fintech

NEOBANKS & FINTECH: Ride-hailing apps are becoming the Uber of Fintech

Steve Jobs defined a key distinction that stuck with many entrepreneurs -- is your company a Product or a Feature? It's bad to be a feature -- you are just one widget in someone else's platform. It's good to be a product -- you fit into many environments and use-cases. What we are observing now is that Fintech product is being transformed into a platform feature by non-Fintech players -- specifically ride-hailing apps like Uber, Lyft, and Grab. 

These ride-hailing giants have built their empires by making the burden of payments a truly seamless experience for their customers. Which is why the potential for them to expand into Fintech and financial services far outweighs the need for new forms of transportation -- autonomous human-carrying Uber drones or Lyft trains. The kicker being that their robust platforms and/or large customer bases create ripe cross-sell opportunities. 

Take Grab -- the $14 billion-valued ride-hailing giant that acquired Uber's Southeast Asia business last year. Since then, Grab has faced growing competition from Go-Jek -- its +$9 billion-valued rival who is backed by Google, JD.com, and others. Forcing Grab to earmark financial services as a core pillar of its strategy for regional dominance over Go-Jek and financial incumbents who are disadvantaged by the lack of financial services infrastructure and unified credit scoring. Since then, Grab has partnered with Mastercard to launch a prepaid card to target the unbanked, spun out its own financial arm -- Grab Financial Group, which brings group payments, rewards & loyalty, and insurance to its drivers and customers, and recently announced a co-branded credit card with Citi. 

Uber's initial foray into financial services was the launch of Uber Cash -- a digital wallet allowing credit to be added in advance via prepaid cards. Since then, the popular ride-hailing app has partnered with Venmo for payments, Finnish-Fintech Holvi for offering financial services access to its drivers, Flexible car-leasing startup Fair for car leasing, a credit card in partnership with Barclays for loyalty and promotions, and a recent hiring spree showing signs of a potential New York-based Fintech arm -- much like that of Grab's. One of the interesting outcomes from such an arm would be the potential for a native Uber bank account, which would help remove the ride-hailer's reliance on the existing banking system -- Card processing fees alone cost Uber $749 million in 2017 -- to get paid and pay its drivers. Such a move would see Uber partner with cheaper and more agile low-profile FDIC-insured banks such as Cross River, Green Dot, or Chime, rather than have its own charter or partner with larger institutional banks. This is likely, as US-based ride-hailing companies such as Uber and rival Lyft have come under scrutiny by lawmakers to consider their drivers as employees rather than "independent contractors". Both Uber and Lyft argue that such a move would be cripplingly expensive -- Quartz estimates the cost to be $508 million and $290 million respectively. Our question is, to what extent would native bank accounts offset these potential employee-related costs?

Fintechs such as Square and Stripe are prime examples of digital startups that have used their enrolled bases of small merchants to cross-sell other services. Ride-hailers are starting to take note by replicating this model -- using their extensive base of both drivers and riders to build out their own ecosystems.

5c24dea6d4beaf2aa1437b64-750.jpg
s3-news-tmp-140656-untitled_design_1_17--2x1--940.jpg
5d00fc306fc920415944a915-750.png
https___blogs-images.forbes.com_ronshevlin_files_2019_05_20190512-WhyDigitalBank2-1200x675.jpg
gallery_xlarge.jpg

Source: Grab (via Business Insider), Grab Financial (via TheDrum), Uber (via Business Insider), Uber Credit (via Techcrunch), Uber-Lyft wage concessions (via SFChronicle)

ARTIFICIAL INTELLIGENCE: Proof that we have been training AI fakes to stab us in the back

In the 1933 film Duck Soup, actor Chico Marx is famously known to have asked, "who ya gonna believe, me or your own eyes?" Fairly meaningless in the 30s, but today, it's more relevant than ever. Let us explain. We know how the ever-expanding capacities of computing power and algorithm efficiency are leading to some pretty wacky technology in the realm of computer vision. Deepfakes are one of the more terrifying outcomes of this. A deepfake can be described as a fraudulent copy of an authentic image, video, or sound clip, which is manipulated to create an erroneous interpretation of the events captures by the authentic media format. The word 'deep' typically refers to the 'deep learning' capability of the artificially intelligent algorithm trained to manifest the most realistic version of the faked media. Real-world applications being: Former US president Barack Obama saying some outlandish things, Facebook founder Mark Zuckerberg admitting to the privacy failings of the social media platform and promoting an art installation, and Speaker of the US House of Representatives Nancy Pelosi made to look incompetent and unfit for office.

Videos like these aren’t proof, of course, that deepfakes are going to destroy our notion of truth and evidence. But it does show that these concerns are not just theoretical, and that this technology — like any other — is slowly going to be adapted by malicious actors. Put another way, we usually tend to think that perception — the evidence of your senses (sight, smell, taste etc.) — provides pretty strong justification of reality. If something is seen with our own eyes, we normally tend to believe it i.e., a photograph. By comparison, third-party claims of senses — which philosophers call “testimony” — provide some justification, but sometimes not quite as much as perception i.e. a painting of a scene. In reality, we know your senses can be deceptive, but that’s less likely than other people (malicious actors) deceiving you.

What we saw last week took this to a whole new level. A potential spy has infiltrated some significant Washington-based political networks found on social network LinkedIn, using an AI-generated profile picture to fool existing members of these networks. Katie Jones was the alias used to connect with a number of policy experts, including a US senator’s aide, a deputy assistant secretary of state, and Paul Winfree, an economist currently being considered for a seat on the Federal Reserve. Although there's evidence to suggest that LinkedIn has been a hotbed for large-scale low-risk espionage by the Chinese government, this instance is unique because a generative adversarial network (GAN) -- an AI method popularized by websites like ThisPersonDoesNotExist.com -- was used to create the account's fake picture.

Here's the kicker, these GANs are trained by the mundane administrative tasks we all participate in when using the internet on a day-to-day basis. Don't believe us? Take Google’s human verification service “Captcha” – more often than not you’ve completed one of these at some point. The purpose of these go beyond proving you are not a piece of software that is unable to recognise all the shopfronts in 9 images. For instance: being asked to type out a blurry word could help Googlebooks’ search function with real text in uploaded books, or rewriting skewed numbers could help train Googlestreetview to know the numbers on houses for Googlemaps, or lastly, selecting all the images that have a car in them could train google’s self-driving car company Waymo improve its algorithm to prevent accidents.

The buck doesn't stop with Google either, human-assisted AI is explicitly the modus operandi at Amazon’s Mechanical Turk (MTurk) platform, which rewards humans for assisting with tasks beyond the capability of certain AI algorithms, such as highlighting key words in an email, or rewriting difficult to read numbers from photographs. The name Mechanical Turk stems from an 18th century "automaton" or self-playing master chess player, in fact it was a mechanical illusion using a human buried under the desk of the machine to operate the arms. Clever huh?!

