This Week in Fintech ending 18 September 2020

https://dailyfintech.com/2020/09/18/this-week-in-fintech-ending-18-september-2020/

This week our experts brought you the following 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 Switzerland Is Calling

Switzerland’s crypto friendly ways have made it the best place in the world to launch a cryptocurrency startup. More than 1,000 crypto startups have made Switzerland their home. The leading crypto projects, like Ethereum, Bitmain, Shapeshift, Tezos, DFinity, Cardano and many others are based in Zug.

Crypto Valley is probably the most crypto-friendly jurisdiction in the world. In 2018, Johann Schneider-Ammann, Switzerland’s Minister of Economy, said that within 5 years, Switzerland should become the world’s first “crypto-nation”.

A few days ago, Switzerland made it even easier to to use cryptocurrencies and decentralized finance. The Swiss Senate has overwhelmingly approved legislation opening the door to cryptocurrencies and decentralized finance (DeFi) enabling companies to create digital shares, as well as a range of other tradable assets.

Editor note: Switzerland has strong commitment to democracy, privacy and strong currency so could do CBDC (Central Bank Digital Currency ) the right way.

Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: If Revolut can learn from Automattic they can give both HSBC and Facebook Libra a run for their money.

Revolut looks like the Neobank that is pulling away from the pack.

This has led to predictable anti Revolut backlash focussed on 5 concerns.

Editor note: Superb support is key to serious disruption in the real world and it is hard to do that well without enabling a superb work from home work culture.

——————————————-

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 Insights from the holdings of thematic Blockchain ETFs

Mirror mirror on the wall, which public companies of them all, will be first in reporting 10+% revenues from Blockchain?

 Will it be payment Fintechs or conventional exchanges, or software tech companies or e-commerce companies?

Editor note: Efi offers a practical and nuanced look at a hot subject in the asset  management business.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote Stablecoin News for the week ending Wednesday 16  September.

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

——————————————-

Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: The Ecosystem Rush – Why Its Such A Rage Part 2

The future of several service industries may be headed towards ecosystems. Or so, a McKinsey study would make one believe. As per their research, as many as 12 large ecosystems yielding 30% of global revenues could become a reality in the next 5 years.

In Part 1 of this article, examples of ecosystems in insurance were presented along with few compelling reasons for heightened industry-wide interest to initiate or join ecosystems. In this concluding part, pathways to ecosystems with enabling and inhibiting factors are discussed.

Editor note: Whether you are an incumbent or upstart this two-parter is required reading for anybody trying to figure out  how to create value in the massive Insurtech market.

Christian Dreyer @x3er, our Swiss based CFA who focusses on how XBRL changes our world wrote XBRL News:filing quality scores, COVID-19 requirements and ESG standards.

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

——————————————-

Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London. wrote: Alt Lending for week ending 18 September 2020

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

——————————————-

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

https://dailyfintech.com/2020/09/18/this-week-in-fintech-ending-18-september-2020/

Alt Lending for week ending 18 September 2020

https://dailyfintech.com/2020/09/18/57205/

1. ECB has its hands tied as the euro soars ever higher

Why this matters. So the easing of fed policy announced at Jackson Hole is already causing concern within the ECB as the Euro continues its inexorable rise. The ECB have now confirmed that there will be no more stimulus is the touch paper for the latest appreciation which is inappropriate to say the least. The principal concern is that once the immediate increases in economic activity within the Euro zone the so called “v” shaped recovery have evaporated then the going will get extremely tough for any number of euro zone countries trying to rescue their already savaged economies from the impact of COVID 19. The ECB’s concern is that all will be left is a shrunken economy and mass unemployment and they have made their concerns clear through the ECB’s chief economist Philip Lane who last week attempted somewhat clumsily to talk down the Euro by stating that the Euro-Dollar exchange rate does matter. Uncontroversial in normal times but it upset the policy makers in Berlin. Of course nobody knows at this point the amount of structural damage which has been done to the zones economy but it is almost certain that bankruptcies will be everywhere and the current level of stimulus provided by the ECB is clearly not sufficient and doesn’t even kick in until next year. That the exchange rate is clearly not appropriate for some of the weaker economies is not necessarily contested but the drift of policy into negative rates is impacting on the stronger economies as well. The German Landesbanken that largely supports the huge Mittelstand are complaining that negative rates of interest are destroying their business models. Indeed for a continent that has so many banks with huge non performing loan portfolios and has many countries in deflationary territory it could be catastrophic.

2. How Flexible Payment Options Are Helping Small Businesses Drive Customer Engagement

Why this matters: Back to the future. The re emergence of instalment credit. What caught my eye about this story in Payments is that it seems to be like a relic from a bygone age. Time to pay has always been a feature of the consumer credit space. Back in the 1950’s and 60’s buying a capital item such as a three piece suite or a television was more or less impossible without credit and many families used to buy everyday items like clothing from catalogues the principal feature of which was payment by instalments usually weekly over a fairly short period. With the advent of Credit cards this method of finance became a rarity but it is now making a comeback and the article specifically mentions fashion houses as being one of the principal beneficiaries. To me it might just point to a subtle shift in the consumer space where punters are taking the risk in getting into debt a lot more seriously and are therefore deferring payments wherever they can. As for Alt lenders building portfolios this is something to keep an eye on. E commerce sales during the pandemic rose very sharply. Money was a lot tighter just after the war. Time to pay on everyday items might just be the beginning of a trend where every penny is valuable. Those interested should take a look at Fintech Afterpay.

3. Deloitte plans to Break out its Auditing business.

Why this matters: Deloitte being one of the big 4 accounting and consultancy companies in the UK have been told by financial regulators to do this as they feel that the connection between the boring and less profitable accounting and auditing function of their activities might just have an impact on the much more juicy consultancy activities and might therefore lead to them turning a blind eye to some of the more obvious weaknesses shown in audited financial statements. They can point to a whole series of recent embarrassing failures  including Carillon, Patiserrie Valerie and BHS. Being of a certain age I have also not forgotten Equity Funding Corporation and Enron, which of course, sealed Arthur Andersens fate. What has this got to do with Alt Lending. My take on this is  as follows.  Since QE started and hard hitting regulation bit in 2008 banks have gradually withdrawn from what used to be their traditional lending markets and left a huge gap in the market which has largely been filled by consultants and at the lower end Alt Lenders. The only difference is that the banks had skilled lending experts who knew how to put together structured finance deals at both the top of the market and the much unloved smaller but still substantial end of the business. That expertise is still there but is not deployed. Consultancies are very expensive, do not take risks but banks and lenders do. How are the smaller leveraged deals ever going to get done? Nobody is benefitting from this except the very rich.

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.

Daily Fintech’s original 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/2020/09/18/57205/

XBRL News: filing quality scores, COVID-19 requirements and ESG standards

https://dailyfintech.com/2020/09/17/xbrl-news-2/

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

1 Q2 XBRL filing quality score

Paying close attention to your company’s XBRL filing quality is essential for your company to control the messaging to the investors, analysts, the public, and the SEC.

It’s a bit of a pity that this score sheet doesn’t receive better attention – but then again, that is not surprising, given how hard their publishers make it to discover … you need to be on LinkedIn to access this quarter’s score.

2 XBRL updates for COVID-19 requirements

In response to measures related to the COVID-19 crisis, the European Banking Authority (EBA) has issued updated reporting and disclosure requirements. These are designed to accommodate, for instance, emergency legislation on pausing loan repayment schedules and the resulting impact on financial institutions.

Now that the dreadful virus is firmly ensconced in our societies, it’s time to adapt reporting templates to understand the impact it has on companies.

3 EFRAG appoints ESG Standards task force

Having established a task force, the European Financial Reporting Advisory Group (EFRAG) is poised to proceed with the development of non-financial reporting standards, which, if implemented, would increase comparability, relevance and reliability of non-financial information.

The importance of this move for global ESG reporting is hard to overstate. The EU is the most advanced regulatory body beginning to address the most burning issue in ESG reporting, which is the lack of a coherent reporting standard.

—————————————————————

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/2020/09/17/xbrl-news-2/

The Ecosystem Rush – Why Its Such A Rage Part 2

https://dailyfintech.com/2020/09/17/the-ecosystem-rush-why-its-such-a-rage-part-2/

The future of several service industries may be headed towards ecosystems. Or so, a McKinsey study would make one believe. As per their research, as many as 12 large ecosystems yielding 30% of global revenues could become a reality in the next 5 years.


