THE WORLD'S FINTECH NEWSPAPER
THE FINTECH TIMES.COM
Crypto: On the Cusp of Mass Adoption?
Still a Shock No one’s ready for PSD2
Roman Filatov A Law-ful discussion on how to raise funds and prepare for the new regulations page 7
ICO Rating system? The emergence of Token Information Marketplace
PSD2 unlocks the monopoly traditional financial institutions have had on customers, enabling them to have a choice, and a free market. Open Banking APIs will mean a faster, easier and more seamless financial services across all providers.
What does it mean? page 12
Over-Hyped Trends Revealed page 15
Breaking Mental Models Exclusive Interview with Russ Kliman on Innovation within a corporate page 18
Fintech in Africa A Special Report! page 22
FTT Special: Crypto Trends 2018
THE MONOPOLY TO BE UNLOCKED peculation over the much anticipated PSD2 – revised Payment Services Directive – has been gathering for quite a while now. PSD2 has been attracting quite a lot of attention, in and amongst all of the talk about the
Fintech Predictions for 2018
When Renaissance meets Blockchain...
#17 | FEBRUARY 2018 | £2
directive it’s still not immediately clear what PSD2 actually is. The Fintech Times tried to outline what it brings, and find out why there is so much hype and excitement around it.
FINTECH NEWS AND UPDATES
THE FIN TECH TIMES
Vaultbank Introduces Debit VB MasterCard for Everyday Cryptocurrency Transactions
UK remains Europe’s leading hub for global tech investors According to data compiled for London & Partners by Pitchbook, venture capital investment into the UK’s tech sector reached an all-time high in 2017 with UK firms attracting £2.99 billion – almost double the total amount invested in 2016 (£1.63bn). London’s tech sector continues to fuel the growth of the UK’s digital economy, with the capital’s tech firms raising a record £2.45 billion and accounting for around 80 per cent of all UK venture capital tech funding in 2017. Further analysis of the data shows that the UK and London remain the favourite destination in Europe for tech investors. UK firms attracted almost four times more funding in 2017 than Germany (£694m) and more than France, Ireland and Sweden combined. London tech companies also raised significantly more venture capital investment than any other European city, including Amsterdam, Berlin and Paris.
Vaultbank has announced the upcoming launch of the Vaultbank debit VB MasterCard, which supports cryptocurrency transactions. It is compatible with point-of-sale terminals, offering card holders the ability to spend various cryptocurrencies and may eventually be able to spend Vaultbank (VB) tokens. The card will be available to U.S. and E.U. customers upon the conclusion of its token sale. The token presale launched January 17, 2018 and will stay open until February 17 or until $20 million USD is raised, at which time the public sale will begin. All Vaultbank debit card cryptocurrency-to-fiat transactions will be completed through the Vaultbank Exchange, allowing MasterCard and other future processors to not “see” the cryptocurrency being used.
BELARUS LEGALISES ICOS, CRYPTOCURRENCIES AND SMART CONTRACTS Belarus President Alexander Lukashenko has signed the Decree “On Digital Economy Development” that legalizes ICO, cryptocurrencies and smart contracts. Adoption of the Decree makes Belarus the first world’s jurisdiction with the overall legal regulation of businesses based on blockchain technology. The Decree does not include any restrictions or special requirements for the creation, issue, storage, sale or exchange of digital tokens, as well as operation of cryptocurrency exchanges and platforms. Individuals are exempt from personal income tax on the incomes from mining, acquisition and sale of digital tokens; digital tokens shall not be declared. Activities related to mining, creation, acquisition and sale of digital tokens will remain tax-free until 2023.
THE UK’S FIRST BLOCKCHAIN ASSOCIATION IS SET TO BE THE BIGGEST WORLDWIDE The British Blockchain Association (BBA) is the first UK-wide organisation to encourage and facilitate the adoption of blockchain technology across public, private and third sectors. BBA’s goal is to highlight the commercial applications of blockchain and demonstrate the benefits that it will have for UK businesses, government and wider society. BBA is set to be the biggest
blockchain association in the world. With members including the United Nations Development Programme GCPSE, Nordic Blockchain Association, Abt Associates and QADRE, the British Blockchain Association is already receiving international attention.
An anti-corruption solution to increase business transparency
Blockchain expertise center Distributed Lab has announced a solution based on blockchain technology, which will increase management transparency in the corporate sector and public sector. This solution is effectively a prototype for how transparency can be increased in management in the public sector and in state bodies. Testing of this approach in the business world currently looks hugely more realistic by comparison with implementation of the same solution a priori in the state sector. On the other hand, the corporate sector will be getting a usable tool, which comes with a large number of features for solving the pressing task of increasing transparency in management and accounting. Distributed Lab envisages a solution to these problems with a so-called ‘ring signature’.
Tech sector jobs boom
The number of jobs advertised in the technology sector grew by 12 per cent last year as hiring managers continue to increase spending on new recruits and fight to secure the best talent, according to new data from Reed Technology. The analysis of more than seven million jobs posted since the start of 2015 also found that advertised salaries in the sector grew by 1.6 per cent in the last year alone with advertised salaries for some roles increasing as much as 9 per cent since the start of 2017. This means that as the number of technology jobs posted grows at one of the fastest rates across UK industries there will be a race for the best talent, driving up salaries. Only engineering showed a larger increase in new jobs posted.