Ever since the financial crisis of 2008, all activity within a regulated financial institution must meet the strict compliance and ethics standards enforced by the regulator of that jurisdiction. To imagine that a tool like LinkedIn with over 500 million members can be used by malicious actors to solicit insider information, or be used as a tool for corporate espionage, should be of grave concern to all financial institutions big and small. What's worse is that neither the actors, nor the AI behind these LinkedIn profiles can be traced and prosecuted for such illicit activity, especially when private or government institutions are able to launch thousands at a time. 

maxresdefault.jpg
54646.PNG
800.jpeg
captcha_examples.jpg
amazon-mechanical-turk-website-screenshot.png

Source: Nancy Pelosi video (via Youtube), Spy AI (via Associated Press), Google Captcha (via Aalto Blogs), Amazon MTurk

PAYMENTS: E-Commerce sales growing at a "solid" 12.4% vs. Retail's 2%. What is driving this?

Last week was made great by the release of Mary Meeker's Internet Trends report. If you haven't seen the 2019 version yet, what are you waiting for? Time to read 334 slides in 30 minutes. The key takeaway we remember from last year was the broad digitization of commerce, with E-commerce living in the web and in our mobile apps, plus the augmentation of the physical space with embedded digital commerce. See entry 1 above. 

Ecommerce is still very much a highlight of this report. Specifically, the fact that US ecommerce sales growth is noted as being “solid”, reaching 12.4% year-on-year growth in Q1 of 2019, up from 12.1% in Q4 2018. Similarly, physical retail sales are noted as “solid”, albeit growing more conservatively at 2%. Additionally, customer acquisition costs were found to be rising to unsustainable levels.

What we found most interesting about the reported ecommerce growth in 2019, is its sources where not only from the expected channels i.e., offline sales shifting to online, or search-directed sales on ecommerce websites. Rather, Meeker’s report tells a story of retail becoming a feature that is integrated into apps and services of every kind, and ecommerce reaching new communities and demographics: (1) Social apps -- like Kakao, Line, and Instagram are increasingly integrating transaction and ecommerce features. The monetisation of features embedded in large scale attention platforms makes sense.(2) Ecommerce platforms are making delivery a focal point of their offering. Much of the friction on these platforms lies in the delivery phase of the customer's journey with either cost or time creating negative experiences. Data-driven and direct fulfilment is growing rapidly with agile and low cost third-party platforms -- such as Rappi -- helping to remove such friction points. Enabling local merchants to expand their online presence, and improve access of their ecommerce platform to customers in entirely new and traditionally inaccessible markets. (3) Online grocery formats in China are competing for consumer wallet share. Here, Meeker showcases the sheer variety of grocery retailers competing using different formats for customers to access them i.e., digital-only stores, physical stores with a native digital app, digital-only stores that leverage a franchised community of retail partners to provide the goods and deliver.

It's always good to know we were right. As our 2019 predictions state "customer acquisition costs will rise and the digital model will become more competitive as servicing costs commoditize at a cheaper price point. What we mean is that if everyone -- including large operating businesses -- will understand how to market to and serve Millennials, driving away the arbitrage opportunity Fintech companies have had to date". We'll take that!

dsfsdfsdfsdf.PNG
54646548.PNG
sdasdasd.PNG
8971213.PNG
543154.PNG
34234234.PNG
asdasdasd.PNG

FINTECH: From mobile networks in Africa to global eCommerce platforms, marketplace banking is on the rise

It has long been the promise of regulations like PSD2 or plain old web-forced transparency, that banking information and products get popped out from behind the curtain and made to compete within the foreign land of tech platforms (i.e., App stores and e-commerce). This means prices fall and economic rents go to fewer winners that have strong APIs, integrations, and a nimble balance sheet. The promise is a utopian Fintech ideal in which one’s cash, savings, debts, bills, tax, investments, and assets exist in a single platform that is fast, secure, and globally accessible. And where the long tail of banks evaporates into commodity providers as their regulatory and distribution moat falls away. The symptoms of this happening aren't difficult to find either.

Take open banking platform Plaid – a US-based data aggregation platform that powers authentication and banking detail provision -- not "personal financial management" only -- for any tech startup that wants your bank account and routing number. The platform has built a major open financial data infrastructure for over 15,000 tech startups such as Venmo, Acorns, Robinhood, and Coinbase. It goes without saying that these startups Such success has driven the platform to the shores of the UK, in which it is already connected to over eight of the largest digital-only banks. The claim is that the platform will give UK Fintech businesses access to 70% of all personal current accounts and promote the democratization of financial service offerings to customers between the US and UK. Essentially, these open banking platforms -- Tink and Bud included -- aim to be the Amazon Web Services for financial service companies.
 
A less obvious but just as important example is in eCommerce, where marketplaces like Amazon are partnering with financial institutions to shift the flow of retail into its walled garden -- Bank of America for merchant lending, American Express for SME credit cards, JP Morgan for checking accounts, and so on. The goal here being to monetize a sticky business customer (SME) within the eCommerce platform over and over again -- remember the cross-sell is bigger than the sell. We found two noteworthy new developments in this department. (1) African mobile network operator MTN is building a digital marketplace platform to offer everything from financial products to household goods. The platform will be bootstrapped to MTN's existing mobile money app MoMo, with hopes of it becoming a leading full service banking and eCommerce platform, offering loans, savings accounts, insurance, as well as third party products. The reach of such a digital service would be massive with MTN operating in 22 countries with over 200 million customers. Compare that to the "Amazon of Africa" eCommerce giant Jumia's 4 million customers across 14 countries and you have yourself a juicy competitive advantage situation. 

(2) eBay has just announced a partnership with Santander to offer loans to its 200k SME customers – similar to the Amazon BoFA cooperation. The vision is that eBay have proprietary data that that could indicate SME revenues before those revenues even materialize -- for example: the traffic on product pages by consumers on the eBay website. Here the story is the same where financial institutions are leveraging the customer base and stickiness within eCommerce platforms to sell their products, with the intention to either up-sell or cross-sell them to higher margin products at a later stage.

Overall, it is clear that there is a movement to consolidate financial products and services into digital marketplace platforms is afoot. Should this concern existing banking incumbents? Not entirely, as such institutions still hold the resources sufficient to rapidly spin up their own Fintech startup -- Goldman Sach's Marcus and Well Fargo's Greenhouse. For those that don't, and rather partner with Fintech marketplaces -- the incumbent becomes the client of the Fintech -- the risk is clearly commoditization. Why would anyone choose the pain of shopping for and opening a third-party bank account, if one comes pre-installed in our virtual shopping assistants? Here, Fintech's have their cake and get to eat it.

fintech_banks.jpg
link-flow-iphone.jpg
Internal_1024x491px_VAOneCampaign.jpg

Source: Novobrief (article), Plaid screenshot (Plaid Blog), MTN MoMo (MTN Cameroon)

CRYPTO: GAFA doubles down on a crypto future, whilst regulators bite down on a crypto past

A few things here. Firstly, this week at its Worldwide Developer Conference Apple announced the launch of a mightily powerful computer deemed “the cheese grater”, a monitor stand costing as much as an iPhone X...just for the stand, and more importantly CryptoKit . Essentially, CryptoKit is a cryptographic developer tool that allows developers to build more security functionality into their apps with improved support and ease-of-use. Such functionality comes in the form of hashing, public and private key generation, and encryption needed to be integrated into iOS applications. Not to be confused with Samsung and HTC's phones that come with native crypto wallets. Yet, it goes without question that these companies (Apple now included) are reacting to the rising demand for crypto-focused products.