In Part 1 of this article, examples of ecosystems in insurance were presented along with few compelling reasons for heightened industry-wide interest to initiate or join ecosystems. In this concluding part, pathways to ecosystems with enabling and inhibiting factors are discussed.

Not all carriers need to build ecosystems. There would be ample room for those that thrive as leaders in low-cost underwriting, efficient policy administration and flawless claims experience. They compete on price and as part of ecosystems, might serve as suppliers of white label products, where customer acquisition and experience would be controlled by dominant players.

It is a widely considered view that generalist mid-sized carriers would be hit particularly hard, if they lack agility in adapting to new market realities. They would either get acquired by ecosystem leaders or struggle to maintain growth and margins. We already see examples of leaders from adjacent markets active in M&A. In Asia, Navi’s acquisition of DHFL GI and PayTm’s acquisition of Raheja QBE insurance are two recent examples.

Senior leaders are cognizant of this threat and many are indeed actively preparing to tackle the challenge. Two thirds say they expect ecosystems will help their organization grow revenue by 11-25% in the next 2 years.  However, as focus detracts and bias tends towards incremental operational improvements, it can spawn missed opportunities. The path forward requires new business models to match dynamic ecosystem demands and reshape customer perceptions. Products correspondingly need redesign to allow bundling and unbundling. The GAFA challengers with their insurance plays are signs of a coming shakeup. 


The choice of business model depends on the role carriers play in the ecosystem. They can opt to be producers or bundlers or owners. Producers provide white label products to fit into many ecosystems. Bundlers have more complete knowledge of customers and operate as omni-channel businesses with integrated value chains. Owners use relationship and data insights to match customer needs with offerings sourced from third party providers with plug-and-play products.

A successful example of an owner is Bayer subsidiary, The Climate Corp, which grew its digital agriculture platform by 20X to more than 95 million paid subscription acres in 4 years. In the process, it curated services from close to 65 partners on satellite imaging, soil assessment and drone mapping.

Some of the enabling factors for success stories have been:

  • Differentiated Value (From trusted brands, superior customer experience)
  • Optimized Operating Models (From revamped partnership processes in Procurement, QA and Legal)
  • Open Systems (From sharing and scaling via APIs)
  • Curation Strengths (From a range of domains and partners).

While these factors are important to the success of an ecosystem, a foundational element is trust. Trust can make or break an ecosystem. A trust incident involving one player can erode substantial value.

Ecosystems enable rapid digital business growth using non-linear models that embrace network effects. In the coming years, the industry is expected to witness consolidation. A small number of very big players and several niche specialists will come to dot the landscape.  As ecosystems proliferate, attendant benefits of new risk categories, exposures and insurance opportunities will begin to emerge. Insurance companies will be key to these networks due to their risk expertise and ability to work with regulators, data protection and privacy issues.

Those in insurance ecosystems can prepare to reap high returns by putting their digital houses in order so their propositions can seamlessly bundle with complementary offerings and by carefully choosing partners with shared goals.

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

https://dailyfintech.com/2020/09/17/the-ecosystem-rush-why-its-such-a-rage-part-2/

Stablecoin News for the week ending Wednesday 16th September.

https://dailyfintech.com/2020/09/16/stablecoin-news-for-the-week-ending-wednesday-16th-september/

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

This week we have seen an interesting argument play out.  Who should be first to innovate at scale in Digital Currencies?  Should this be State (slow, considered, careful) or should the Private sector (with Regulatory cover) be allowed to move fast and maybe break a few things?

First, a recap of the current state of play. A new working paper by the Bank for International Settlements (BIS) looks at the state of central bank digital currency (CBDC) projects around the world.

According to the study, as of mid-July 2020, at least 36 central banks had published retail or wholesale CBDC work.

At least three countries, namely Ecuador, Ukraine and Uruguay, had completed a retail CBDC pilot, and six retail CBDC pilots were ongoing in the Bahamas, Cambodia, China, the Eastern Caribbean Currency Union, South Korea, and Sweden, the research found.

Meanwhile, 18 central banks had published research on retail CBDCs, and another 13 had announced research or development work on a wholesale CBDC, the paper says.

New BIS Working Paper Looks at State of Central Bank Digital Currency Projects Around the World | Fintech Schweiz Digital Finance News

Staying in Switzerland (where the BIS is located) the private sector folks building the next generation of digital money understand the need to collaborate.

Stablecoins, digital tokens pegged one-to-one to the Swiss franc (CHF) in this case, are a prime example. SEBA Bank and Sygnum Bank, the two B2B players that hold banking licenses from the Swiss Financial Market Supervisory Authority and that specialize in digital assets, are both involved in stablecoin explorations, as is the country’s respected crypto conglomerate, Bitcoin Suisse.   “Within the Crypto Valley and here in Switzerland, there’s a very good collaboration going on, where everyone’s working together to try to design a Swiss franc stablecoin which has more or less the same definition or is fully interoperable,” said Matthew Alexander, SEBA Bank’s head of asset tokenization. 

The Crypto Firms Collaborating on a Swiss Franc Stablecoin

However, Politicians in the EU are getting very concerned about anyone from the Private sector stepping into their turf.  Germany, France, Italy, Spain and the Netherlands called on the European Commission to draw up strict regulation for asset-backed cryptocurrencies such as stablecoins to protect consumers and preserve state sovereignty in monetary policy.

Stablecoins in regulatory crosshairs as EU states push for curbs

LONDON (Reuters) – A project involving 13 of the world’s largest banks and aimed at launching digital versions of major currencies in 2020 is no longer likely to get going this year, the company set up to run the effort said.

Technological development work on the previously named “Utility Settlement Coin” initiative has progressed, but it still needs regulatory approval, said Fnality International Chief Executive Rhomaios Ram. It hopes to receive that approval by the first quarter of 2021, “The technology is the least complicated part of this whole thing,” said Ram.

Major bank-led digital cash settlement project gets delayed

So in summary we have the Private sector slowing down, the state sector spreading up and the Politicians worrying about what all this could mean. 

________________________________________________________________

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. 

__________________________________________________________________

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/2020/09/16/stablecoin-news-for-the-week-ending-wednesday-16th-september/

Insights from the holdings of thematic Blockchain ETFs

https://dailyfintech.com/2020/09/15/insights-from-the-holdings-of-thematic-blockchain-etfs/

Mirror mirror on the wall, which public companies of them all, will be first in reporting 10+% revenues from Blockchain?

 Will it be payment Fintechs or conventional exchanges, or software tech companies or e-commerce companies?

 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.

In January I looked at thematic ETFs that were launched in 2018 or 2019 and chose to position themselves as focused on blockchain technologies. At the time, there were 8 such US ETFs with a total of $240million assets. Only 4 of them had managed to accumulate more than $10million and none of them had surpassed the $100million mark.

The percentage of companies included in these ETFs that earn revenues from Blockchain-related services, is still small. However, the holdings show trends and business goals of the companies included.

Blockchain ETFs of course, struggle to find pure Blockchain plays for their portfolios as most of the pure plays are still private (e.g. Consensys, Coinbase, Binance, etc). The public ones are either selling enterprise software but not exclusively and others are financial services providers that are growing their crypto offerings or transforming their business. This category is more interesting because they are emerging and have potential.

Interesting examples are Square who through its Crypto Cash App offerings has been reporting increasing revenues from offering Bitcoin to its retail clients. Square`s Q2 2020 earnings show that 45% of net revenues were from Bitcoin ($1.92billion total & $875million from Bitcoin). From the $875million Bitcoin revenues, $17 million were gross profit (c. 2%). Others are:

The ICE exchange that owns Baakt, the bitcoin futures exchange.

Overstock is a majority stakeholder of Tzero.

SBI holdings, the Japanese asset manager, that is growing a cryptocurrency trading business offering with cryptocurrency CFDs, and a blockchain-based digital stock exchange in the pipeline and multiple collaborations with Ripple.

Line, the Japanese messaging app with its reward token (LN) for traders which has just launched.

Kakao, the Korean messaging app too with its KLAY, also recently launched.