Managing Editors: Published by Disrupts Media Limited
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2 I February 2018
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COVER STORY. PSD2 THE FIN TECH TIMES
PSD2 brings faster, easier and more seamless financial services Continued from page 1
Kate GOLDFINCH Editor of The Fintech Times
WHAT PSD2 ACTUALLY IS? Payment Services Directive 2 is explained as the second iteration of the Directive on Payment Services adopted by the European Parliament. The goal of this directive is to streamline existing payment processing throughout Europe in any given transaction. The original legislation was brought about in 2007 and sought to clarify and ease the payment processing through uniform rules, and the opening up of new competition in the marketplace across the European Union, SEPA for corporates explains. Additional benefits of such a move are thought to be reduced costs and a stimulation in the fintech sector for startups and non-traditional financial institutions. The final PSD2 implementation date was January 13th, 2018. The biggest preparation is getting ready
purchase. It resulted PSD2 Banking API to become the new buzz word.
WHAT DOES PSD2 MEAN FOR BANKS? Banks will be required to build application programming interfaces (APIs) — sets of code that give third parties secure access to their back-end data. Those APIs serve as channels for developers to get to the data and build their own products and services around it. Such information could serve as a tool to understand things such as customers’ spending habits or credit history, and could lead to the creation of new services. In fact, banks will see new competition they never imagined. Two new types of will be focused on by the banks: Account Information Service Providers (AISP) and Payment Initiation Service Providers (PISP). AISPs are the ones who take the data of customers banking habits like how much the spend, when they spend, and where they spend, and then turn that data into a profitable material. PISPs are the ones who will initiate the bill payments, or P2P service, on behalf of the financial institution’s customer. In either case, the two new competitors will have fewer costs than traditional banks and be much more versed in the latest in fintech. Banks will see increased costs in their tech teams as well as compliance and security personnel for the use of banking APIs. The end result will likely be increased costs deferred to account holders in terms of creative fee structures and costs. Unfortunately for the banks this also comes at a time when consumers will be able to shop around for their financial services. The competition will be hotter than ever. All that being said, there will be unique opportunities for the traditional banks to pair with fintech companies and take advantage of the strengths these startups have in mobile and online. It should be mentioned that security will be as much a concern for the fintechs looking to emerge in this market as it is for banks. These companies will need to meet stringent security measures implemented by The European Union. This obviously includes KYC, PCI-DDS, and OTP.
for compliance and following regulation. This new legal framework will be followed closely by fintechs and financial institutions, and each will get a unique perspective.
SO WHAT DOES PSD2 MEAN FOR FINTECHS? Direct connections between retailers and customer’s bank accounts are made possible with the use of API or Application Programming Interface. This opens up all sorts of opportunities for fintechs to take advantage of. An open API, for example, would enable the use of congregate data that can be targeted to individual customers, as well as retailers, without compromising security. A classic example is card-linked marketing in which consumers can receive targeted assistance from their financial institution at the point-of-sale. As explained by SEPA for corporates, this may include incentives to buy or not to buy, bonus coupons, and the like. All of it made available digitally on mobile devices and all at a split-second before a
HOW WILL CONSUMERS BENEFIT FROM PSD2? With the introduction of PSD2, the European Parliament was not only focusing on changes in technology but reacting to changes in the security landscape. This is one element of PSD2 that benefits consumers on the whole, SEPA for corporates argues. The new guidelines sought to increase standards of security and encryption for the growing playing field of startup fintechs. Aside from the cost-saving wonders of an open marketplace and further competition that PSD2 brings, it also ensures better accountability on surcharges for payments. In fact, PSD2 brings enough advances and benefits to the whole financial world. It unlocks the monopoly of traditional financial institutions and enables customers to have a choice. That competition will force fintechs to drive innovations. The review is based on sepaforcorporates.com analytics
PSD2 is a data and technologydriven directive
that aims to drive increased competition, innovation and transparency across the European payments market, while also enhancing the security of Internet payments and account access. At the core of PSD2 is the requirement for banks to grant third-party providers (TPPs) access to a customer’s online account/payment services in a regulated and secure way. This “Access to Account” (XS2A) rule mandates banks or other account-holding payment service providers (PSPs) to facilitate secure access via application programming interfaces (APIs).