This is not the first time we are seeing the tech giant embrace crypto either. Last month it was announced that debit card and payment app ‘Spend’ -- which supports over 16 different cryptocurrencies -- now has integrated Apple Pay functionality. How this works is cryptocurrencies, such as Bitcoin or Dash that have been bought in / sent to the integrated wallet, will get converted at the point-of-sale for instant purchases through the ApplePay network. 

Another GAFA giant we know is embracing crypto is none other than Facebook with their soon-to-be-launched cryptocurrency GlobalCoin. What’s interesting is that, over the past few months, the social media giant has been hard at work trying to win over financial institutions and tech companies -- such as the Bank of England and crypto-firm Gemini -- around formalizing an independent foundation -- much like the Ethereum Foundation -- to govern the digital asset. We know that the coin will most likely be a stablecoin i.e., pegged to a fiat currency / basket of currencies / or other, making it desirable and easily marketable in emerging markets where local fiat currencies are economically unstable -- such as in Venezuela. The required funding will come from the fees Facebook charges partnering firms to run a node on the network. Essentially, these firms will need to stake their interest and commitment, and tie them into supporting the network. Facebook aims to have 100 nodes at the launch of GlobalCoin, with each node costing partnering firms as much as $10 million. Based on their tarnished reputation to safeguard the privacy and security of the social network's users, we think this is ambitious to say the least.

Facebook is not the only tech firm embracing crypto with a suspect reputation. Just last week, the US Securities and Exchange Commission (SEC) took legal action against social messaging app Kik -- regarding its 2017 sale of one trillion “Kin” tokens to over 10,000 investors, raising around $100 million. The premise being that the sale was not registered with the SEC -- a requirement under US securities laws. As such, the sale is deemed an “illegal securities offering of digital tokens.” 

It is not only the SEC that are leading the fight against previous instances of cryptocurrency-powered crimes. The Joint Chiefs of Global Tax Enforcement or J5 - a team of five criminal intelligence communities from Australia, Canada, the Netherlands, the United Kingdom and the United States whose purpose is to fight against international and transnational tax crime and money laundering. Currently, J5 has opened 60 different investigations specifically related to cryptocurrency-powered crimes. One of these is a Netherlands-based cryptocurrency “mixing service” called Bestmixer.io whose primary function was to hide the ownership history of cryptocurrencies, raking in 27,000 bitcoins ($200 million) over one year alone.

As many would consider the institutionalization of crypto by GAFA and the clamp down by global regulatory bodies a negative, its important to note that if adoption is key to ensuring the prosperity of these mechanisms, then such action needs to be taken to safeguard those vulnerable to exploitation and those that consider the inherent illicit activity too great a barrier to enter.

internet_receives_new_ridiculously_overpriced_apple_releases_with_a_memestorm_640_01.jpg
65+65.PNG
41564654.PNG
bestmixerio-seized-domain-snip.jpg

Source: Apple Cryptokit (via Apple), Facebook Globalcoin (via The Information), Bestmixer.io (via Europol), J5 crime unit (via IRS)

ROBOADVISORS & INVESTING: Robinhood's latest $8bn valuation means that scale players need to wake up

There’s no such thing as a free lunch in life, but there are such things as free trades on Robinhood. What Chime did with banking, Robinhood has done with trading. Their massive 4 million active user base is enviable to every other Fintech. So then it's no surprise that the firm is estimated to be valued at $7-8 billion, following a $200 million fund raise with existing investors. Founded in 2013 by two former Stanford University roommates, Baiju Bhatt and Vlad Tenev, with the goal of  building a brokerage service that democratized access to the financial system -- specifically, stock trading and its significant barriers to entry (costs, fees, and minimum capital requirements). Since it's launch, millennial investors -- an elusive audience to traditional financial services firms -- have flocked to the service to trade stocks, options, cryptocurrencies and exchange-traded funds, at low-to-no fees.

Such success stems from the app's ability to earn fees via indirect channels such as marginal interest, lending, a $6 per month premium product called Robinhood Gold -- offering up to $1,000 of margin to trade with, and lastly, rebates from high-frequency trading and payment order flow. Here, third-party market makers, such as Citadel Securities, Two Sigma, and Virtu, pay Robinhood a rebate for processing trades on the app's behalf, apparently to offer better execution quality and prices. Whilst that sounds noble, it must not be forgotten that such a non-transparent practice -- as noted by CNBC -- could encourage brokers to send orders to market makers that offer the most generous rebates, and not necessarily the ones who offer the best prices for stocks. However, this is likely not to be the case as Robinhood's leadership has stressed that "we don’t take rebates into consideration when we choose which market maker will execute your orders. Also, all market makers with whom we work have the same rebate rate". Last year Bloomberg reported that Robinhood made in excess of 40 percent ($69 million) of its 2018 revenue from payment order flow.

Additionally, Robinhood is planning a U.K. launch to muscle-up against the likes of challenger broker Freetrade -- a London-based twin of Robinhood, and challenger bank Revolut -- who has indicated its intention to offer a free trading platform in the near future. The interesting aspect here is that Robinhood has been desperate to become a full-service bank, with evidence of this coming from last year when the company ended up with egg on its face after announcing its intentions to launch savings and checking accounts with 3% interest rates (30 times the U.S. national average) - despite not being FDIC insured (which is illegal). All too soon after this discovery was brought to regulator's attention, the product was rebranded as a "cash management program" and references to deposit protection were swiftly removed. Yet, the pursuit continues, as the company's second attempt has recently been made via an application for a bank charter in Push-to-Offer Traditional Banking Services with the Office of the Comptroller of the Currency (OCC).

Lastly, there are rumors that Robinhood is expecting a much bigger round of funding later this year, which could value the company at over $10 billion. This, coupled with the success of the company's latest commission-free crypto trading app, U.K. expansion, and launch of its full service bank, should make scale players in the industry such as Schwab, E-Trade, M1 Finance, and Fidelity fairly nervous. From zero-fee index funds, to zero-fee trading of single stocks. Fee-free trading apps like Robinhood, Vanguard, and FreeTrade have initiated a pricing war between scale players and themselves. So long as the strategy to fight this war remains: platforms and marketplaces who cross-sell products with the aim to retain customers and lock them into a sales cycle, this tech-enabled price war will squeeze margins down to zero. Last one to the bottom is a rotten egg.

12165165.PNG

Source: Robo-Advisors with the most AUM (via Roboadvisorpros)

download51651.png
Rowady3-1024x520.1555604603433.jpg
Phone-array-LTC-BCH.png

Source: Robinhood (via Bloomberg), Robinhood Gold (Robinhood Blog), CNBC (article), Robinhood Crypto (Robinhood Blog)

CRYPTO: Are Stablecoins still poised to be crypto's saving grace?