Pure plays are mainly:

Galaxy Digital (Novogratz`s company, GLXY in Toronto) is an investment company or better said a merchant bank. It offers various crypto investment products, trading and also uses its balance sheet too invest in blockchain ventures. Its 1yr return is 85% and ytd it is up x2.8 times. GLXY has a market capitalization of $220mil.

Mining companies also qualify but their performance hasn’t been that great. For example, Hut 8 Mining (TSXV:HUT) listed on the Toronto exchange too had a flat ytd return of and has dropped 50% over that past year.

In 2020, the Blockchain ETFs grew from $240million to $324million which doesn’t seem very exciting given the tech market runup. Two of them surpassed the $100million mark and 5 of them have accumulated more than $10million.

Comparison of Jan 2020 and Sep 11, 2020 data

Source https://etfdb.com/themes/blockchain-etfs/

It is more interesting to compare the top holdings of the two larger ones which have also provided superior returns ytd (31.5% and 27% respectively). Their y-o-y returns are good and closer (29% and 31% 1yr returns).

Their top holdings differ considerably. BLCN has a huge bet on Overstock with over 11% allocated to the stock. Overstock is one of many eCommerce stocks that had rallied since May. It started the year c. $8 and since April it started doubling continuously, reaching an all-time high in August c $106 and now trading at $65.

Square is the next big holding in BLCN at 3.43% whereas for BLOK it is the top holding at 4.62%.

BLCN`s top ten holdings are roughly 2% to each company whereas BLOK allocates more, c. 3+%.

BLOK has clearly more Asian holdings, like Z Holdings, Kakao, GMO, SBI, Rakuten, Digital Garage, Naver. BLCN has SBI and GMO also but then includes Xiaomi, Zhong An insurance.

Back in January, the top holdings of the two largest Blockchain ETFs were companies like the Japanese IT providers – GMO Internet and Digital Garage and allocations close to 5%. GMO is the company that has been preparing for the launch of the first Yen backed stablecoin – GYEN but this has not happened yet. Digital Garage another Japanese company (4819-TYO) with and an ADR. They teamed up with Blockstream last year to serve institutional needs in the sector in Japan.

In Europe, there is the Invesco Elwood Global Blockchain UCITS ETF listed on the LSE (BCHN:LN) with had $38 million AUM in January and now has $118million. The top holdings are similar to BLCN with an oversized Overstock position of 8.45%. However, the rest composition differs with two Taiwanese companies included (Taiwan Semiconductor manufacturing and Global Unichip Crop) and different Tech software providers.

In China, the Shenzhen Stock Exchange Blockchain 50 Index was launched in January and includes listed companies on its exchange in the Blockchain sector. The index is rebalanced twice a year. It has risen 23% ytd. Interchain Pulse (a Chines financial media group) reported that only 5 out of the 50 companies included in the index have actual revenues from blockchain. The top holdings are Ping An Bank, Midea Group – electricity company, East Money Information.

The Shenzhen Stock Exchange, has applied to the China Securities Regulatory Commission for permission to list a blockchain exchange-traded fund (ETF) benchmarked off its index.

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/2020/09/15/insights-from-the-holdings-of-thematic-blockchain-etfs/

If Revolut can learn from Automattic they can give both HSBC and Facebook Libra a run for their money.

https://dailyfintech.com/2020/09/14/if-revolut-can-learn-from-automattic-they-can-give-both-hsbc-and-facebook-libra-a-run-for-their-money/

Revolut looks like the Neobank that is pulling away from the pack.

This has led to predictable anti Revolut backlash focussed on 5 concerns:

1. Revolut are losing money (£107 million in 2019, from £33 million in 2018. Read this from Zennon Kapron for a good analysis of their financials. Revolut’s financial strategy seems to be deferred profitability, because revenues (£163 million) and deposits  (£2.3 billion) are growing strongly. Revolut likes to remind us that Amazon took 14 years to reach profitability (and Spotify took 10 years and  Airbnb took 8 years). They are setting an expectation of 5 years (like Facebook). Revolut’s 2020 numbers will be critical as that is five years from its founding in 2015. If Revolut can pull that off (i.e make a profit in 2020), big banks should be very worried.

2. Revolut support could be improved.  This is despite headcount rising from 633 to 2,261. So they can afford to offer great customer support. This is one area where Revolut can learn from Automattic.

3. Pandemic has slowed the globetrotting that made Revolut’s pre-paid debit cards popular. Revolut is looking for new revenue drivers. The one use case that Revolut is good at that does NOT involve travel is how they enable parents to easily manage accounts for their children. This could be a big growth driver. Revolut’s 2020 numbers will be critical to see if they are successfully executing on this. The functionality is not simple, so both UI and support are critical.

4. Revolut have been rough on their employees. They have made some defensive moves to counter this, such as executive pay cuts and enabling  employees to exchange some salary for shares. However Revolut could go on the offensive by learning from Automattic how to do work from home well;  Automattic pioneered work from home based on the simple idea that talent is evenly distributed but opportunity is not. Work from home done badly is really really bad, but work from home done well is great. Revolut should study Automattic to figure out how to do it well.

5. Revolut is not a “real” bank. Revolut is regulated by FCA in UK as an e-money institution not a bank;  this means that money held in Revolut accounts are not protected by government insurance. Revolut is regulated as a bank in Lithuania and is expanding its banking footprint in central and Eastern Europe. Revolut is applying for a banking license in the UK and developing lending products for the French market and expanding into the US market.

Revolut looks like it is following the go big or go home strategy. They want to be a big global bank, regulated in multiple jurisdictions. Which means that big global banks such as HSBC should be worried.

Revolut claims to be adequately capitalized for this challenge. According to Martin Gilbert, non-executive chairman, Revolut has “enough capital to complete the journey and continue to expand the business.” Revolut has raised more than US$916 million (of which US$580 million was in 2020).

Users, wherever they are, care about three things when looking at a bank, whether Legacy or Neo:

1. Is my cash safe? Fund security is driven by a) regulation (eg will deposits be insured) and b) cybersecurity (to prevent your cash being hacked). The latter is also a UI issue as you have to balance ease of use with security. UI is also a customer support issue because no matter how easy to use you make it, some people will need help.

2. How much will I pay in fees? When one of our children was born we opened a bank account with the aim of teaching our child about money. Within a few years, the small opening balance was almost zero due to fees. We scrapped the lesson about the value of compounding and closed the account. Revolut, with far lower costs,  should be able to afford to be disruptive on fees.

3. How easy is it to use? Again, that nice balance of UI and support is critical. Everybody talks about UI, but I want to focus on the support question. If you want to see how a mass market, low cost product provides excellent support, become an Automattic customer. Speaking from experience (Daily Fintech uses wordpress.com from Automattic), I can vouch that it is excellent (and low cost). Great support can do 3 things for you:

  • turn your customers into raving fans. I tell everybody how great Automattic is and they don’t pay me a dime to do so. Their UI is ho hum, but their support is superb.
  • help you up-sell from inbound. If a customer calls/texts you and you solve their problem they will be in a receptive mood to hear about some relevant premium service.
  • help you improve your UI. If you get lots of calls/texts about that feature your developers say is superb – guess what, it could be improved!

Anybody who has worked in customer support whether insourced or outsourced, onshore or offshore will vouch for the above.

Revolut is a tiny minnow compared to the HSBC whale, which has around 3,900 offices in 65 countries and 38 million customers. However remember that disruption usually comes from low cost competitors that look ridiculously small at first.

HSBC is probably now looking over their shoulder at both Revolut and Facebook Libra. The reason is that both enable low cost instant cross border payments. Paying cross border from one HSBC account to another is just two tiny entries in the HSBC core banking system. As HSBC has 4.5% of the massive Interbank FX market, that is a very big deal. One company that is even more global than HSBC is Facebook who can do the same thing if regulators allow Libra.

There are 3 boxers in the banking ring:

  • Regulated Neobanks such as Revolut.
  • Regulated Legacy Banks such as all the ones we use today.
  • Unregulated Crypto “Banks”. They may use the word bank in their marketing but won’t be regulated or what we normally think of as banks but will provide banking type services. Will get traction first among the “unbanked”. Maybe an unregulated firm will do what Facebook is trying to do. 