Banks Grapple With the Technology Implications Of PSD2 And Open Banking The Second Payment Services Directive (PSD2) came into effect on Saturday 13th January, with the Europe-wide legislation set to change the way that banks operate. Consumers are now able to instruct their banks to share data securely with third parties, making it easier to transfer funds, compare products and manage their accounts. However, according to the Competition and Markets Authority several of the UK’s major banks have been granted more time, after indicating that they would fail to miss the PSD2 deadline. Barclays, Royal Bank of Scotland, HSBC, Santander and Bank of Ireland informed the Competition and Markets Authority that they could not release all the data needed on their customers in the timeframe required by the new law. This indicates the ongoing technology challenge faced by banks. “January 13th is meant to see the start of disruption for the banking industry. However this kind of technology change can be very complex for banks. It involves dealing with very highstakes application assurance, meaning the confidence to know that their systems are running, available and secure at all times. All legacy applications need to be refactored to fit with the agile API infrastructure. Many banks currently use private APIs to improve information flow internally between legacy systems, so they already have experience of this kind of programming. But the technology and security implications of open APIs are far greater and require a high level of assurance,” Ben Boswell, VP Europe for World Wide Technology comments. February 2018 I 3
COVER STORY. PSD2 THE FIN TECH TIMES
STILL A SHOCK: MAJOR UK RETAILERS ARE UNPREPARED IN THE FACE OF PSD2
Key Findings MAJOR RETAILERS ARE IN THE DARK ON PSD2
48% 67% 32%
unaware of PSD2
aren’t ready to comply
aren’t aware of the effect on their business
PSD2 IS PERCEIVED AS A THREAT, NOT AN OPPORTUNITY
are seeking to ‘take advantage’ of the new regulation
RETAILERS DON’T REALISE HOW PSD2 WILL CHANGE THEIR BUSINESS
Consult Hyperion and CCgroup research revealed less than half of retailers were aware of PSD2 and 67% were not ready to comply by January 13th 2018. PSD2 requires banks to grant third-party providers – including retailers – access to a consumer’s bank account to initiate payments and source customer data in a regulated and secure way. Designed to promote competition and innovation in the payments industry, the regulation will have unintended consequences that will reshape the retail sector. The research ‘Unaware, unprepared and paralysed: retailer readiness for PSD2’ was based on responses from over thirty tier one (turnover above £500m) and tier two retailers (turnover between £30-£500m) in the UK. “The impending shift to “Open Banking” through the implementation of PSD2 is one of the hottest issues in banking and payments. However, it seems that mer-
4 I February 2018
chants and the wider retail technology community are unaware of the regulation and its far-reaching ramifications,” said Tim Richards, Principal Consultant at Consult Hyperion and co-author of the report. “The use of two-factor authentication and access to customer bank accounts will allow retailers to dramatically lower card fees, mitigate fraud and limit the scope of data breaches. But arguably the biggest value is in access to consumer financial data that opens up new ways to do business.” “With internet players like Amazon already investing in PSD2 related capabilities, if retailers don’t take up the charge, then someone else will,” concludes Richards.
of retailers don’t think PSD2 will have much of an impact
of retailers think it will have much an impact
MAJORITY OF RETAILERS ARE PARALYSED
aren’t sure what they have planned
of retailers can confirm they’ll take action
HOWEVER, ONCE PSD2 IS EXPLAINED RETAILERS WANT TO CAPITALISE
would like to reduce card fees
want to reduce impact of fraud and data breaches
COVER STORY. PSD2
Expert Opinions THE FIN TECH TIMES
How do you evaluate the revolution of open banking and what does it mean for the customers?
How PSD2 will influence the identity sector? How do you see identity processes change within the next 5 years?
RICHARD RANSOM, Head of Business Development, Bottomline Technologie “Open Banking will make it easier for businesses to use Faster Payments in the UK, on a multi-bank basis. Additionally, the New Payment Architecture currently being designed for the UK will make Faster Payments even more valuable. New initiatives such as “Request to Pay” and “Enhanced Data” will see the potential introduction of sophisticated electronic invoicing into the payment system, ultimately making it easier for companies to pay and get paid.”
Business cases that open the potential for Open Banking...
DAVID NICHOLSON, co-founder, VP Strategy & Partnerships, Yoyo Wallet If to consider the companies that will be making the biggest change in this field, Yoyo, which can identify a retailer’s customers and connect them to their basket data, stole the march on using Open Banking framework back in November. Opening up retail loyalty to the wider banking experience, Yoyo entered into a firstof-its kind partnership with Starling to enable the startup bank’s customers to automatically reap the benefits of retailer-specific loyalty programmes every time they used their Starling payment card in Yoyo-accepting high street stores. This partnership with Starling shows the awesome potential of Open Banking and marks the start of a new phase in high street retail to add even more value to the payments process and attach retailer loyalty to the wider banking experience.
CHRISTOPHER SCOTT, Programme Director/Compliance Lead & DPO, The Bunker 2018 is a big year for The Payment Services Directive 2, most authorised payment & e-money institutes in the UK have until the 12/07/18 for FCA approval. One of the changes is banks having to add stronger layers of security to customers. Classed as Strong Customer Identity Verification (SCeID), and two-factor Strong Customer Authentication (SCA) it is required for all remote access to customer accounts. Failure to comply could mean proportionate, effective and dissuasive fines being imposed as outlined within the new General Data Protection Regulation Multifactor factor authentication has been the standard to achieve in terms of protecting a person’s digital identity. In cybersecurity we talk about something you have, something you are and something you own. A few years ago we started seeing two factor authentication devices being rolled out from our banks. These were calculator type devices that allowed you to authenticate to use your online bank. Within a very small timeframe these devices (although still available) became favoured for mobile phone authentication, where you can scan your finger print to log onto your bank account, transfer money etc. PSD2 influences identify by ensuring these authentication methods adhere to the highest level of security. This means fintech businesses need to ensure their applications, APIs etc comply with a stringent set security practices. There are a number of technologies within the fintech space that are making great strides in improving the identity processes facial recognition being one of those. A number of fintech businesses are developing applications which make it possible for you to log onto our bank accounts, sign documents and authenticate using facial recognition. These types of system are becoming so advanced that they are perceived to be more secure than traditional passwords or typical 2FA solutions. It is predicted that biometric type authentication will eventually completely replace security mechanisms of the past. With PSD2 setting the standard for security, this will naturally gain trust within the industry, which in turn will allow for innovation.