With all the noise and hype around the recent large price movements of core cryptos like Bitcoin (BTC) and XRP, it's easy to forget the ones hard at work to minimise volatility risk in order to encourage crypto adoption among the skeptics. These are stablecoins of course. The core thesis behind them is that BTC was not used as a transactional currency because of its volatility, and therefore merchants and individuals would not rely on it as a unit of account or medium of exchange. This premise is not entirely true -- volatility is only partially explanatory of why BTC is not being used by consumers. In our view, the main barrier is not volatility but ease of use and form factor. It's just too hard to figure out how to actually pay with BTC or any other digital currency for real (i.e., non-digital) goods and services. And while there are attempts to put Bitcoin and other currencies into debit or credit cards, these are still early in market penetration. 

If you look at stablecoins themselves, there are two narratives to note. (1) Any floating currency needs to be collateralized, whether or not it is printing money algorithmically or has bots arbitrating itself against exchanges. Otherwise you cannot fund redemptions (and if you can't fund redemptions, then you are just printing specious moneys). Holding the peg to your desired currency basket, whether USD, yuan or Euro, requires being able to defend the currency with capital reserves. Any private capital reserve can be broken by a larger private capital reserve -- or even by a government actor. Consider Soros and the Bank of England. As a result, these coins are fragile and ripe honeypots for attack and manipulation. In the case where the reserve becomes so large as to be unbreakable, and where the currency is meaningfully used as a medium of exchange, it becomes a threat to the world's actual reserve currency, the USD. The US sovereign is unlikely to allow private parties to issue and own a digital dollar at scale -- though they may be catalyzed to do so publicly (i.e., central bank coins). These are not farfetched ideas either, with over 20 governments such as Brazil, Canada, Israel, and The Bahamas all considering the prospect of a Central Bank issued digital currency.

The second narrative is much more narrow -- private company networks that ride the blockchain rails need the equivalent of a Cash Sweep. Imagine opening up a Schwab brokerage account. Your free cash in a portfolio -- let's say 1.5% -- would get invested into a cash sweep vehicle, which could be a money market fund, or a trust company cash account, or something similar. For a crypto financial company, you are unlikely to want to hold a financial license for traditional banking or investment services. But you still need to manage the cash somehow. So efforts like UBS settlement coin, or any of the recent stablecoin projects, could fill in the gap of moving USD around within a limited sized network in order to reduce friction between going in and out of fiat. If the network gets so big as to include the entire economy, then it again pops up on the Treasury's radar. That's not to say it's a dead end. Banks print money by issuing credit all the time, they are just massively regulated to do so.

So where does this leave us? Non-financial companies such as Facebook and Samsung have admitted to considering their own blockchains for future native stablecoins. Facebook's reason for this is to provide its 2 billion user base with a centralised medium for international remittances, payment for premium content (e.g. games), and your attention (e.g., advertisements) across its website, Messenger, Whatsapp and Instagram. Samsung, on the other hand, wants your mobile phone to be your crypto wallet. Such non-financial companies are likely to be less risk-averse than traditional financial companies, and have greater incentive to disrupt the payments industry, with the added ability to execute at a faster, scalable pace. As a result, these companies may help defining future key growth drivers for both the global payment and the digital asset industry. But this doesn't mean that this won't create a red ocean where other big banks, social media networks and consumer electronics companies issue their own stablecoins to compete, adding "about as much competitive advantage as having your own .com address" - Bernard Lunn of Daily Fintech.

stablecoin projects.png
stablecoins.png

Source: Autonomous NEXT Analysis

FINTECH: Greentech and Fintech are a match made in heaven

Here me out here. Decarbonisation and sustainability are becoming buzzwords within the hallways of big venture. Why? Because -- global warming tensions aside -- financial services companies both big and small are coming to the realisation that they are the end customer for energy startups focused on operations, management, and analytics platforms. Bloomberg backed this up in a recent report indicating that investments into the Global clean energy totaled $332.1 billion in 2018 -- with Solar and Wind receiving the lion's share of investment at 39% each.

Politics aside, renewable resources have grown more cost competitive as a direct result of production economics -- sourcing cheaper and more efficient methods and resources to harness energy in more sustainable ways. For example, Tesla's solar roof is deemed to be 20% cheaper than a normal one. So where does Fintech fit in all of this? Since alternative energy generation sources like wind, solar, and fuel cells have become more cost competitive and popular, financial players have stepped in to source the tools and platforms necessary to maximize the return profiles of these alternative energy generating assets -- specifically using technology to inform the operational and financial performance of such assets. For example, blockchain enabled energy trading platform -- Electron, insurance and risk management platform -- Energetic Insurance, or renewable energy finance plans and services platform -- Sunrun

Ultimately, it is without a doubt that what Fintech brings to the table is customer centricity -- creating enjoyable user experiences via friendly graphical interfaces and having an obsession with cost efficiency where it matters most for the customer. Case in point is what Transferwise did for cross-border payments, or Robinhood for stock trading, or Venmo for payments. Yet, it will be up to the greentech startups as to whether the inherently dirty financial services players have cleaned up their act enough to join them on their journey. For more on this, read here.

fig1-1024x771.jpg
xczxczxczx.PNG
ELECTRON_Energy-Market-Blockchain-746x556.jpg
dfsdasds.PNG

Source: BloombergNEF Report, Chubb Cleantech's Global Balancing Act Report, Electron (via Etondigital),Sunrun (Plans & Services)

BLOCKCHAIN & CRYPTO: DLT consortia are racing for the lion's share of the $1.5 Trillion Trade Financing Gap

Financial products -- including their embedded processes and inherent risks -- are transforming from legal paper to software. And as that happens, it is technology companies that are best positioned to manage, analyze, report on, and safekeep our money. The latest victim of this is Trade Finance - a practice that facilitates $16 trillion of trade around the globe on an annual basis. In short, trade finance covers the financial products, processes, and instruments involved in financing domestic and international trade and commerce. Each transaction often involving multiple actors (+20 in some cases), such as importers, exporters, banks, carriers, customs officials, and insurers. The juicy bit is the potential to digitize and modernize the manual, paper-intensive, and prone-to-risk processes involved in each transaction e.g., managing the cost and time implications of a trade war between two countries -- US v China showdown.

Enter distributed ledger technology (DLT), which has taken aim at the 1-2 week long paper-pushing documentary credit process. Essentially, a documentary credit is a commitment of liability by the issuing bank (representing the buyer/importer) assuring the seller/exporter that payment will be made once the goods have been received -- reducing the credit risk associated with the trade. The immutability of data and speed of distributed ledgers helps reduce the need for manual verification, as well as the risks associated with fraud, human error, and credit. Essentially, reducing the time it takes to execute the process of documentary credit to just 24 hours using smart contracts, and a purported 35% reduction in overall costs.

