-little-in-transforming-banking-culture/

What does the perfect wallet look like? Smarter!

https://dailyfintech.com/2020/06/22/what-does-the-perfect-wallet-look_like-smarter/

Screen Shot 2020-06-22 at 01.18.32

In major media outlets, references to Bitcoin and other cryptocurrencies have become commonplace, yet crypto adoption still needs to overcome several hurdles. From exchange hacks and scams to building a clear case that makes a convincing argument about crypto’s value proposition for most people. But, the biggest hurdle is the simplicity of the user’s experience. On one end wallets need to empower people, giving them full control of their coins, and on the other managing private keys needs to be simple and seamless. For most people, managing your own private keys or mnemonic phrase is a difficult proposition. I am sure you’ve heard the phase “Not Your Keys, Not Your Bitcoin“. What this means is that if you store your crypto assets on an exchange or with any kind of third-party custodian, you have no guarantee of ownership. The reality is that most people today aren’t ready to be their own bank. If there is one thing you want to do with your money is that you want to keep it secure. Security is the first and most important principle for crypto to appeal to mainstream users. 

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

Users face a dim reality. All the available options in the market are either too complicated or too insecure, because they force the user into a security model they cannot handle easily. Either they sacrifice security for convenience and usability, by keeping their crypto on exchanges, or they need to manage their own security, by protecting their private keys and securing the mnemonic phrase.

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If your private key or mnemonic (seed) phrase is lost or stolen, your funds are gone forever. There is nothing like the horror of realizing you’ve lost your private key or can’t find the paper with your seed phrase. Human error is an unfortunate reality and when it comes to crypto it happens a lot.

On the the other hand, for many it is common to buy and sell and hold cryptocurrencies on exchanges like Coinbase, Binance or BitStamp. Even though exchanges are convenient, history has proven that they’re a risky option. Most exchanges are rarely insured and when they are, the coverage is just partial.

In 2019 there were 12 major cryptocurrency exchange hacks, with over $292 million stolen. Cointelegraph as has a nice timeline with all the major hacks of the year.

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Then you have hardware wallets. Some are easy to use, but I think it’s fair to say that most regular people are going to have a hard time understanding how they work. And anyway, why would anyone need another device to store crypto when they can already do everything else from their smartphones.

The current state of wallets is certainly immature and for most people they are confusing. Bitcoin’s mass adoption is inevitable and it will become even more evident, when the next financial crisis hits. When that happens, people will gravitate to Bitcoin and will do everything from their crypto wallets. In 2012, around the time of the first halving, there were only 43,500 wallets. At the end of 2016, the total number of wallets were 10.98 million and this past May they reached 48.37 million. One million wallets were created 30 days before the recent halving on May 11th. Screen Shot 2020-06-22 at 02.12.50

For crypto to scale and achieve mainstream adoption, non-custodial wallets need to become “smarter” and streamline user experience without taxing security. They need to provide a consumer-friendly banking experience, while maintaining better security and ease of use.

  • Keyless signing and recovery: Deploy technologies like Threshold Signatures (TSS) that can sign transactions and recover funds without a private key or seed phrase. Moving away from paper backups to Multi-party computation (MPC) would a huge leap forward.
  • Freeze wallet: Enable functionality that lets users freeze their wallets, just like a credit or debit card in case of suspicious activity.
  • No addresses or QR codes: Just like a simple banking app, you connect to people you know to send them crypto using their name, instead of their address.

Wallets will serve as the gateway for all of our transactions and not just for storing or trading cryptocurrency. They will lets us manage and trade traditional financial assets, like a savings account, stocks, and bonds. But our digital wallets will also let us manage non-financial assets as well, like our passports, driver licenses, social security numbers, and voting registration.

Security and custody are paramount.

Those of us are familiar with writing down seed phrases and private keys and putting them in a secret location, understand that we need a lot more than a piece of paper, to make sure our money is safe. There are a lot of good wallets, but we don’t need another wallet to store hundreds of different cryptocurrencies. We need a non-custodial wallet that offers features familiar to traditional banking, and removes the complexity of buying and storing digital assets, while keeping them safe from hacks.

Image Source

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https://dailyfintech.com/2020/06/22/what-does-the-perfect-wallet-look_like-smarter/

This Week in Fintech ending 19 June 2020

https://dailyfintech.com/2020/06/19/this-week-in-fintech-ending-19-june-2020/

this week in Fintech V2.001

This weekly summary from our 7 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

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

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

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

Created in 1973, the Society for Worldwide Interbank Financial Telecommunication (Swift) developed a secure network to send and receive information about financial transactions. Today it’s used by more than 11,000 financial institutions in 212 different countries. More than $5 trillion go through Swift’s network every day. As you can expect, several projects and companies around the world are trying to unseat Swift. With cryptocurrencies and specifically stablecoins, Swift has faced some initial competition that will only get intense as they mature. A couple days ago, Bank Frick, a European bank, said buy-buy to Swift. The bank in Liechtenstein will now use the USDC stablecoin, to power cross-border transactions. Cryptocurrencies and peer-to-peer banking offer fast alternatives to the Swift network, and could help build a world currency unfettered by cross-border barriers.