JO VERCAMMEN, co-founder, Juru CVBA / Identity Platform Identity will be become a major player in this space. Because the bank needs to identity the client that the service provider is acting on behalf. Also has the bank the responsibility to validate if the client is given consent to the service provider to act in his name and to what extend. The problem is that our identity is locked up in different silo’s and it is hard to exchange or map this information between these silo’s. How can you guarantee that “Jo Vercammen” is truly “Jo Vercammen” and how you will guarantee this identity matching without exposing the identity and keepingrespect to the individual’s privacy. One option is that customer will be burned filling in a large set onboarding procedures to registrate at the TTP and authorize the TTP at the bank. But this will affect the customer experience and is not desirable. Another option would be that the banks and fintech players have infrastructure that shares this information. This problem is still to be addressed and we see a lot of startups investing in becoming identity providers or identity infrastructure providers. In the next coming years, will see more and more institution rely on common infrastructures to share their identity data. This would allow reduction on KYC-processes and reduce on-boarding burden for the customers. I hope that over 5 years, will have an infrastructure that allow my refrigerator to act on my behalf and has a shopping allowance to replenish my food supply.
February 2018 I 5
COVER STORY. PSD2 THE FIN TECH TIMES
Which new technologies can help drastically improve identity processes? TRENT MCCONAGHY, Founder of Ocean Protocol It’s a win any time that I as a customer can get more direct visibility and control of my data - financial and otherwise. My ideal is where *I* control all my data, that is, I and I alone possess the private keys to it, and I choose who and when to let others see or use that data. This is the direction we’re headed. Bitcoin and cryptocurrencies are “private key first” ecosystems, and this thinking will permeate more traditional financial and identity ecosystems too.
FELICIA MEYEROWITZ SINGH, CEO, Akoni Hub Identify scanning tools such as IDScan and Onfido, as well as PEPs and sanctions databases such as the Orbis database provided by Bureau van Dijk, with all data available in API format, as well as having the ability through machine learning, to update and change the rules relating to the identity verification process, and assigning specific scores to companies across a range of criteria in addition to credit. In addition to identity issues in the UK and EU, there are significant challenges in emerging markets. Establishment of National eID programmes play a crucial role: political will needs to drive and oversee the standards, security and trust aspects - UN/ World Bank ID4D targets every person on earth to have a legal ID by 2030. Countries such as India, have made advances driven by the government, introducing identity based on fingerprint technology on a massive scale, with a roll-out across the majority of its 1.3Billion population. This political will has spurred multiple sources of identity related innovations. In addition, new technologies, such as blockchain are testing identify verification, as well as new standards emerging enabling further compatibility and interoperability. There is no question that mobile identity dominates all form of innovation underway.
MEGAN CAYWOOD, Chief Platform Officer, Starling Bank There is a lot of work being done in the space of AI, Machine Learning, and APIs to improve the identity process. I suspect it will be a combination of the three that will solve this challenge in the technology ecosystem. 6 I February 2018
The vision is the sovereign individual, which includes me having full control of my data and giving permission as needed; and getting privacy when I want it. Building blocks to this include: • DID (decentralized identifier) protocol which generalises a bit on private keys to makes key recovery, key rotation (for better anonymity) and more easier. • names that are secure, human-meaningful and decentralized all at once (Zooko’s triangle); this is now possible using blockchains for decentralized naming systems. • new algorithms that preserve my privacy while computing on my data (eg zero knowledge proofs, multi party compute) • attestation that is decentralized and secure, via blockchain technology. E.g. I only have to do KYC once. E.g. institution X can digitally sign that I got a degree from it. • and more. It’s mostly blockchain combined with old&new crypto that is making the big differences here.
OFER FRIEDMAN, VP Marketing at AU10TIX Obviously biometrics will reduce the burden of “What you know”. But in parallel, new generation ID document authentication technology will do the same and mitigate the pitfalls of partial, inaccurate, not always updated data by detecting forgery and counterfeiting far deeper and more reliably. Thus on-device capabilities as well as back office automation will drive migration of the identification process from keyboard to button. Thus identification will become more professional and systematic and less dependent on customer skill, patience, memory, etc. Cognitive computing players will be game changers in image processing, risk detection and decision analytics. Big data players who can deal with live data rather than historical repositories can be game changers. Distributed computing specialists will enable faster, safer identification and value allocation. And IoT success cases will expand the concept of identification to customers’ household, transportation and work devices.
What key challenges open banking brings to the established financial industry? SIMON GILBERT, Founder and Managing Director at Elmore Insurance Brokers Limited, specialists in FinTech Insurance PSD2 will not only bring more competition to the existing players but it is driving innovation through their core business models which could lead to reduced market share, rapid migration of user behaviours and an additional set of rules and regulatory frameworks to operate under, further increasing the cost of doing business. Traceability is one of the key worries in how liability will be allocated in the event of customer data being compromised and tracing who is at fault in the ever-expanding layers of data controllers and processors operating in the open banking environment. With data being used across multiple platforms, one threat to fintech’s I how they can prove they do not have liability when customers experience identify theft, or their account details are miss-used. Hence the requirement in PDS2 for Professional Indemnity Insurance. The principal of customers being able to choose from a wider selection of financial services, easily obtaining comprehensive aggregated data about the status of their accounts will surely mean better value, convenience and more transparent services for the customers. There are threats to customers if Open Banking participants are not able to undertake Strong Customer Authentication (SCA) and Strong Customer Electronic Identification (SCeID). This could not only result in exposure to local regulation, but if customer identity is not authenticated correctly, GDPR regulation and their significant penalties could come in to play. The opportunities; one identity, single log-in, one password = convenience! When authentication is required, three factors will be applied: something the customer is, something the customer has and something the customer knows. There will be a radical shift away from physiological biometrics (such as face, iris, fingerprint) into the smart behavioural geo-positioning biometrics further strengthening and streamlining the identity authentication process. Authenticating through out-of-band “smart channels” could mean authentication undertaken through a data stream independent from the main in-band data stream. An out-ofband authentication provides a conceptually independent channel, which allows any data sent via that mechanism to be kept separate from in-band data. If that authentication (as detailed in the previous question) was stateless; meaning once complete it would leave no trace it existed, this could prevent some of the vulnerabilities to the authentication process. Companies like LiveEnsure that offer true user experience with mobile authentication for the crowd in the cloud, providing multiple factors of trust from a single API should be making the biggest change in this field.