Interestingly, the first live end-to-end trade finance transactions on a scalable application for a fully digitized documentary credit using DLT took place in May last year, involving HSBC, ING, BNP Paribas, and Bangkok Bank. A year later, and trade finance is the 3rd most targeted sector for DLT use, involving industry consortia such as Voltron and Marco Polo -- built on R3's Corda DLT Platform, we.trade and eTrade Connect -- built on IBM's Hyperledger Fabric platform, and komgo -- built on JP Morgan's Quorum platform, all of which are after the lion's share of the $1.5 trillion trade financing gap and a piece of the $1.1 trillion of increased trade volumes by 2026.

This week at IFLR's Fintech Europe 2019 conference, we learnt that Voltron - a consortia of 12 banks building a single platform to digitize all document collection, tracking, and the facilitation of exchange for Documentary Credit via its network - has recently completed global trials which saw over 50 banks and corporates participate in the simulation of multiple digital Documentary Credit transactions across 27 countries, covering a range of goods traded including soybeans, plastic derivatives, metals and wool.

So what does this mean for the future of Trade Finance? Firstly, it's likely that the International Chamber of Commerce (ICC) will release a governance framework consisting of technology standards and business rules to oversee the practices of industry consortia. Secondly, interoperability of industry consortia platforms will be critical to how they integrate with existing bank systems. Finally, it's easy to relate what Voltron is trying to achieve in trade finance to what the SWIFT Network did in cross border payments -- transferring digital data between banks and corporates, although without the help of DLT. Given this, the possibility of a platform like Voltron to become the next generation SWIFT network -- adding a payments mechanism to its Documentary Credit platform is highly likely. Such a payment mechanism could use tokens enabled by smart contracts linked to IoT devices (See Project Forcefield) tracking the goods traded. In effect, removing the need for multiple intermediaries (e.g., Issuing Bank) required to alleviate risk exposure. We can dream.

435435.PNG
435345345.PNG
2342342.PNG
asdsad.PNG

Source: Digital Innovation in Trade Finance (BCG), Trade Finance & Blockchain ReportRebooting a Digital Solution to Trade Finance (Bain&Co)

ARTIFICIAL INTELLIGENCE: Amazon's new wearable edges us closer to a reality of emotionally manipulative financial institutions

In the past, we have touched on how a specific device that you use for conversational interface interactions will be locally better at understanding you -- rather than some giant squid-like monster AI hosted on Amazon Web Services. But, what if the conversational interface device is the friendly avatar to such a terrifying AI monster that possesses the ability to emotionally manipulate its user? Well, Isaac Asimov eat your heart out, Amazon are reportedly building an Alexa-enabled wearable that is capable of recognizing human emotions. Using an array of microphones, the wrist-worn device can collect data on the wearer's vocal patterns and use machine learning to build models discerning between states of joy, anger, sorrow, sadness, fear, disgust, boredom, and stress. As we know, Amazon are not without their fair share of data privacy concerns, with Bloomberg recently disclosing that a global team of Amazon workers were reviewing audio clips from millions of Alexa devices in an effort to enhance the capability of the assistant. Given this, we can't help but think of this as means to use the knowledge of a wearer’s emotions to recommend products or otherwise tailor responses.

Let's step back for context. Edge computing is the concept that there are lots of unique distributed smart devices scattered throughout our physical world, each needing to communicate with other humans and devices. Two layers of this are very familiar to us: (1) the phone and (2) the home. Apple has become a laggard in artificial intelligence -- behind Google on the phone, and behind Amazon and Google at home -- over the last several years. Further, when looking at core machine learning research, Facebook and Google lead the way. Google's assistant is the smartest and most adaptable, leveraging the company's expertise in search intent to divine meaning. Amazon's Alexa has a lead in physical presence, and thus customer development, as well as its attachment to voice commerce. Facebook is expert in vision and speech, owning the content channels for both (e.g., Instagram, Messenger). We also see (3) the car as developing a warzone for tech companies' data-hungry gadgets.

Looking back at financial services, it's hard to find a large financial technology provider -- save for maybe IBM -- that can compete for human attention or precision of conversation with the big tech firms (not to mention the Chinese techs). We do see many interesting symptoms, like KAI - a conversational AI platform for the finance industry used by the likes of Wells Fargo, JP Morgan, and TD Bank; but barely any compete for a relationship with a human being in their regular life. The US is fertile ground for this stuff, because a regulated moat protects financial data from the tech companies. Which is likely to keep Big Tech away from diving head first into full service banking, but with the recent launch of Apple's AppleCard we are starting to see vulnerabilities in that analogy. So how long can we rely on the narrative so eloquently put by Chris Skinner"the reason Amazon won’t get into full service banking is because dealing with technology is very different to dealing with money; furthermore, dealing with money through technology is very different to dealing with technology through money"? Also, how would you feel about your bank knowing when you are at your most vulnerable?

54654654.PNG
65465.jpg

Source: Bloomberg Article, KAI Platform (via Kasisto)

PAYMENTS: Chinese WeChat Pay follows Alipay into Western Markets, which could mean tokenized digital finance for all

New attention platforms create the opportunity to re-negotiate market share and consumer behavior in open frontiers. Mobile commerce leverages the increasing attention spent by users in phones to design elegant and high-conversion shopping experiences for anything from clothes to food. Nowhere has this been more successful than China where such shopping and lifestyle experiences are augmented by financial services after the onboarding of a few million customers, making the experience stickier -- a great example of this is China's version of Uber called Didi Chuxing which sells insurance, loans, and wealth product to its 550 million users via its app.

We have highlighted before how eCommerce giant Alibaba's financial arm called Ant Financial has partnered with 7,000 Walgreens locations in the US on accepting Alipay. The business rationale is that Chinese tourists abroad are used to paying with QR codes on their mobile phone and do not have credit cards. This initiative would make the lives of that target audience easier. Tencent's multi-purpose messaging, social media and mobile payment app WeChat Pay seems to be following in its competitor's footsteps, announcing its plans to grow its cross-border business into Europe, in hopes of capitalising on over 16 million Chinese tourists who visit the region each year. The Chinese mobile payment app has already begun to expand its list of merchants within Europe with two of the first examples being Paris-based department store Le BHV Marais, and Schiphol Airport in Amsterdam.

But why should WeChat Pay bother with Western markets? Firstly, 32% of the transactions made by tourists abroad were with a mobile phone in 2018. Additionally, 90% of Chinese tourists admitted that the lack of merchant support in destinations abroad prevented them from using mobile payments. Therefore, growing its merchant network abroad will help boost volumes by a considerable amount. Secondly, mobile wallets pose a direct threat to card networks competing in Europe such as UnionPay, Visa, and Mastercard, who miss out on large chunks of transaction fee revenue as more consumers are enticed by WeChat Pay and Alipay's attractive fees, ease of use, and overall stickiness. In China, such benefits have culminated in 92% of consumers using either Alipay or WeChat Pay. 