It looks like Facebook wants to be regulated like a bank. If a Regulated Legacy Bank sees both Revolut and Facebook in their rear view mirror, they should be worried.

Grab a big bag of popcorn folks, this will be a long epic!

Revolut is currently in the stage of building value. At some point the founders, management and investors will want to go to the pay window and get liquidity aka cash aka exit. Everything up to that point is only valuable on paper. Some may be able and willing to cash in early but most will want to find a liquid market to optimise value. Which is the subject of next week’s post on the  3 corner fight between Security Tokens, NASDAQ/NYSE and Regional Exchanges.

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

Daily Fintech’s original 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/2020/09/14/if-revolut-can-learn-from-automattic-they-can-give-both-hsbc-and-facebook-libra-a-run-for-their-money/

Switzerland is calling

https://dailyfintech.com/2020/09/14/switzerland-is-calling/

The franc has had its day. The Swiss National Bank should issue its own crypto currency as legal tender, the eFranc. At least that is what Hans Gersbach and Roger Wattenhofer, two professors from ETH University in Zurich, think. They suggested amending the current monetary system in Switzerland by creating a CBDC that is accessible to the public. The eFranc will be a digital form of banknotes, a currency that would be held and traded on a distributed ledger for decentralized transaction validation. It would be an accepted form of legal tender and would be introduced as follows: the eFranc to be created by the Swiss National Bank (SNB) and commercial banks could obtain it from the SNB against eligible collateral or banknotes.

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

No one really knows exactly where Satoshi was when he published the Bitcoin white paper, but Ethereum flourished from Switzerland’s Crypto Valley.

Switzerland’s crypto friendly ways have made it the best place in the world to launch a cryptocurrency startup. More than 1,000 crypto startups have made Switzerland their home. The leading crypto projects, like Ethereum, Bitmain, Shapeshift, Tezos, DFinity, Cardano and many others are based in Zug.

Crypto Valley is probably the most crypto-friendly jurisdiction in the world. In 2018, Johann Schneider-Ammann, Switzerland’s Minister of Economy, said that within 5 years, Switzerland should become the world’s first “crypto-nation”.

A few days ago, Switzerland made it even easier to to use cryptocurrencies and decentralized finance. The Swiss Senate has overwhelmingly approved legislation opening the door to cryptocurrencies and decentralized finance (DeFi) enabling companies to create digital shares, as well as a range of other tradable assets.

Switzerland’s Blockchain Act, which received overwhelming approval last summer, is expected to come into force in early 2021. SIX has launched a prototype of its digital exchange and CSD, with the  full launch is expected in Q4 2020. Moreover, starting February 2021 several Swiss cantons will start accepting tax payments in BTC and ETH.

Switzerland is one of the only jurisdictions where the guidelines are very clear and provide an environment where companies understand the boundaries and can work within a trusted environment to build viable businesses.

Other countries are taking vastly different approaches to regulation when it comes to crypto. Regulation of crypto in other countries, like India, China and the US. has been poorly defined, confusing and in some cases even hostile. For example, China has placed an outright ban on cryptocurrencies and ICOs. In the US, there has long been talk of regulating digital currencies, but as yet no laws have been passed. As you would expect, where regulation remains obscure, innovation flourishes to a lesser extent because entrepreneurs aren’t willing to take the risk.

To put things in perspective, Switzerland hosts more crypto startups than the rest of the world combined. The top 50 crypto companies in the Switzerland  were valued over US$40 billion in 2019 and employed over 4,700 people, according to Crypto Valley Venture Capital. These companies account for 20% of the total market cap of the global crypto market.

Facebook also incorporated its Libra Association in Switzerland, and has applied for a payments license in the country, according to a statement by FINMA.

Last year, FINMA approved the first banking licenses to blockchain firms SEBA Crypto and Sygnum under strict money laundering guidance.

Switzerland has a stable economy which is not threatened by the emergence of the blockchain and crypto economy. The basic principle of the Swiss approach has been to avoid issuing specific legislation on blockchain or digital currencies. Instead, FINMA uses a set of guidelines to determine if a token is compliant with existing anti-money laundering (AML) or securities legislation.

Many public and private sector companies in Switzerland are experimenting with Blockchain for bringing a revolutionary change in their business processes. Swiss banks are also considering implementing this technology to disrupt the finance ecosystem. UBS and Credit Suisse are testing the trading potential of DLTs. Moreover, private banks such as Maerki Baumann and Arab Bank Switzerland have also started offering cryptocurrency services.

Entrepreneurship and innovation do not always see eye to eye with regulation. But creating the right kind of legislation that fosters growth is the only way to attract the most innovative companies.

The Swiss approach is innovation friendly. The Swiss environment is the ideal place for incubating crypto innovation. For the crypto economy to flourish, innovation, open regulation and deep trust are key. This combination is exactly what makes Switzerland a fertile ground.

If you are serious about building decentralized technology, you need to consider Crypto Valley, where your project can thrive. After your project reaches enough scale and success, you can always expand to the US and other jurisdictions. But Crypto Valley is the place to get started.

Image Source

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

https://dailyfintech.com/2020/09/14/switzerland-is-calling/

Wall Street to Main Street: Drop Dead

https://dailyfintech.com/2020/09/11/wall-street-to-main-street-drop-dead/

UNITED STATES – OCTOBER 30: Daily News Front page October 30, 1975 Headlines: FORD TO CITY: DROP DEAD Vows He’ll Veto Any Bail-Out President Ford gives his message at Washington’s National Press Club. Gerald Ford (Photo by NY Daily News Archive via Getty Images)

After 2008, in the central bank liquidity driven bull market, stock picking went out of fashion. As the market always went up due to stimulus aka money printing, the simple winning mantras were “don’t fight the Fed” and  “buy the dip”.

My thesis is that this will change in the not too distant future: if I knew precisely when I would buy yachts with my spare change.

The divorce between stock market and real economy has been well documented. The stimulus driven boom gives us a stock market above its pre pandemic highs while we have Depression era levels of  unemployment and a major health crisis that a) costs a lot of money and b) changes consumer behaviour.

Wall Street is sending a message to Main Street: Drop Dead. The stock market is saying we don’t need humans because robots do a better job. Hmm, can that be really true when 70% of the economy is driven by consumer spending? At some point, somebody has to buy something. The mantra popularised by Warren Buffet is:

“In the Short-Run, the Market Is a Voting Machine, But in the Long-Run, the Market Is a Weighing Machine”.

If your mantras are “don’t fight the Fed” and  “buy the dip”, the best strategy is simply buying low cost index funds.

Those low cost index funds include both high flying digital growth stocks and pandemic casualty value stocks. If you want high flying digital stocks you may want to buy Tesla or Zoom or Shopify or mega tech such as Google, Apple or Facebook; but you don’t want today’s equivalent of AOL or Yahoo just when their growth was peaking, because that is a recipe for buy high and sell low.

This is not about value vs growth. Charlie Munger (Buffet’s partner) famously got Buffet to move away from pure cigar butt cheap value to “growth at the right price”. PE over 100 (some hyped growth stocks are over 1,000 PE) is clearly not “at the right price”.

In some cycles the buying opportunity is screamingly obvious. The Dot Com bubble led to some amazing buying opportunities for great tech businesses at depressed valuations around 2002/3.

In this cycle, the Softzilla thesis (software is eating the world) makes sense, just like it did in the Dot Com boom. However, paying PE 1,000 does not make sense.

Why is the stock market at record highs during what looks like a depression to most people? There are 3 explanations:

1. Don’t fight the Fed, free money is great, don’t worry be happy.

2. The market is just a giant casino or Ponzi scheme.

3. Fintech changes the game. You have to understand the technology that drives the market aka Fintech to understand the macroeconomic cycle; shameless plug, buy a subscription to Daily Fintech (weekly cost is less than a cup of coffee).    My thesis is:

  • Most of the volume is automated trading from passive indexing funds and Robo Advisers. So it takes very little volume to move the market.
  • There is some speculative buying from retail investors lured in by free trading apps like Robinhood (and using stimulus checks). If you cannot go to a casino, betting on the market using a gameified trading app is the next best thing. As Robinhood makes it super easy to use sophisticated tools such as futures and options, this is dangerous.
  • Big banks amplify the small retail investor bets, but often trade in a hedged way ie can mange the risk of a market crash.  We recently had the revelations that SoftBank has been a big buyer. They are a Private Equity fund renowned for paying premium prices that happens to have Bank in its name and they want the public markets to be high because those valuation comparable drive private market valuations.