Editor note: Ilias looks at bold move by Bank Frick to replace SWIFT with a Stablecoin. This is also a threat to XRP.

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote The revised pessimistic projection for Digital wealth AUM does not make sense

Consulting practices call for 5yr predictions on all sorts of topics. The so-called Robo Advisor subsector in investing has not escaped these studies.

Back in 2016, was when Vanguard was making its first leapfrogging attempts in a space that Betterment and Wealthfront had brought to market. Personal Capital was also shaping up the hybrid version of `digital investing`. Deloitte, CB insights, Aite Group and others were predicting assets under management by 2020 (which at the time, seemed far away for all of us).

Predictions ranged between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services by 2020 and $16 trillion by 2025.

Permit me to take the mean of the range predicted for 2020 (trillions of USD are being transferred from the government to the `people` anyway as we speak) and round it up to $3 trillion for 2020.

Editor note: This nuanced analysis is required reading for anybody serious about providing wealth management services. 

Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for week ending Tuesday 16 June 2020

Editor note: This weekly snapshot is the news that matters in the Stablecoin market.

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote Fintech Funding Flat In APAC

Venture funding in fintech unsurprisingly went quiet in the Asia-Pacific region during the first quarter of 2020. According to a report released by S&P Global Market Intelligence, funding was down by 58.5% compared to the prior quarter, coming in at $1.3 billion.

What happened in APAC in Q1 isn’t all that unexpected when looked at through a global lens. Across the world fintech funding dropped back to 2017 levels in the first quarter of the year, as investors shut up shop.

Editor note: If you want to know where in  Asia the Fintech funding went to in Q1, read this post.

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote Misconceptions regarding pandemic business interruption cover- contributing to preconceptions for future programs?

These may not be ideal times for the U.S. commercial insurance industry. 

Sure, that is stating the obvious as COVID-19 business interruption claims encounter denials of cover, and now civil unrest damage claims overlay the undercurrent of BI disappointment. It is hard to imagine that the trillion-dollar Covid-19 issue can be significantly affected by a billion-dollar unrest issue, but that is what the insurance industry had led itself to

Editor note: The Insurance industry needs to look at business interruption (BI) insurance with a strategic eye to retaining brand trust not a purely tactical eye to cutting costs by denying claims.

Thursday Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL: digital transformation of reporting, systemic approach to non-financial information and ESAP

Editor note: This weekly snapshot is the news that matters in the XBRL market.

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Friday Bernard Lunn @LunnBernard, CEO of Daily Fintech and author of The Blockchain Economy wrote: Introducing Howard Tolman as the Daily Fintech Alt Lending News Curator

Editor note: Alt Lending (all the lending outside the traditional bank channel) is a tsunami sized wave of change, serving huge markets that have been neglected by banks.

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https://dailyfintech.com/2020/06/19/this-week-in-fintech-ending-19-june-2020/

Introducing Howard Tolman as the Daily Fintech Alt Lending News Curator

https://dailyfintech.com/2020/06/19/introducing-howard-tolman-as-the-daily-fintech-alt-lending-news-curator/

Howard 300 dpi 1

During 2020, Daily Fintech started a new format to curate the most important news in big waves of change in Fintech. 

One of the big waves of change in Fintech is Alt Lending. So I am delighted to announce that, starting next week,  Howard Tolman will be your Alt Lending News Curator

We believe in constraints because sipping from a firehose is a time suck for the busy senior leaders who rely on Daily Fintech to deliver just enough information to get on with their job.  So once a week your News Curator will choose the 3 most important Alt Lending news stories. This requires judgement and that only comes with deep experience in the market, which is why we are so happy to announce that  Howard Tolman will be your the Daily Fintech Alt Lending News Curator

We chose news about Alt Lending because we believe that this is a tsunami sized wave of change where there is a big demand for quality information. It is also a complex subject and so we worked hard to find the best expert, wherever they are in the world (location is never an obstacle for us because we have been running a decentralized remote working operation since we started in 2014) and we found that expert in Howard Tolman. Howard and I first started working together in 2014 and I have enjoyed talking to him about the transformation of financial services. Howard is that rare combination, both deeply knowledgeable and an outside the box thinker. He is a serial entrepreneur and senior executive who has “walked a mile in your shoes”.

Seeing the news that matters each week will help busy senior leaders to position well for the Alt Lending tsunami of change. 