LAW THE FIN TECH TIMES
A law-ful discussion We sat down with Roman Filatov, Managing Partner at FJM, to talk all things entrepreneurial. Filatov got frank about how to protect your business from unlawful investors and why candour at an early stage is key to startups.
How do you work with startups at the investment stage? It varies depending on the startup itself, the nature of the business and what investment stage they’re at. My first questions when I hear a proposal are, what are you trying to achieve and what do you need to get from investors? On that basis, I can discuss the balance between what they offer and what they’re going to get. In many respects that is what VC is about: striking the right balance. Ultimately, it’s a matter of leverage.. If you’re at a very early stage and need guidance as well as money, the investor will expect more of a stake. If you have some documentation prepared where it says what you want and what you need, you’ll have a better choice of investors, you’ll have better leverage against those investors and in the end you’ll get a better deal. There are always people who think if they throw ideas up in the air someone will catch them, and help to develop them but this never happens. From a legal point of view you can’t protect an idea. So the first conversation is about what you actually have and from there we can start developing a framework for approaching investors.
What are the main things to pay attention to when you get a term sheet from VCs? The main thing is whether the money they’re offering is worth the share they’re asking for. For some startups £10K at the initial stage is worth more than £1m at a later stage. You should focus on who the investors are bringing on board, who you’ll actually be dealing with, and whether they’re going to dedicate their time to it. All that can be put into the term sheet and the subsequent documentation. I’m often asked how to protect a company from unscrupulous investors and my response is always this. There’s the legal environment and the unlawful environment. In the former investors may try and squeeze you out or exploit any grey areas. In the latter, they downright deceive you and abuse your trust. Whilst there are ways to protect against this, in the worst case scenario can involve court. So what can we do? We choose to operate within the legal environment, bringing everything down to the legal obligations of the parties. Once those legal obligations are set, should conflicts arise you have certain avenues you can explore: litigation, arbitration, alternative dispute resolution, negotiations etc. Essentially, when you get the term sheet you should include terms to protect yourselves and insist on them. Because it’s not a binding document, the term sheet is a basis for negotiation. You look at which obligations the investors are prepared to take on and start throwing your own tools in the box and see how they react. It’s basically a test run for the main agreement. I try to strike the balance between the time you negotiate the term sheet and the time you spend on the main agreement. Some other parties prefer to actually negotiate the term sheet to death and then they just copy and paste it into the normal agreement when they’re done. Others do really broad strokes in the term sheet and then negotiate the technical details: it’s down to what the parties want. When you look at a term sheet initially, you see straight away which of these three methods the party is using and then you react accordingly. A lot of young startups don’t like irritating investors by negotiating too much — that’s a mistake. Often people are so relieved to have an investor, that they agree to sign off on the term sheet assuming that, because it’s not binding, it can be dealt with in the negotiation process. That doesn’t work in practice because the investors simply take the principles from the term sheet and place them in the shareholders agreement and expect you to
honour your promise. If you choose not to, you lose the deal. So you need to address those things immediately or risk losing the investor.
How have MiFID II & GDPR affected the fintech startups you represent? Not much is needed for the startups I currently work with to implement the changes required by MiFID II regulations. However, just as with any changes in legislation or regulation, it is always wise to check whether they apply to your business and how to abide by said regulations. For startups it is even more important, because the consideration should include not only the relevance of new regulations to the business as it stands, but to any future developments of the business that may bring it within scope of the regulations. It can be difficult to look forward that far, but in terms of attracting investors and showing visibility on where the business may go, this is invaluable. Regarding GDPR, the process is more complicated for larger companies, but the wording of the regulation allows those who approach their data storing and processing with prudence and due focus on security to follow the rules with minimal effort. Ensuring compliance should really be a bespoke service, but in many cases simple sensible approach to running a business means not much is required in terms of changes.