The other bank with even more firepower than SoftBank is the Federal Reserve Bank aka the Fed.

This week we had a sell off in some tech growth stocks. I do not expect this to continue. I expect a “Fed put” via more stimulus soon.

Image Source.

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

Daily Fintech’s original 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

https://dailyfintech.com/2020/09/11/wall-street-to-main-street-drop-dead/

Alt Lending: American Banks as agents of Social Change?

https://dailyfintech.com/2020/09/11/alt-lending-american-banks-as-agents-of-social-change/

Pandemic and protests. How the tumult of 2020 will forever change banking

Why this matters: It is generally accepted that the American banking system entered the COVID crisis in somewhat better shape than its European counterparts but then along came the brutal death of George Floyd and the continual turbulence that that has caused worldwide but mostly in the United States. A whole team of people at the American Banker magazine argue that as a result of this confluence things will never be the same again both from the point of view of product delivery and  regulatory  changes. The first part of this premise is that there was a surge in digital banking use during the early days of the pandemic the scale of which was unprecedented  and was exacerbating the already accelerating trend toward digital delivery  particularly among the major players such as JPM, BofA, Wells Fargo etc. This was hardly surprising given the nature of the disease and the reluctance of people to risk contagion. This coupled with the trend away from physical branch banking has led to a 200% rise in mobile bank registrations, an 85% increase in mobile transactions and a 45% plus increase in boomers using digital applications all in a two month period. As I say it is hard not to buy in to this scenario, The same article also  argues that somehow or other both regulators and banks will need to show their soft side in terms of debt forgiveness, foreclosures etc as people of colour have been disproportionately affected. Given the amount of QE  the FED has indulged in it is arguably the largest cause of wealth transfer from poor to rich yet nobody is going to do anything about that. Virtue signalling is not the business of either bankers or regulators. Alt lending has a role here in keeping the flow of funding going. Their business is to make money not be an arm of social services.

Oak North strengthens Credit Science platform Team

Why this matters: Last week I mentioned Oak North’s Credit Science platform and this week they announce that they have hired a silicon valley analytics guru Raj Cherabuddi to spearhead the second generation of the platform. I would not be at all surprised if the Credit Science platform quite quickly became more valuable than the banking operation itself. Certainly there has been a move towards  purely technical analysis of historical data and future hypothesis  becoming more important than somewhat more traditional methods in assessing credit risk. This by the way is not a new phenomenom and is in a whole variety of ways a lot better than the guesswork and archaic systems which used to be used in the not too distant past. While at an OVUM meeting in London a couple of years ago I had a chat with an analyst concerning how these applications were built and how much original knowledge had been lost and replaced by IT. OVUm considered it a threat to stability. Real knowledge of what the underlying app is trying to achieve requires knowledge of the business as well as the management of the data. I hope that Oak North are bearing this in mind.

Eurozone hit by record Jobs slump

Why this matters.  A Friend told me last week that the Mittelstand, the economic powerhouse of modern Germany comprising many thousands of quite large frequently family owned  companies in strategic industries and with irreplaceable knowledge is  causing real concern among bankers in Frankfurt. This seems to be partly caused by the inability of German banks to provide the necessary finance to this sector due to COVID. It is widely recognised that the European banking sector is in chronic disarray and has been since the 2008 crisis yet the key issue of non performing loans continues to haunt the industry as does the relationship between banking liabilities and sovereign debt. The key advantage that Alt lenders have at the moment is that they have little baggage to carry. Unless of course they load themselves up with it in a bid to outdo the big boys. The jobs situation all over Europe including the Eurozone is appalling and can only lead to falling asset values and a growing inability of borrowers to service debt. At some time we are all going to have to face up to this.

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.

Daily Fintech’s original 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/2020/09/11/alt-lending-american-banks-as-agents-of-social-change/

XBRL News: BIS on regtech, 2021 SEC taxonomies and big data for credit

https://dailyfintech.com/2020/09/10/xbrl-news-bis-on-regtech-2021-sec-taxonomies-and-big-data-for-credit/

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

1 Leveraging technology to support supervision: challenges and collaborative solutions

Speech by Benoît Cœuré, Head of the Bank for International Settlements Innovation Hub, at the Peterson Institute for International Finance, Financial Statement event series, 19 August 2020.

The head of the central banks’ innovation hub discussing the challenges of supervisors and their supervised entities to migrate supervisory processes from the manufacturing to the digital paradigm – a sight to behold!

2 Draft 2021 SEC taxonomies

The taxonomy renewal cycle is kicking off again for next year with comments by the public encouraged.

3 Big data could reduce credit collateral

Typically, when providing credit, the lender’s knowledge of the borrower will be incomplete. To counteract that information asymmetry, banks often require collateral in the form of tangible assets, like real estate. But what if Big Data could solve that information asymmetry?

As indicated in (1), the central bankers’ central bank, the BIS is conducting quality research into how the application of technology is impacting traditional finance. It doesn’t get a lot more traditional than collateral requirements for credit, which could be reduced by throwing big data at the problem.

—————————————————————

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/2020/09/10/xbrl-news-bis-on-regtech-2021-sec-taxonomies-and-big-data-for-credit/

The Ecosystem Rush : Why Its Such A Rage – Part 1

https://dailyfintech.com/2020/09/10/the-ecosystem-rush-why-its-such-a-rage-part-1/

Picture Credit

Friction in daily customer transactions has been diminishing. Regardless of whether they are at work, home or on the go, customers connect to digital ecosystems to fulfil needs. Globally, insurance customers tend to have similar preferences for connected services. They need safety, prevention, convenience and rewards for good behavior. Since they are accustomed to receiving tailored online experiences, they expect that insurers will know who they are, what they need and when they need it. This tailored online experience requires an ecosystem that can provide a gamut of services.

Digital ecosystems enable upstarts to access established markets. The bigger enterprises create value for participants by creating and orchestrating these networks. Doing so, they boost loyalty among existing customers, attract new customers and reduce price sensitivity. Complementary offerings make it simpler for customers to obtain full solutions.

An ecosystem is an interconnected set of services that let users fulfill variety of needs in one integrated experience. The idea of business ecosystems is not new. Even Lloyds at London, founded in 1686 is a classic example. However, over the last decade, digital ecosystems have come up with super apps and platforms, which substantially reduce costs of development and distribution of apps and complementary products. Based on an MIT Sloan research, companies whose dominant business model is ecosystem driver, experienced revenue growth approximately 27 percent and profit margins 20 percent above average.

The ecosystems that insurance is increasingly becoming a part of are mobility, housing, health, and wealth protection, brief examples of which are presented next.

Manulife Move, an ecosystem program launched in 2015, lets customers plug in and get insights into their health, receive rewards and support while getting risk coverage. They can access a basket of services geared towards health and wellness.

The benefits for Manulife have been a)in distribution and reaching customers previously outside their channels and b)frequent customer engagement and enrichment of products.

The mix of tech and customer expectations is impacting insurance by altering traditional ecosystems of agents and brokers, with insurance getting embedded and sold across a broader network including automotive, transportation businesses, healthcare and more. Partners break down market boundaries to make these ecosystems operate fluidly, yielding higher value for insurers from new revenue streams and multiplier effects.

In auto insurance, as demand for connected cars and lifestyles has risen, first mover advantages will accrue to those who pioneer ecosystems with automakers, insurers and service providers. In Brazil, Porto Seguro, a loyalty leader in P&C insurance, has created a constellation of 20+ companies that offer customers roadside assistance, residential repairs, vehicle loans, consumer financing, credit and investment advice. They have been able to steadily gain market share without competing aggressively on price.

Another example is ZhongAn in China with an ecosystem model connecting them to most airlines and housing providers, among others. With a fourth of the population in their database, they can provide customers with tailormade solutions and risk assessments. Bill Song, COO says, “There is a great distance between insurance and the people. We have to be closer to the customer. We cannot compete with giants like Google. They understand the customer much better than possible for us. They dominate the traffic. They will just let the insurance company bear the risk, if we don’t change. We can try to digitalize ourselves and set up new kinds of relationships through ecosystems.”