Another point we love to make is that the presence of such QR-code based payment platforms would train western staff in retail locations to use QR-codes to process value transfer. Tokenized digital finance enabled by QR-coded mobile wallet platforms -- from key management to open banking to cryptocurrency -- becomes second nature to these new consumer bases. So would it be wrong to cheer these platforms on?

dfsdf.PNG
86876786.PNG
5c479286a3106c65fff69f00.jpeg
dsadsad.jpg

Source: Autonomous NEXT Analysis (2019 Payments Report), 2018 Trends for Mobile Payment in Chinese outbound tourism (Nielsen), ChinaDaily (Article), Airport Review (Article)

BLOCKCHAIN & CRYPTO: Part 1 - Crypto Whales, IEOs, and the US-China trade war take Crypto to new heights

Its very difficult to ignore the noise when cryptocurrencies increase in value, especially since the crypto-apocalypse of 2018 which saw $400 billion in value wiped from the market #NeverForget. And as of Saturday May 11th, the noise has been deafening with Bitcoin rallying to price levels around $8,300 which we hadn't seen since late July 2018. So what exactly happened here? Well, to answer this we need to look at a few things:

Firstly, lets look at what triggered the rally in the first place. As recorded by Whale-Alert.io, 47,000 Bitcoins at a value of $340 million were moved in a single transaction on the evening of May 11th. According to coinmarketcap, such a large movement of the digital currency resulted in a 13% increase in bitcoin's price from $6,378 to $7,204, and an almost 50% increase in volumes traded. Transactions of this magnitude or made by "Whales" -- entities with large sums of the cryptocurrency -- who often use such transactions to "burn margin traders" who use money they don't have to stake out long or short positions in hopes of hitting it big or "riding a lambo to the moon" as they like call it. As of Monday, $84 million worth of shorts had been liquidated on Bitmex, with some affected parties announcing crippling losses (see pic below).

Secondly, let's touch on the rise of Initial Exchange Offerings (IEOs). An IEO is different to its Initial Coin Offering (ICO) sibling, in that funds are raised and administered by an exchange on behalf of the startup, whilst an ICO is completely independent of any major entity to enable its fundraising activity. This is important because participants in the IEO need to be registered on the specific exchange's platform in order to get access to the startup's tokens. Regulators obviously love the idea of this as (1) the exchange needs to screen every project it lists on its platform -- eliminating any scams from happening (see how Bittrex cancelled RAID IEO), (2) from a security standpoint, KYC/AML is conducted on each participant by the exchange, and (3) token issuer startups receive better support on marketing initiatives and credibility from exchanges. An increasing number of cryptocurrency exchanges have started to embrace IEOs. One of the first in line was Binance, which launched its IEO platform Binance Launchpad, swiftly followed by Bittrex, BitMax, Huobi, OKEx, and KuCoin. Whilst it's still too early to quantify the significant impact of IEOs, we can report a 220% increase in overall token sales from February this year, IEOs contributing to this are: Celer Network raising $4M, Matic Network with $5M, and Newton Project with $28.5M.

Lastly, such a rally couldn't have happened at a better time for Crypto evangelists. The news of the trade war between the US and China resulted in the fall of the Dow Jones Industrial Average by as much as 696 points on Monday the 13th, and MSCI's index for emerging markets by almost 300 points. Whilst this was taking place, Bitcoin's price was still increasing, and closed 12% up for that day -- unaffected by global markets. Although this is not sufficient evidence to conclude that cryptocurrencies are good hedges against global market volatility, the sentiment towards such a reality is progressing, especially with enhanced institutional support from large incumbents and the launch of regulator-friendly IEOs. 

whale2.PNG
reddit.PNG
ico_vs_ieo_v2-min.png
Capturewewew.PNG

Source: Whale Alert (via Twitter), Bitmex Forum (via Twitter), CryptoPotato (IEOs vs ICOs), Autonomous NEXT Analysis

BLOCKCHAIN & CRYPTO: Part 2 - From Main Street to Wall Street, institutions are the key to mainstream Crypto adoption...oh the irony

As we know, one of the aims of cryptocurrency was to provide a means to anonymously and securely transfer value between transacting parties i.e., removing the power away from financial intermediaries whose distribution channels exploit fees from those wishing to transact in the current system. Funnily enough, it seems that the very same institutions that crypto sought to disenfranchise, are key to its success. Success here being widespread adoption.

Let's start with mainstream adoption in retail where Flexa -- a payments network startup is partnering with New York-based exchange Gemini to enable crypto payments to be made at an estimated 30,476 stores, including Wholefoods, Nordstrom, and Gamestop. Flexa works by processing the payments made on its platform using its custodial wallet and mobile app called 'Spedn' which enables spending of specific cryptocurrencies -- Gemini Dollars, Bitcoin, Ether, and Bitcoin Cash. Flexa uses its own native coin -- Flexacoin as collateral to secure payments until the transaction is approved on the blockchain, and custody is taken care of by Gemini. Spedn is custodied with Gemini who provide security for this new payment technology. Finally, adoption is enhanced by (1) ensuring merchant's payment processing costs are reduced whilst the blockchain maintains security, (2) no changes are needed to the existing payment hardware, and (3) revenue can be received in fiat as opposed to crypto.

This institutionalization of crypto is also echoing in larger public companies. See NYSE’s partnership with Bakkt. Or XRP being launched on securities marketplace Deutsche Boerse and Coinbase. And lets not forget the likes of JP Morgan's coin, and Fidelity set to launch its crypto Trading service. According to Fintech Analyst Efi Pylarinou Wall Street institutions are looking at crypto as a new structured product business i.e., ETP’s linked to baskets of cryptos (low-hanging fruit) and tokenised real-estate (main focus) which is good if it democratizes exposure to the real-estate market, but bad if we see a reformat of the 2008 mortgage crisis. We will leave this gem for you to make up your mind – Banco Pactual issuing an STO in distressed Brazilian real-estate. 

As the institutionalization of crypto and blockchain continues to gain traction, it is likely to see the services and products they offer provide the gateway into the crypto markets, which may ultimately result in a surge in fresh capital making its way into these markets, and possibly kindling the flame that ignites the next price rally.

register.jpg

Source: Flexa Spedn App (via news.bitcoin)

ROBO ADVISORS: Robo-advisors are winning but leaving cash on the table

We will keep this brief. In a recently updated, “Robo-Advisors with the Most AUM” the top 5 robo-advisors, consisting of three Fintechs and two Incumbents, remained in the same position as last year, although each of them have seen gains in Assets Under Management (AUM) and the number of accounts. Yet, the jury is out as to whether gathering assets or gathering users are good measures of success -- we wrote about it here.

A lot of digital wealth management innovation targets people who have been excluded from the traditional wealth management business because the amounts they have to invest are too small for the economics of traditional wealth management to work. So the strategy is to target this opportunity by getting to the consumer, earn them loyalty with at least one good service, perhaps free, and then lock them into a full financial services relationship. The expected outcome of this is to see a reduction in the number of these individuals and/or the assets they hold -- Unadvised assets - the liquid cash in real wallets and check & savings accounts.