Last week I interviewed Howard to get his views about Alt Lending. So I was delighted when Howard agreed to be our Alt Lending News Curator.

To understand Alt Lending you need to have a rare combination of experience. You need to be a banker who understands credit risk. You also need to understand how to use technology and be an entrepreneur with a mindset of creating value in broken markets. 

Howard Tolman is that rare combination. You can read all about Howard on his LinkedIn profile.

Howard’s career has included banks such as Martins Bank, Bankers Trust, Rothschilds, Dresdner Bank and Bank of America. Trained as an accountant his banking career included trading, business development and credit analysis (including becoming Head of Syndicated loans). Howard is based in London today, but his career has included stints in Amsterdam, Norway, Finland, Denmark, Greece and New York.

Howard’s technology career includes being directors of Cognotec and  Logicscope (which was acquired by Markit in 2009). 

Howard’s entrepreneurial and investor track record included ventures in automated trading, base level consumer financial services & structured finance for mortgages and cybersecurity.

Please welcome Howard Tolman. He will be your guide to the Alt Lending tsunami of change. Please tune in each Friday to learn what matters in the Alt Lending market.

Howard is the type of deep domain expert who creates original insight each day on Daily Fintech.

That insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2020/06/19/introducing-howard-tolman-as-the-daily-fintech-alt-lending-news-curator/

XBRL: digital transformation of reporting, systemic approach to non-financial information and ESAP

https://dailyfintech.com/2020/06/18/xbrl-digital-transformation-of-reporting-systemic-approach-to-non-financial-information-and-esap/

Today, we share long-form substance about three topical news items. 

1 IMA publishes report on digital transformation of compliance and reporting

The Institute of Management Accountants published a report advocating for a data revolution that would transform business reporting, oversight, auditing, and monitoring systems. Increasingly complicated and fragmented regulatory environments make compliance overly burdensome for businesses, while also inhibiting investors and other users of corporate reporting from obtaining useful information. In the midst of global pandemic, where access to quality data from remote locations is paramount, the need for a solution is even more critical.  

Using the example of the UK banking sector, IMA shows how multiple regulators, submission platforms and data formats multiply the ultimately unproductive reporting requirements to comply with regulation. A streamlined, systemic approach would allow for significantly higher efficiency without compromising regulatory goals. 

2 Accountancy Europe on interconnected standard-setting

In December 2019, Accountancy Europe has published a paper describing and calling for a global solution to interconnected standard-setting that can meet the need for reliable, consistent information in non-financial reporting that is interconnected with financial reporting. A follow-up paper has now been made available that analyses the feedback received, provides an update on the latest EU and global developments, and reflects on a way forward.

Incoming European regulation on non-financial information (read: ESG) is a prime opportunity for the above approach to reporting regulation and supervision. Chances are good that this input falls on fertile ground, especially considering the following …

3 Proposal for a EU Single Digital Data Access Platform (ESAP)

The recently released New Vision for Europe’s Capital Markets Report sets out an in-depth and granular plan of action to tackle the obstacles that have discouraged cross-border and foreign investment in the EU – including a single access portal for freely accessing all financial and non-financial data on eligible EU entities. 

Lacking something like the US consolidated tape with its associated benefits, one of the most annoying gaps of the EU regulatory framework for XBRL corporate reporting might be filled with the proposed ESAP, namely the heterogeneous landscape of regulatory disclosure. Will we get the European EDGAR with ESAP? Watch this space!

 

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

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

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

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

https://dailyfintech.com/2020/06/18/xbrl-digital-transformation-of-reporting-systemic-approach-to-non-financial-information-and-esap/

Misconceptions regarding pandemic business interruption cover- contributing to preconceptions for future programs?

https://dailyfintech.com/2020/06/18/misconceptions-regarding-pandemic-business-interruption-cover-contributing-to-preconceptions-for-future-programs/

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These may not be ideal times for the U.S. commercial insurance industry. 

Sure, that is stating the obvious as COVID-19 business interruption claims encounter denials of cover, and now civil unrest damage claims overlay the undercurrent of BI disappointment. It is hard to imagine that the trillion-dollar Covid-19 issue can be significantly affected by a billion-dollar unrest issue, but that is what the insurance industry had led itself to.

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

This article was previously posted within the author’s Linked In account.

Borrowing part of a quotation from, “Complications Grow for Business Income Insurance,” recently republished in Carrier Management, “BI is such an ill-defined and hard to understand concept,” stated Mike Vitulli, director of Risk Management Services at brokerage Risk Strategies. “Most businesses did not consider what it meant to have coverage, simply assuming that if their business shut for any reason, they would be reimbursed.”