Do you think banks are likely to become passive infrastructure as a result of GDPR? What is your view on the opening of their APIs? I doubt the effect will be quite so a dramatic, after all the majority of customers still use traditional banking and are likely to prefer it for years to come. The trend seems to be closer cooperation between fintechs and traditional banks; the latter using Open API to create better customer experience and facilitate new revenue streams. Banks have the resources to research and implement any system that allows them to explore new avenues. Cooperation with successful fintechs is not only a good method to keep their place in the markets, but create a new type of service of the customer. The main issue with Open API is security and banks realise this, just as fintechs do. I think the key is combining efforts; with time a new platform will develop allowing to banking to remain as we know it, while permitting the recent developments to improve it. February 2018 I 7
BLOCKCHAIN THE FIN TECH TIMES
The Emergence of a Token Information Marketplace
COMMENTS Do you think it’s possible to create a universal rating system for ICOs?
by Helen Disney, the Founder of Unblocked Events, a hub for blockchain events, education and interviews
nitial Coin Offerings are a type of crowdfunding based on issuing a digital token to investors in the form of a cryptocurrency. Later on, this token may be exchanged for other cryptocurrencies like bitcoin or ether. Some companies prefer to use the description ‘token sale’ or ‘token generation event’ due to uncertainty around financial regulations. Whatever you call them, though, the launch of tokens became a huge phenomenon in 2017. The ICO listing website Coin Schedule counted as many as 235 ICOs in 2017 raising over $3.7 billion. But how can we determine what makes a good or a bad Initial Coin Offering? And is it any different from ranking any other startup? Increasingly investors are enticed by the potentially huge returns to be made by taking part but how can they judge what makes a particular token worth taking a risk on? All ICOs are very speculative investments and even more so since the regulatory and legal position surrounding ICOs is still so unclear. Nevertheless, a data marketplace is beginning to emerge in which a variety of new companies are attempting to rank or rate ICOs and create metrics for evaluating their potential. To take one example, ICO bench provides ICO rankings from industry investors and experts. It also provides statistics and research on the growth of ICOs by country, industry sector, amount raised and other metrics. It is currently developing a bot called Benchy. You can talk to her (yes, Benchy is a she) about ICOs you are interested in and she can find the team behind the token sale, show you legal reviews and statistics on your return on investment. Meanwhile Singapore-based Zilla is launching a mobile app, which aims to make ICOs easier to understand and evaluate. In addition to helping ICOs themselves to attract publicity and additional interest from investors, the platform provides an indicator next to the title of projects that are projected to have the best performance. The ranking is based on consumer sentiment data, as well as in app behaviour combined with machine learning.
8 I February 2018
There are lots of different ways corporates can work with startups effectively. Of course, they can set up their own accelerators, but this requires investment and a dedicated team, so some corporates may choose to forge relationships with existing accelerators. We have chosen to set up our own program for scaling startups – Mastercard Start Path – and have seen huge benefits. We hold hackathons around the globe, where startups are given a specific brief or problem to solve. We are also able to learn from startups when it comes to our own internal culture. For example, we hold company hackathons in cities around the world for our employees. We find this is a great way to engage employees and give them some time away from their day job to come up with ideas and solve problems
by Pradeep Goel, CEO of SolveCare
A data marketplace is beginning to emerge in which a variety of new companies are attempting to rank or rate ICOs and create metrics for evaluating their potential. TokenMarket runs what it calls a curated token and cryptocurrency coins database where you can find listings of upcoming token sales and tokens that have already launched. The website also manually vets the projects listed on its site in an attempt to weed out scams and fraudulent projects. Non-for-profits are also entering the game with the goal of promoting best practices. The Washington DC-Based Chamber of Digital Commerce, a blockchain trade association, has recently launched the Token Alliance to teach policymakers and other opinion formers about the world of digital assets and token sales and try to shape the regulatory environment. The new wealth of information now available shows not only that the token sale marketplace is maturing but also that with so many ICOs out there, investors’ time and money is limited. Quality projects now need to invest in rising to the top of the pile both by grabbing investors’ attention and meeting expectations once they are more closely scrutinised. It turns out that the failure rate of ICOs is indeed similar to the failure rate of start ups in general so much of the current hype over certain projects will be in vain. Providing data and information can certainly help investors make more informed decisions but ultimately a huge element of chance remains – and for many perhaps that’s half the attraction. ♦
What makes a strong ICO? What is a strong, healthy ICO? It’s a project that can go through due diligence. You need to be able to check out the entity that owns the project, you need to be able to check that they have a team, that they have employees. You need to show that you have a project behind it and that you are already have an alpha, or a beta, or something on the market. That you have a governance system internally, and you can answer questions like – who’s the beneficiary of the fund? If somebody answers that question with ‘me and my mother’, and you still decide to invest in the company, that’s your decision, and you can do that if you really believe in the project. But, at the end of the day, it’s important that they need to disclose. Look at the governance – how the funds are being consumed? If it’s a holding company like us, with 14 shareholders and with a proper structure, than ok. If it’s Joe from the street, than, again, you can assess your risk over there. You also need to look at the Token dynamics and the token economics, you need to look at the White Paper, for sure, look at the budget – what’s the structuring of their budget? Because you see all these ICOs raising 50-60 million and they say 40% marketing, but who can manage 30 or 40 million as a marketing budget between 2 friends? I mean, it’s just misusing the funds. I think in the next 6 month, we’re going to see a shift – ICOs will need to be really close to IPOs in terms of the diligence. You’ll need to produce a minimum of 20 strong documents to back your ICO. So, if it’s just you and your friend, it will be impossible to do an ICO, or you can do an ICO for £300,000, which is ok. You raise £300,000, you build something, it’s not bad – but you don’t go and raise millions when you don’t have anything. People are starting to see that, they are starting to get burned, because, again, you’re doing an ICO, but you don’t have any project.
You launched the coin on an exchange, but nine months or a year goes by, and you still don’t have a product. What happens with the value of the coin?..