Daily fintech's Efi Pylarinou, has done the heavy lifting on this, finding unadvised assets in the US, EU, and UK to be around $14.5 trillion, $13.7 trillion, and $3 trillion respectively. Surprisingly, each of these on average have experienced growth of 9% over the past 3 years. Such findings point to the fact that, since their inception, robo-advisors have had none or a negligible impact on unadvised assets. Although unadvised assets are impacted by all innovations in Fintech, robo-advisors are more likely to be the ones that incentivise you to split up with your cash to some degree in hopes of generating returns with very little friction/costs. And if this is a direct result of trends in monetary policy, public markets, and human behavior superseding the digitization of capital markets, when should we expect the reversal to occur?

sdfdsf.PNG

Source: Robo-Advisors with the most AUM (via Roboadvisorpros)

BLOCKCHAIN: Why China's ban on all cryptocurrency mining activity is a good thing

Ever since decentralized currencies came into fruition, they have posed an existential threat to a government's ability to control the purse strings of its citizens -- which is important to prevent illicit activities such as money laundering. In China, this lack of control coupled with the growing rate of crypto-induced bankruptcies led to the swift imposition of sweeping reforms. All trades of legal tender (i.e., Yuan) into cryptocurrencies and vice versa, as well as all Initial Coin Offerings (ICOs) were made illegal. The resultant lack of legal exchanges and ICO activity meant crypto-mining was the last remaining pillar propping up this intangible edifice. Today, China holds around 70 percent of the world's crypto-mining capacity, predominantly due to: easy access to the hardware (i.e., Nvidia processors which are locally manufactured) essential to crypto-mining operations, cheap cost of labor, and crucially, cheap and bountiful energy via massive coal and hydroelectric power plants.

A recent report now suggests that the Chinese government, more specifically the National Development and Reform Commission (NDRC), intends to ban all crypto-mining activity as well. The report lists cryptocurrency mining as one of 450 activities slated for elimination, citing “wasting resources, polluting the environment, being unsafe, or not adhering to law” as the primary reasons, and they wouldn't be wrong on the pollution front -- a study in the journal Nature Sustainability suggests bitcoin alone was set to consume more energy in 2018 than the country of Denmark.

So does this spell disaster for crypto as we know it? Well, not quite, and here's why: (1) China's largest and most visible miners, such as Bitmain's Antpool, will be forced to explore new locations for mining operations specifically where renewable power is cheap and abundant to keep costs low and win favor with the regulatory entities governing these jurisdictions, (2) Mining activity is more likely to become more decentralized and safer, as large Chinese mining pools who dominated the networks, are dismantled into smaller factions, (3) Crypto-miners could use this as an opportunity to pivot into work that is deemed more crucial to the overall success of the ecosystem i.e., blockchain scalability (speed of the network) and interoperability (cross chain information movement) solutions. Such benefits could catalyze adoption rates by addressing the underlying environmental, safety, infrastructural, and centralisation issues that have plagued crypto since its inception. Additionally, a recent survey by Harris Poll for Blockchain Capital suggests, the overall sentiment towards crypto relative to other investable assets is positive with 21% of respondents preferring Bitcoin over government bonds, 17% over stocks, 14% over real estate and 12% would invest in Bitcoin before investing in gold. Finally, although it is still argued whether the NDRC was implying a outright ban or more oversight on mining activity, the resultant benefits fueled by positive market sentiment towards crypto could mean great things to come.

Source: Hans Moeller Illustration, Divvy (homepage), Divvy (Brex comparison)

Capturesdsdsd.PNG
Capturedsds.PNG

Source: CoinDance (BTC Mining Data), OVOEnergy (Electricity Cost per country

INNOVATION & PAYMENTS: Divvy’s $200 million raise proves that all is not what it seems in Fintech

We love relating FinTech to the fabled analogy of six blind men describing an elephant solely on touch -- each man taking a narrow perspective to describe what is in their hands but never considering that there is more i.e., One feels a rope because he grabbed the tail, another a spear because he grabbed its tusk. As a result its easy to assume that the Fintechs involved in addressing an industry solution from their own narrow perspective, create significant barriers to entry for any additional player seeking to enter that market. In this sense, if retail banking was the elephant's trunk then who out of Starling, Monzo, or Revolut are using the best descriptor (neobank solution) for identifying it? What about enterprise expense tracking? You may recall a Fintech startup called Brex -- who provide a corporate credit card for small businesses, which consolidates spending and expenses across the entire organization and leverages existing corporate spending behavior to offer higher credit limits. i.e., attacking the problem vertical-by-vertical. Brex is often likened to another enterprise expense tracking platform called Divvy -- who recently secured a $200 million Series C funding round.

Whilst Brex takes a top-down approach to enterprise expense management, Divvy takes a bottoms up approach -- attacking the problems of: (1) limited access of corporate credit cards across an organisation due to trust, (2) enterprise expense management software being inherently complicated and manual, and (3) a single-view enterprise subscription management solution i.e., a single view of all the software/tools your business subscribes to and the status, cost, and terms thereof. Divvy does this by providing teams and individuals with access to their budgets for projects, campaigns, and day-to-day expenses, essentially providing access to slices of the firm’s credit to employees. Its product is aimed at whole companies, instead of just regular recipients of corporate cards (executives, founders, etc.). The point here is that enterprise expense tracking can be deemed a saturated market with companies like Brex offering novel and innovative solutions that would be tough to compete with. However, Divvy seems to have found such a unique way to describe the same part of the elephant as Brex, that backers forked out an additional $200 million for further exploration of it. In the end, the winner is not the company that best describes what it believes to be touching, but rather why it is even touching something in the first place i.e., addressing a customer need.

describing and elephant5.JPG
divvy2.PNG
bvd.PNG

Source: Hans Moeller Illustration, Divvy (homepage), Divvy (Brex comparison)

BIG TECH & BLOCKCHAIN: SamsungCoin & Blockchain protocol distract us from foldable phone fiasco

Earlier this year, we admittedly took a hard stance on two seemingly meaningful pieces of news from South Korean tech giant Samsung: (1) the launch of the Galaxy Fold, the likeness of which we compared to a pizza box, and (2) Galaxy S10 phones confirmed to be crypto-native, allowing for private key storage (here). To catch you up on the Fold, Samsung have found themselves in the hot seat with their $2000 foldable phone barely lasting a week in the hands of reviewers before experiencing a multitude of battery and screen issues (here). More importantly, Samsung is said to be developing its own Ethereum Blockchain (ERC20) Token or "SamsungCoin" and blockchain protocol. Previously we noted -- having a mobile experience that allows you to interact with the decentralized web and its applications without downloading or thinking about software management is massive. Additionally noting that there should be no difference -- from the customer view -- in using a credit card in Samsung Pay wallet, and using a self-custodied digital asset. Same use case, same ease of use. And this is truly groundbreaking when every merchant that takes Samsung Pay takes crypto, especially if that crypto is native to Samsung itself. But there are some concerns here, mainly surrounding South Korean regulations preventing the issue of tokens via Initial Coin Offerings (ICOs) and banning investors to invest in domestic ICO projects. Whilst rumors suggest that these regulations are likely to be revised by authorities, there is no idea when this would take place. Such policies may lead to the company considering a private blockchain with a B2B approach -- remember what we said about those walled gardens? Yet, there is still the possibility that Samsung could circumvent South Korean regulatory frameworks by establishing subsidiaries in overseas crypto-friendly jurisdictions to conduct its token sales. Doing so without clarification from the authorities, however, may land it in even hotter water than its foldable phone fiasco.