Carriers will have to excel in new habits of forging relevant and timely digital connections with customers, thus making it easy and satisfying for them to meet needs. To get there, distribution strategy and ecosystem approaches will be fundamental to bring together a range of capabilities, channels and partners to find growth through scale in reach and brand engagement.

Next week, in Part 2, I will focus on pathways to successful ecosystem models, enabling and inhibiting forces.

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

https://dailyfintech.com/2020/09/10/the-ecosystem-rush-why-its-such-a-rage-part-1/

DeFi and its two core attributes

https://dailyfintech.com/2020/09/08/defi-and-its-two-core-attributes/

11406980764_b7e0e76e4f_z

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. 

MakerDAO was the dominant player in the DeFi market for a long time. It was a lending protocol with two tokens, a stablecoin coin pegged to the USD (DAI) and their protocol token (MKR).

These were the days that the entire amount of Ethereum locked in Defi protocols was c. $500,000 (c. March 13, 2020). And then suddenly, the explosion of Defi tokens was upon us. Last year in September Ilias Hatzis wrote `DeFi will eat traditional finance and dramatically expand the global lending market`. He reported that Celsius, lending rates were 10+%, Bitcoin.com in partnership with Cred also offered 10+% on BTC and BCH; Binance lending (centralized) offered 15% to BNB token holders for their ETH and Tether holdings. At the time, Celcius and Nexo were the rising stars of the centralized lending cryptocurrency space and Uniswap, MakerDao were in the decentralized space.

I recall spotting dYdX which is focused more on margin trading for cryptocurrencies in a more decentralized way.

Today, `the Defi FAANGs` include Compound, Uniswap, Aave, Yearn.finance and MakerDAO (but not No.1 in market cap or growth rates). These are my picks and they will surely change. They serve only one purpose: To highlight the Defi variety and main characteristics, without getting into technical details of how these protocols function and what their differences are.

Defi remains complex and for people that don’t have MetaMask accounts or some such, it sounds all Greek to them. So, what is the big deal and what does this craziness (in terms of price activity) imply?

In the Blockchain space, there are two painful major events that have had long-lasting ripple effects. The first is the DAO hack in June 2016 and the second is the ICO implosion in 2018. The first is a governance issue and the second a regulatory issue.

Both of these have been behind the slow development of DEXs (Decentralized exchanges) especially the non-custodial ones.

Non-custodial are those that the ownership of the assets can never be revoked. Two years ago in my article Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy? I wrote about Kyber Network (a DEX) and addressed the non-custodial attribute that varies by exchange.

The Defi space is not only about peer-to-peer lending in a decentralized way. There are Defi protocols and Dapps that are exchanges, others for trading/investing, and others for derivatives. The Defi world is experimenting with decentralized ways of the main conventional building blocks of finance: trading spot (i.e. swapping one asset for another with no intermediary and no one holding your assets), trading on margin or getting funded, lending-borrowing, and investing.

DeFi is mainly about the non-custodial aspect in any of the financial transactions I mentioned above. So, you can think of Defi as a genuine innovation in the governance of financial transactions. We have started with the basics: swapping assets, loans, trading on margin, and earning interest.

DeFi has introduced the innovation of governance tokens that act as an incentive and reward to token holders. For the first time, we are combining voting rights with financial rewards. In the conventional world, we all understand the power of voting rights but they are not connected with more direct yield, there is no market for them etc. Jack Ma owns 8+% of Ant Group shares but over 50% of the voting power. However, these rights are not tradeable or divisible.

Compound protocol and its $COMP token is a good example of a DeFi lending protocol with a governance token. You can lend your cryptocurrencies (in a non-custodial fashion) and borrow another cryptocurrency against your assets. This typically requires over-collateralization (c.150%) but you will earn interest and governance tokens that have often had capital gains that exceed the interest payments.

DeFi right now is offering exorbitant rewards for those taking the risks of experimenting with DEX protocols. These rates are not sustainable however, these protocols and Dapps are showing us the way governance can work. These are the new DAO experiments that are emerging.

Uniswap, the current leading in market capitalization, is a good example of a DeFi DEX. In plain words, this is an Automated Market Maker (AMM) that creates liquidity pools so that instead of an order book acting as the backbone of an exchange, we have smart contracts processing the transactions needed to swap one asset with another.

Yearn.Finance is the leader currently in yield farming. This is the next generation of Staking tokens. In plain words, you lock up your holdings in a lending protocol and you earn interest plus governance tokens; and you are not stuck in a protocol but you can move across protocols and get the best interest available.

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/2020/09/08/defi-and-its-two-core-attributes/

Stablecoin News for the week ending Wednesday 9th September.

https://dailyfintech.com/2020/09/07/stablecoin-news-for-the-week-ending-wednesday-9th-september/

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

Let’s call it as it is!  Hacks, scam ICOs’ and other wild value accretive promises that can never be kept, the list of trust destroying behaviour within and around this industry goes on and on.  

The Tech world may (just may), get away with the mantra of move fast and break things, when it incorrectly identifies a political advertisement as news (or to use the accurate definition, fake news), it cannot get away with naming a Token as a currency.  The chasm between the two is enormous.  One can be used within limits to swap with something of value the other is a State backed IOU of value.

Until the Industry finds a way to address this trust deficit, it will remain confined to a small corner of the global economy, loved by the curious, frowned on by the risk adverse and just generally ignored by the rest.

Are CBDC’s the answer?  This week Andrew Bailey, head of the BoE weighed in.  Firstly he said Bitcoin is not a currency.  However, he also called for Regulators to stop being passive, there are merits to this new technology and they (the Regulators) should be proactive in encouraging innovation and balancing consumer/market protection.  He went on to call for a global regulatory forum and we should start with CBDC for government currencies before experimenting with baskets of whatever (learn to crawl before we walk).

Reuters report on the speech here.

Bank of England says regulators must keep ahead of stablecoins

The actual speech here.

Andrew Bailey: Speech on the future of cryptocurrencies and stablecoins hosted by The Hutchins Center (to be published at 15:00 BST)

Youtube with some interesting discussion from the panel at the end.

https://www.youtube.com/watch?v=S75414_wQe0&t=925s

In the meantime, in the Crypto world that the Governor is trying to understand, stablecoins keep growing.  The current supply of stablecoins Binance USD (BUSD), Dai (DAI), HUSD, Paxos Standard Token (PAX), USD Coin (USDC), USDK, Tether (USDT), USDT_ETH, and USDT_TRX has been increasing by roughly $100 million daily for almost two months to a total of 16 billion.

Stablecoin market cap increases by $100M every single day

And now for something completely different, Bermuda has launched a digital token to stimulate the local economy following the COVID-19 pandemic. The Bermudan government partnered with a private stablecoin firm to launch the token, but insists it has no plans to issue a central bank digital currency.

Bermuda launches stimulus token, but no plans for CBDC

So we have the Governor of the Bank of England urging Central Banks to become proactive, set standards and get to work with CBDC’s, while we see further evidence of appetite for this technology amongst a segment of consumers.

__________________________________________________________________

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. 

___________________________________________________________________

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/2020/09/07/stablecoin-news-for-the-week-ending-wednesday-9th-september/

Will Offshore on Thames (London) become the Fintech capital of the world?

https://dailyfintech.com/2020/09/07/will-offshore-on-thames-london-become-the-fintech-capital-of-the-world/

I am a Brit, but I have lived all over the world and now call Switzerland home. I think Brexit was a mistake; but as an entrepreneur I work with the reality of what is rather than the hope of what could have been.

Money goes where it is welcomed and in a world of justifiable populism leading to both more trade barriers and higher taxation, money is looking for a welcome mat.