There is no demand for it, so the price is destroyed. The problem now, and I think this should be very clear, is that an ICO is a start, not an end. You’re starting your journey with an ICO, you’re not ending it. But some of us think – ‘an ICO is just our biggest milestone, we need to do the ICO and then we’ll see’. If they don’t have a strong governance, some clear milestones and a multi-sig wallets with 5 signatures, with trustees – proper structure, it’s a problem. This is a non-regulated space. Clearly, the utility tokens are out of scope at the moment, so we think you should have a clear set of self-regulating procedures. From the use of funds, to the internal communications, to the security on the server, the security on the wallets, even the signature on the wallets. A proper procedure can be quite heavy, but it protects the money of the contributors. We see a lot of innovation in this space, also with the Blockchain. For example, Spice VC is the first VC that is tokenising the assets, so you have liquidity from day one. They are a VC, they invest, but actually, all of their parts are liquid, so you can buy parts immediately on the secondary market in a VC that is actually non-liquid. So we see a lot of innovation in this space coming from the blockchain.
by Mihai Ivascu, CEO of Modex
BLOCKCHAIN THE FIN TECH TIMES
ON THE CUSP OF MASS ADOPTION?
Crypto industry and blockchain technology promise to drastically change established markets. However, the infrastructure of crypto market is still very immature and need to be adapted to mass market to revolutionise the world Kate Goldfinch, Editor at The Fintech Times
What blockchain technology brings to the global world Today many top experts and opinion leaders believe that the crypto world is the future of digital money, and that blockchain, as a decentralised technology, brings huge challenges to the global economy. Redefining the money and ownership processes, and redesigning the role of intermediaries. Carlos Domingo, co-founder and managing partner of SPiCE VC and co-founder and chairman of Securitize clarifies, that this new Internet of value is similar to what Skype and WhatsApp did to revolutionise the world of voice and messaging - disintermediating the telcos. However, no one can predict whether Bitcoin might be the Altavista of the Web, and someone like Google will come in and become the leader in cryptocurrency. It’s worth mentioning that the infrastructure of the crypto market is still very immature. It displays a lack of stability and a need to be adapted to mass market requirements. Andrew Zimine, CEO of Exscudo notes, “The biggest challenge for the crypto market is definitely its mass adoption. At some point in time a critical mass of users will use it to transfer and store value, and by this point blockchains should have become so fast and productive that they withstand high loads similar to Visa and MasterCard, and even more.” “There is certainly a lot of interest in crypto but its adoption is still low in comparison to traditional currency and will take some time for the wider population to accept crypto as a mainstream currency,” Eagle An, Co-Founder of MiCai comments. “The good thing is people are starting to pay attention to the benefits that crypto can provide to the global economy.” Barry Hayut, CEO and Co-Founder of Hayver, notes that immature infrastructure and instability makes crypto blockchain a poor choice for regular commerce and business transactions. Until they become more stable and predictable, their
widespread use will be hampered. “The blockchain platforms are neither efficient nor scalable enough to run business-to-consumer solutions on a grand scale. In addition, the various blockchain networks are working in silos, and cross-blockchain traffic and solutions are still in their infancy. Once the user interface improves significantly, together with a seamless cross-blockchain interaction, it will propel widespread adoption by users for everyday transactions.” It’s very important to be competitive with alternative forms of centralised transactional infrastructure, Dan Gailey, the CEO of Synapse AI, adds. The technology itself faces many limitations, including energy consumption, tendency towards centralisation, poor transaction speed, and lack of governance mechanisms, CEO and Founder of Cypherium notes. “It will be a long time before blockchain really enters the mainstream,” he says. Among the biggest challenges for the crypto world is also the misuse of cryptocurrencies and hacking. Many people have accidentally lost their wallet files, or been hacked due to a lack of protective measures. Creating solutions with a better user experience is crucial to the industry. The key challenge is to build products that can make the complexity disappear, Philipp Pieper, co-founder of Swarm Fund says. “We are just at the beginning of moving from the protocol layer to higher application layers. As the industry grows at insatiable speeds, we are experiencing friction from the lag between the adoption and availability of scalable solutions. The current complexity around the use of digital assets, especially when it comes to keeping credentials and passwords secure is a challenge that requires thinking about, but I am confident that with all the innovation in the space and the focus it’s getting from the global developer community, we will get there faster than in other industries. Benefits of crypto and blockchain include the democratisation of money, best-in-class security and traceability for each transaction made, and the introduction of a new paradigm for launching world-changing
startups. Blockchain provides a ledger of transactions, but can be extended (as in the case of Ethereum) to do much more. We are starting to see a variety of global economic mechanisms becoming unlocked, according to Dan Gailey, the CEO of Synapse AI. Its implementation allows decentralised services and applications to exist, where each person can participate in the network in many different ways, without the need for a central authority or gatekeeper, he says. Patrick Palacios, CEO at Appsolutely and LoyalCoin creator, believes that crypto is on the verge of upending the current middleman-laden financial and transaction systems, provided the established players don’t adapt quickly to blockchain. “Blockchain and smart contracts replace the intermediate processes. However, the automatization of the processes, as well as their new format do not abolish the regulation established for economic activities,” Ulyana Shtybel, VP at HighCastle argues. Blockchain tech opens a trustless and borderless world. It is the frontier of the next generation of payments, Sky Guo, CEO and Founder of Cypherium, insists. We are already seeing some use cases, such as trans-border remittance payments, where cryptocurrencies on the blockchain are doing a better job at a lower cost than banks. And we also see how the crypto world builds new connections with traditional financial markets to adapt crypto to everyday life. As an example, on 25th January Vaultbank introduced Debit VB MasterCard for everyday cryptocurrency transactions. It is compatible with point-of-sale terminals, offering card holders the ability to spend various cryptocurrencies and may eventually be able to spend Vaultbank tokens. Vaultbank’s debit card will be available to U.S. and E.U. customers upon the conclusion of its token sale. What can we expect tomorrow for the exponentially growing crypto industry? In this new reality, financial institutions and transactional middlemen will adapt to the new flow of value and reconsider the idea
of compliance. “This will essentially force them to rethink their systems and architectures so that they comply to the new decentralised economy, and the shift of power to the individual, or face being rendered irrelevant. Data being truly owned and in the hands of the individual, combined with machine learning and AI, will be the crucial elements that will power the data revolution,” - Philipp Pieper, co-founder of Swarm Fund, predicts. Deeper understanding of the technology by governments and regulations is the important issue for further industry development. The lack of knowledge results speculations about the validity of cryptocurrencies. Eagle An believes, that without government support, some of the blockchain technology infrastructures and applications will be blocked from happening. Blockchain technology is sophisticated to many people without deep technical knowledge. As Dan Gailey, the CEO of Synapse AI, says, it is extremely important to help people understand what’s available, how to make sense of it, and how they can leverage this technology in new an interesting ways.