galaxy.PNG
samsung-teases-early-blockchain-partners-for-galaxy-s10-phone.png
crypto20973.PNG

Source: CNET (Samsung Fold), Blockboard (Samsung Blockchain Wallet), Cointelegraph (South Korea ICO ban)

NEOBANKS: T-Mobile offers a bank account with all the perks

Following a soft launch in November 2018, T-Mobile has officially taken its Money checking account live for all T-Mobile customers in the US. The telecommunications company has joined forces with digital-only MobileBank who is operated by Customers Bank. Yes, you have to be a T-Mobile customer to take advantage of the account, but it does come with some competitive perks such as: 4% yield per annum on balances under $3,000, full mobile platform payment (e.g., ApplePay or GPay) support, and comes with a Mastercard. There are no minimum balance requirements and no fees to keep it open, however, because T-Mobile Money is not supported by a major bank such as BoFA, it is likely to incur ATM fees. Such perks are indicative of a focus towards a younger market who like the idea of high annual percentage yield, whilst keeping the overall account balance low due to lower incomes -- hello Goldman's Marcus. So why is this notable news? Whilst telecommunications companies offering financial services in the US is not necessarily new, with examples like 2013's "Softcard" (originally called "Isis") - a mobile payments system created from the unique partnership of Telcos -- AT&T, Verizon and T-Mobile with Financial Service companies -- Mastercard, Visa, and AMEX, which subsequently failed due to low customer adoption. We should see more resiliency from the T-Mobile Money account as MobileBank gives T-Mobile an out-of-the-box solution to offer to their 73 million strong US customer base without the need for large capital outlays or significant risk exposures to do so. However, regulatory risk is a major factor at play here, which could be financially crippling if something were to go wrong at a time when T-Mobile Money is regulated as a Financial Services Provider.

c6319855-86fc-41e4-ab68-ede29761d147.png
ca7ac82f-77f6-4a42-b00e-231c8b6b7e2b.jpg
c755c234-a063-45e5-b1df-55d475f8b29f.png

Source: MarketingDigest (SoftCard), CookiesandClogs (Isis), T-Mobile Money

INSURTECH: Softbank's $300 million double-down on digital insurer Lemonade

Last week we saw Softbank double-down on its backing for Lemonade - the renter's insurance company built for Millennials. In its Series D funding round led by Softbank and supported by Allianz, General Catalyst, GV, OurCrowd, and Thrive Capital, the poster child of disruptive InsureTech innovation, raised an additional $300 million. This latest cash injection, coupled with revenues of $60 million in 2018 and potential $100 million in 2019, puts the company at an estimated $2 billion valuation, and is set to help fuel further growth in the US and with expansion into Europe. We will remind you that Lemonade uses artificial intelligence and analytics to replace the front-office function of incumbent carriers. Simply, their mobile app can chat with users and onboard them without much human involvement. Last year, this was personified in an attempted smear ad run by competitor - StateFarm, who ridiculed the usage of bots and technology in insurance, mentioning “a knockoff robot created by a rival insurance company.” Needless to say that the digital insurer took that lemon and made...well...lemonade - sponsoring the ad across social media, essentially because it promoted Lemonade's AI tech. Last year, we mentioned that Softbank's portfolio of millions of American financial services companies with modern technology stacks and cool brands, spread across different verticals, requires only one of them to be a Goldman Sachs. Could this news be a sign?

Imagen 1 high(1).jpg
quartely_sales-1024x536.png
ad005fe7-7eb1-4c62-97a6-65c11271f04c.jpg
802d93e3-2137-41c2-88a4-6710929af1de.png

Source: DigitalInsuranceAgenda (Lemonade), Lemonade (2018 Results), Youtube (Lemonade - StateFarm Ad), Twitter (Daniel Schreiber)

BIG TECH: Apple's Credit Card, Google's Digital Gold, and IBM's Crypto Custody show the reckoning is here

After years of existential angst from finance executives about the big tech companies entering financial services, it is time to pay the piper. Excuses like regulatory cost and complexity, strategic disinterest, and complexity of products are incrementally falling away each and every day. Across every single vertical, something is nipping at the banker's ankles. The splashiest announcement came from Apple, which launched a credit card backed by Goldman Sachs (the storied mass retail financial firm!) and transacted over the MasterCard network. You can sign up for the card directly from your phone, which integrates it into Apple Wallet and Apple Pay, and provides a 2% cash back on all transactions made with ApplePay. There are no fees on the card other than an interest rate on credit.

For Apple, this financial product is one of a thousand features within their platform. It is no more or less important than music, video, news, email, or podcasts. The presence of credit makes customers more sticky within the ecosystem, offering 3% cash back on all Apple purchases. For Goldman, this is a leapfrog into the consumer market, riding a much better recognized and respected retail brand. Finance for the wealthy is just not cool anymore in the era of Bernie Sanders and Alexandria Ocasio-Cortez.

Meanwhile in India, Google and Facebook are battling with Paytm over payments. Facebook's rumored cryptocurrency will target sending remittance over WhatsApp. Google, on the other hand, is working on a service to add a savings account to money movement. This account will be backed by custodied gold, and may include expanded wealth management products -- from mutual funds to insurance -- in the future. None of this should be surprising, as Chinese tech companies have been providing mobile search bundled with online shopping, saving, investing and payments for the last five years. These Asian companies are moving into Europe and the US, sometimes by investing in neobanks or through acquisitions. Our American tech companies are moving into Asia.

Let's round out the whole thing with IBM, the OG of American tech companies. Several young firms like BitGo, Gemini, and Kingdom Trust have all built custody for crypto assets, including a notable recent announcement from Trustology about bringing custody to the iPhone. But IBM is now moving into the space, leveraging its expertise from working on enterprise blockchain projects via Hyperledger. What's important to understand is that financial products -- including their embedded capital, credit and investment risks -- are transforming from legal paper to software. And as that happens, it is technology companies that are best positioned to hold, analyze, report on, and safekeep our money. Among the incumbents, Goldman, JP Morgan, BBVA, Santander, DBS, BlackRock, Schwab, Fidelity, NASDAQ, ICE and several others get it. So many others think it is a false alarm. Which side are you on?

6857e287-af84-4ed9-b81b-54cf5e820ea7.jpg
d0bf6033-c2ae-46ea-bd45-4d386bc2c9d6.jpeg
6242d2aa-8e4b-4ed7-8652-bc5a1e7aa9a7.jpg

Source: Apple Card (ForbesBBC), Coindesk (Trustology iPhoneIBM), Deal Street Asia (Google Gold)