From the baby days archive  of Daily Fintech in 2014 is this post about Why London could become the Bitcoin Capital of the world. It was directionally correct and I will copy the 3 still-valid reasons why London could be a leading global Fintech/Bitcoin center:

  • Critical mass of techies and rich people. Paul Graham of Y Combinator fame famously said that all you need for an innovation center is (I paraphrase) techies and rich people. There is one caveat. The rich people must have made their money from the domain you are asking them to invest in. If the rich person made their money in property or manufacturing, a digital startup just looks ridiculous. London has plenty of people who made their money in Finance. They know that even the most venerable institutions are “data centers with fancy lobbies”, so a new tech powered innovation is not too big a stretch for them.
  • A light regulatory touch. Compare what the Cameron government is proposing vs what the New York State Department of Financial Services has proposed. It is clearly a fine line to walk. It is counterproductive if a center becomes a haven for scamsters and consumers to lose a lot of money. Bitcoin is a global phenomenon and many Bitcoin startups have global teams who can decide where they want to be based and regulation (along with talent and capital) is key to that decision. Regulation to protect consumers is good. Regulation to protect incumbents from competition is bad. New York has a lot of incumbents that certainly want protection; if they succeed in getting it, London will have a playing field tilted in their favor.
  • Talent with the right mix of domain expertise and deep tech. Fintech needs both. Deep tech expertise can be found in any location with good Computer Science colleges. Fintech startups need those engineers in the same room with people who understand the nuances of things like credit rating, derivatives, exchanges, asset management and so on. The devil is in the details that sit at the intersection of both deep tech and. domain expertise.

Regulatory competition is a harsh new reality for regulators and for their paymasters in government, which we have covered before.

Regulators don’t need to be perfect, they only need to be better than the alternatives.

In the maybe-United States of America, there are two contenders – New York and Silicon Valley. I say maybe-United because the red state blue state animosity is very toxic at the moment. I am voting for New York more than Silicon Valley (or Wall Street West as I call it) because the big tech companies are as reviled and in regulatory danger as Banks used to be.

In the maybe-United Countries of Europe, German contenders such as Berlin and Frankfurt have been hurt by the Wirecard fallout (see this great journalism by Paul Amery). Paris is not a serious contender albeit with some superb innovation.  So I am voting for Dublin as the Euro contender.

In Asia, the engine of growth, Hong Kong is hurt by the heavy handed of authoritarianism of China. So I am voting for Singapore – offshore in the tropical heat – as being equally comfortable for both Chinese and Indians. There is not even the pretence of a United Asia.

That is why London has such a strong chance – as does neutral Switzerland – the competition is in trouble.

The real winner is likely to be – anywhere with a connection to the Internet, The permissionless decentralized network alternative is a regulator’s nightmare. Something is needed because permissionless decentralized networks are full of scammy operators. Maybe the market will act as cop or maybe that is a libertarian wet dream,

While I was directionally right in 2014 to see London as a likely Fintech capital of the world, I was hopelessly wrong on timing. The reason is what I wrote about in this post in 2015 that London needs a big success story to become the Fintech capital of the world. That takes time (7-10 years as per the data). The Fintech capital of the world needs a mega big success story, not another early stage hopeful or some financial engineering IPO. You know, the sort of hyper scaling that made  Silicon Valley into the Tech-of-all-types capital of the world

A UK Fintech that may have learned how to hyper scale from Silicon Valley is Revolut. See next week for a deep dive into Revolut.

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

Daily Fintech’s original 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/2020/09/07/will-offshore-on-thames-london-become-the-fintech-capital-of-the-world/

Launch a token, raise cash. Does that still work?

https://dailyfintech.com/2020/09/07/56854/

token_launcher.png

In a podcast with Patrick O’Shaughnessy, Coinbase’s CEO Brian Armstrong confirmed that the cryptocurrency exchange is developing a platform to help startups launch their own tokens. Talking about the planned product, Armstrong said: “We’re working on a product; we’ll probably call it Coinbase Launch or something like that. It’s a way for anybody who wants to do a crypto startup to come in and say, ‘All right, I want to issue a token. Maybe I want to raise money. Maybe I just want to use it to build my community.” But unlike token sales in 2017, today the norm is for token sales to be conducted through an exchange. As the price of Bitcoin is going up, it looks like token sales are picking up steam once again. For better or for worse, it looks like 2017 is back.

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

Coinbase first revealed this product last fall, during the Invest Asia forum. Kayvon Pirestani, Coinbase’s head of institutional sales, had described that Coinbase was carefully exploring the IEO and STO options for support on their platform.

Armstrong described the product as a combination between Stripe Atlas, a platform to form a company, and AngelList, a website for startups, angel investors and job seekers looking to work in startups.

However, IEOs are nothing new.

Today’s IEOs are very similar to the original ETH token sale in 2015, and the 2017 ICOs, but they are also very different. IEOs are an evolution of Initial Coin Offerings (ICOs), with an immediate exchange listing and cooperation with the exchange. Also, the know-your-customer (KYC) and anti-money-laundering procedures take place at a higher security level.

We can find several large exchanges that already support IEOs, like Binance, OKEx, Bitfinex and KuCoin. In 2019, IEOs performed quite well raising $1.7 billion.

While Coinbase is almost two years behind other exchanges, Coinbase Launch could be a destination for serious projects,  potentially tapping into the huge crypto economy and powering thousands of new startups. A token sale with a  stamp of approval from Coinbase could ease the minds of investors, compared to launching on a lesser-known platform.

It already looks like 2017 is right around the corner. As the prices of Bitcoin and other cryptos are rising, IEOs are heating up again. But this time around, it’s not just because of rising prices. DeFi has also been important for token sales. With the rate at which DeFi tokens are making waves, more tokens are getting into the market. During August alone, over 500 coins have made their entrance into the DeFi space.

In late July, Polkadot, a challenger to Ethereum, raised $43.3 million in a private token sale. The $43 million sale comes in addition to Polkadot’s two previous token sales. Another similar blockchain project, Avalanche, spearheaded by Cornell computer science professor Emin Gün Sirer, raised $42 million in a public token sale.

But not every token sale has the success of Polkadot or Ava Labs, which attracted a lot of attention in part, because of their celebrity founders. Smaller sales also abound despite, or perhaps due to, the COVID-19 economic crisis.

Unlike ICOs, the common strategy for many IEOs is ongoing sales with controlled distribution, both for regulatory reasons and to inspire a sense of exclusivity. Despite some cases of poor performance, IEOs have proven to be an easy and low-risk way for projects to raise capital without offering up a large portion of the total token supply, with the typical IEO bringing in around $3-8 million.

As everyone is jumping in the booming DeFi market, several token generators are now let anyone easily create an ERC20 token by filling out a simple form. Coinbase will simplify the token creation process far beyond what generators offer. The exchange will take a hands-on approach with every step of the process and streamline everything from custody to smart contract creation, to governance and distribution.

The last few years have shown us that institutional investors are still wary of investing capital into utility token sales due to perceived market risk. While IEOs are a step in the right direction, more work is necessary to institutionalize the token-led fundraising process. Coinbase Launch, might be exactly what the doctor ordered, to expand the cryptocurrency market and become more attractive for an increasing number of investors.

Image Source

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

https://dailyfintech.com/2020/09/07/56854/

Alt Lending: Credit Decisions in a digital world

https://dailyfintech.com/2020/09/04/alt-lending-credit-decisions-in-a-digital-world/
Alt Lending Image.001

Last week I more or less wrote off Jerome Powell’s comments on allowing the US economy to run hot without response as nothing new. Many of the mainstream press commentators saw it as a major change in US policy. If that is the case what is the likely impact going to be? To me at this point it just seems like an indicator that nothing is going to change interest rate wise for a long time and will not lead to inflation taking off. We will all have to wait and see.

Start up bank makes US push after £ 750m Virus loans

Why this matters: Interesting story about yet another go for growth digital bank that wants to crack the enigmatic  SME market in the US and the UK. The interesting thing about this particular contender however is the fact that it has developed a “Credit Science” application that it is actively licensing to other banks to help them enter the digital market. The application appears to be a combination of three factors. Firstly historical data obtained from a variety of external public sources which is then stored within its Database. Secondly “Data Science” which appears to be use of KPI norms and positioning within the borrowers industry and lastly traditional Credit analysis techniques which can interact with the data from the other two disciplines. It’s an interesting concept and presumably has an infinite number of business, personal and other  variables that can be weighted and tweaked to cope with any number of specific factors. My old boss at BofA, Jim McDermott once told me that credit is an art not a science and he was probably right but the more data you have at your disposal the more likely you are to gain insight and to make better lending decisions. However the key to whether or not you are going to get your money back is less reliant on the past than it is on the future. OakNorth bank seem to understand this by emphasising the necessity of interacting in depth with the borrowers executives before making its lending decisions. The bank also states that there has been no real change in the way the way that lending occurs since the 1980. An old cynic like me can both agree and disagree with this. Oak North is still a small organisation,has not been through a full business cycle yet and like all of us has not encountered the aftermath of a pandemic. Nevertheless the direction of travel, as far as data management is concerned, is probably inevitable.