Continuing the message from the article and considering there are approximately twenty five million small and mid-sized businesses in the United States (40% of which have BI cover) makes ten million businesses that are uncertain if BI cover addresses cash flow differences, net profit, gross profit, continuing expenses, or payroll. There is significant variability within and across the many BI policy/endorsement forms as to provide plenty of muddy water to deal with.  So, even with civil unrest and direct physical damage being present (triggering potential BI cover), businesses remain uncertain what their policy benefits now are overlapping civil unrest onto COVID-19, one with cover and one without.

The kicker? Carriers have the same uncertainty.

And what of the balance of the businesses that for some reason either chose to not have BI cover or did not have it offered?

A positive is that civil unrest BI cover decisions and administration thereof will be addressed by carriers. Yes, it will be in fits and starts but in due time carriers, adjusters, and agents will lead customers to policy-based BI recoveries for those claims.  Yes, there will be a lot of work the insureds will need to do to support the civil unrest BI indemnity, but in time claims will be settled.  Unfortunately, the COVID-19 BI claims will linger and will need to wind their way through litigation.

Will there be learnings?

Simultaneous to current business interruption claim administration, the industry is experiencing activity with an eye on what to do for the next pandemic, or systemic risk that typical insurance products are not intended or designed to insure. The economy-wide business interruption prompted by the effects of COVID-19- closure of physical businesses, significant placement of persons out of work, unavailability of resources, staged shutdowns and reopens of business, prohibition of many business activities, etc., placed the U.S. economy into immediate chaos. Absent private insurance coverage or private response resources the federal government through the auspices of the Treasury Department had to step in.

More than $1 trillion in business support and three months later, economic relief has come, albeit in what has been deemed an unequal basis for the SMEs. Issues with applications, response delays, and program administration remain in great part unresolved. As the default backstopping resource the U.S. government was as unprepared for an economic disaster of this nature as much as were businesses and insurers.

Without delving into the specifics of the current proposals to have the economy and its businesses prepared for the next pandemic, the aspects of such proposed responses can be noted:

  •  Mirroring the response as a ‘pandemic’ risk insurance act, an indemnity model PRIA (similar to the terrorism based TRIA) that allows government backstopping once a threshold amount has been paid for claims by insurers.
  • Providing firms the option to buy into business interruption payouts that are parametric in nature (BCPP , fronted as an option by NAMIC, III, and APCIA, insurance and agents advocacy groups) with a trigger that is related to government leadership actions.  This plan would allow flexibility in payment amounts based on a firm’s upfront selection of benefit amount.
  • Offering pandemic BI cover as a government subsidized optional cover similar to flood insurance offerings as exist with the NFIP. This seemingly would also be an indemnity-based claim option with the government as the funding source and contracted claim admin.
  • Establishing a collaborative insurance/capital markets/government program that is parametric based, is meant as an immediate response mechanism to keep the SME economy going, and to serve as a potential adjunct to an updated, more uniform BI indemnity policy, e.g. Ten C’s Project.

What is next?

It is clear an economic response must be planned and implemented as soon as the details are worked out, and it is clear that the outcome of the planning may be a hybrid plan. Regardless of which potential acronym plan is decided to be most acceptable, the subject proposal must:

  • Be structured to distribute part or all of policy benefits upon notice or indexing of the covered occurrence/peril.
  • Limit the need for an indemnity model adjustment– too burdensome for the insured, too expensive to administer for carriers, and too much time elapses between claim notice and payment to the insured.
  • Be cautious to not build a program that requires carriers to administer claims first, distribute funds, then wait for government reimbursement. Having to front tens or hundreds of billions of settlement dollars is not as financially burdensome as absorbing the costs in full, but it is still costly in terms of time value of money and adjusting expense.
  • Be comprehensive and flexible in maintaining records of named insureds, and transparent to all parties in what cover comprises and who insured parties are. Leverage available tech advances such as distributed ledger technology.
  • Be administered by the industry as opposed to government, but subject to government scrutiny to the extent of government financial involvement.
  • Leverage alternative risk financing methods to help diversify risk across many constituencies.
  • Work toward making BI policy coverage verbiage uniform.
  • Be a model program that might serve as a ‘deductible’ or hedge to encourage more available and robust traditional BI coverages.
  • Focus primarily on SMEs as beneficiaries but have flexibility to support creation of captive programs for firms with greater financial needs.
  • Be scalable up and down to respond to demand, allow creation of affinity group programs, and allow flexibility of scope of benefits.

COVID-19 has shown that pandemic risks have been off the insurance industry’s product radars to the point where programs simply did not exist, to the trillion dollar detriment of the economy. Has the industry learned there’s a need for a new approach for future like events? Seems so. Is there a realization that an innovative approach is needed for future events? One can hope.

A rush to a politically expedient option may not be the ultimate good solution. Patience and prudence are needed.

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

https://dailyfintech.com/2020/06/18/misconceptions-regarding-pandemic-business-interruption-cover-contributing-to-preconceptions-for-future-programs/