Amigo squeezed as borrowers take pandemic payment breaks

Why this matters: The unseemly squabbling among the board members of Amigo is yet another demonstration of how quickly things can change in uncertain times. Of course this has nothing whatsoever to do with technology but everything to do with human beings.  The historic data, an essential part of Credit Science technology has thanks to COVID,  something entirely beyond its control had a dreadful impact on Amigo’s business. I cannot help but think, however, that a business like Amigo which totally relies on third party support should have at least considered that a pandemic might create an existential threat and taken some amelioration measures. I know that at the beginning of this year the threat of a pandemic was thought unlikely but it begs the question. If there is a pandemic or other existential risk have the circumstances been fully thought through.  Psychologically acting as a guarantor is not the same as being a principal and indeed creates an arguably distanced and more complex risk in a crisis. It is just another of the many thousands of variables encountered in human behaviour wherever money is concerned.

SEC eyes probe Robinhood handling of March shutdown

Why this matters: While strictly not in the digital lending space there is a warning here for start up banking operations that the robustness of their end to end digital platforms are being very seriously looked at by various authorities in this case the SEC. The Robinhood platform is an equities trading platform and is frequented to a disproportionate degree by young inexperienced traders. Outage of their platforms during the helter skelter of the early days of the pandemic meant that some punters were all dressed up with nowhere to go when the platform went down and were not too happy about it. Some digital start ups might well be in the same boat particularly where they are offering trading services where positions might well be open but where the user has no alternative way to close them. It might be as well that new clients are warned that it takes a lot of time to set up a banking relationship these days and that users are compelled to have a plan B.

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.

Daily Fintech’s original 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/2020/09/04/alt-lending-credit-decisions-in-a-digital-world/

XBRL News: risk disclosures, RegTech and analysis software certification

https://dailyfintech.com/2020/09/03/xbrl-news/

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

1 Comparing changes in risk disclosures 

Not long ago the Securities and Exchange Commission adopted new rules to reduce the amount of disclosure that firms need to make about business risks, legal proceedings, climate change, and other issues. Those changes go into effect within 30 days of their being published in the Federal Register, which typically happens within a few weeks. So on a practical basis, companies could start filings disclosures according to this new, slimmer standard by the end of this year.

It looks trivial, but these disclosures do not need to be redlined, and the devil resides in the detail as a matter or principle. Hence it is either manual comparison (and miss that decisive and) – or have a tool automatically redline it for you.

2 EBA consults on the use of RegTech solutions

The European Banking Authority (EBA) launched today a RegTech industry survey to invite all relevant stakeholders, such as financial institutions and ICT third party providers, to share their views and experience on the use of RegTech solutions, on a best effort basis. The aim of the survey is to better understand the ongoing activity in this area, raise awareness on RegTech within the regulatory and supervisory community, and inform any relevant future policy discussion.

Funny you should ask … what with compliance and regulatory affairs being the major (only?) domain of employment growth within incumbent financial services, it makes sense to look into ways to make this function more efficient. However, it is instrumental that the regulation is written / reviewed with this in mind.

3 Review, Analysis and Audit Software now eligible for XBRL software certification

The XBRL Software Certification programme is being expanded to include a new category of software intended to cover end-user software products that consume XBRL reports for review, analysis or audit purposes. The new category is in addition to the existing categories for XBRL processors and XBRL report creation tools.

XBRL instances, just like conventional financial reporting, are complicated documents. In order to build trust into a tool’s capacity to make these complications more easily manageable (see (1)), it makes sense to have its quality reviewed and certified.

—————————————————————

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/2020/09/03/xbrl-news/

The Elusive Sweet Spots In Insurtech Evolution

https://dailyfintech.com/2020/09/03/the-elusive-sweet-spots-in-insurtech-evolution/

Hardly anyone would argue that change and innovation are not necessary in insurance. The $5 trillion global insurance industry is large, complex and capital intensive. With various relatively untapped market segments and under-penetrated world regions, the onset of PE/VC investments did herald the beginning of buoyant sentiment for more dramatic change and innovation than the industry was known for.

As recently as 2016, the term insurtech didn’t evince interest on internet searches. In the ensuing period, it has gained hype and momentum. Investment activity moved to witness manifold increase at the early startup stages and increased intensity for scale-ups.

Unsurprisingly, researchers have identified insurance, capital markets and banking as sectors most ripe for disruptive innovation. Below is an Accenture chart that compares current level to future susceptibility. 
Gasc_Agile-insurers-see-innovation-as-critical-for-their-survival-_Blog1_Picture1

If you look back at insurance history, innovation was coupled with conservatism that dissuaded companies from latest fads and helped maintain capital for intended purposes. Such conservatism benefited most carriers during crises, but dampened the flexibility needed to survive and thrive later. Over the last few decades, more money was spent in technologies to keep up with regulations than for modernization.

The advent of technology companies has resulted in frenzied activity among incumbents to build similar capabilities, to scale and dominate their markets. But, as Yale University Professor Robert Shiller in a seminal article titled “Radical Financial Innovation” said, “Radical innovation requires serious experimentation, serious effort to find the precise form of financial or insurance structure that will perform well, serious effort to educate the potential clients about the new risk management tool, a commitment by innovators to make it work, and an involvement with other institutions and thought leaders to make the variety of changes possible to make the innovation succeed.”

This is not easy for carriers encumbered by large, slow-moving legacy organizations nor for the tech challengers who have jumped headlong to move the needle. Serious experimentation and efforts will take serious time. Educating clients about risk management tools will consume significant energies. The below Swiss Re chart shows, truly revolutionary technologies and propositions are at best a few years away.

swissre-chart

It is an opportune reminder that not all such endeavors will succeed. The winners far from being standalone innovators, will be those that work closely with other organizations and ecosystem players.

Insurance is a sticky industry, with an average retention of 84% in 2018, according to OECD. But, customers today are more likely to switch providers that offer lower costs or better service. In fact, 77% of auto insurance customers are likely to shift to another provider, according to a JD Power Study.

With a vast underserved population, the threat looms of disruptive innovation by an upstart creating a low-cost product that, like the first automobile to hit the market, is derided in the short run,  but has far reaching consequences with time.

As the initial frenzy marginally dissipated and carriers collaborated with startups, fewer industry executives feel concerned about the speed of tech change, changing consumer behavior, or new market entrants. The shift towards collaboration has got both startups and legacy providers to realize that they gain from combining the former’s tech with the latter’s customer knowledge, risk understanding and capital strength.

pwc-disruption

In effect, incumbents see less existential threat from a new entrant. Instead, the threat might emanate from incumbents partnering with tech innovators, tech pioneers scooping up carriers to go full stack or tech giants leveraging distinctive competencies in tandem with incumbent majors. There is turmoil on the road ahead and  those that are constantly scanning the emerging trends, leveraging these and strategizing to build on their current market positions, will be most likely to thrive.

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

https://dailyfintech.com/2020/09/03/the-elusive-sweet-spots-in-insurtech-evolution/

Will thin layer/fat commission ventures like Uber be replaced by full stack digital cooperatives? 

https://dailyfintech.com/2020/09/01/will-thin-layer-fat-commission-ventures-like-uber-be-replaced-by-full-stack-digital-cooperatives/

For investors, thin layer/fat commission ventures have been the
icing on the cake: thin layer means no costs/hassle of service
delivery; a simple app is all Uber needs because they do not
employ drivers or deal with any logistics issues.  fat commission
means lots of revenue ; Uber for example makes a commission of 20%.
[…]

The post
Will thin layer/fat commission ventures like Uber be replaced by
full stack digital cooperatives? 
appeared first on Daily Fintech.

https://dailyfintech.com/2020/09/01/will-thin-layer-fat-commission-ventures-like-uber-be-replaced-by-full-stack-digital-cooperatives/