What is Bitcoin’s future? This topic is among the hottest globally. While it’s important to consider scenarios where Bitcoin could be replaced, debate regarding whether Bitcoin or another cryptocurrency will dominate over others is probably a little misguided and possibly unproductive. We must only say that cryptocurrencies are going mainstream. According to Blockchain.info, on Jan 1, 2017 there were approx. 11 million blockchain wallet users. At the end of 2017, there were approx. 21.5 million wallet users. “That’s an astronomical amount of wallet creations in just 1 year! As Bitcoin adoption has grown, there have been increased fees and lagged transactions. February 2018 I 9
BLOCKCHAIN THE FIN TECH TIMES
I believe Bitcoin will continue to grow, but it won’t become the global cryptocurrency people use for daily transactions. A new currency will have to be created with a greater supply and a more efficient block creation method than Bitcoin,” Barry Hayut, CEO and Co-Founder of Hayver says. Since it was first to market, Bitcoin has created a lot of value, but cannot hold onto its spot as the market leader, as we’re already seeing in this market share shift, Charles Michael Yim, CEO of Cointopia, agrees. “Bitcoin will still have a place in the ecosystem as a store of value. While it has latency issues, scaling issues, and high transaction fees, it’s a big part of the story and important for innovation.” Sky Guo, CEO and Founder of Cypherium, considers Bitcoin as a great experiment, but he believes there will be another contestant that takes the cryptocurrency crown. “Bitcoin faces many challenges, especially the numerous forkings that endanger its role as today’s leader.” Bitcoin hit $40,000, and other cryptos may reach record highs, Patrick Palacios, CEO at Appsolutely and LoyalCoin creator predicts. “More cryptos and blockchain companies geared towards industries outside financial technology will flourish. People and governments will be more rational in their approach towards cryptos and blockchain, unless they want to risk being left behind.”
Last years Bitcoin has experienced developmental challenges due to the lack a well-functioning governance body, and this presents an opportunity for new solutions to be considered, Philipp Pieper agrees. “Ideological disagreements about competing technological solutions (like we saw with Segwit) are an example of the current friction that limits bitcoin’s adoption on a wider scale and fosters doubts about its adoptability”, he says. Dan Gailey, the CEO of Synapse AI believes each coin and token will find its own use case from the underlying technology. “Allowing each coin to operate for the particular job it’s best suited for. We’ll have many chains with many different focuses. The coins and networks
10 I February 2018
will complement one another, rather than competing. Each network will be automatically selected by your wallet based on a particular intent.” As many others Dana Farbo, Chief Operating Officer of Augmate, partly believes in Bitcoin’s great future because it is the legacy of cryptocurrency, and partly because forks continue to happen that benefit Bitcoin holders. “To participate in a split, you have to own the core. There will be competition from various cryptocurrencies, but just like American Express is still around today, Bitcoin will be there tomorrow.” There is always room for cryptos that can emerge as the best in what they do in a lot of industries, as what LoyalCoin tries to do for customer loyalty, Patrick Palacios says. On his point of view, Bitcoin needs not to be replaced, but can also be augmented, complemented, or competed with. The last few years approved that competition is both needed and extremely healthy. Cryptocurrency is about freedom and innovation. Nobody’s position is guaranteed. The cryptocurrencies that will have the greatest staying power will be those that can adapt to the market. “My feeling is that coins that have technology in place which allows them to be flexible and add features as necessary will do best in the long term. Bitcoin could afford to be stagnant for a long time, as they had first mover advantage and solid brand recognition; other coins will not be so fortunate—if they cannot adapt they will perish,” Jonathan Zeppettini, international operations lead at Decred, says.
Countries to lead the ICO space To lead the ICO space, countries must provide an easy to use international legal framework that welcomes many participants from many financial backgrounds. Dan Gailey, the CEO of Synapse AI, believes that countries need to grant more rights to digital natives, to lower the barrier to entry for participation, and to provide long-term support to help see these businesses grow. As opposed to the traditional world of tech which gravitates to Silicon Valley, ICOs and blockchains and the crypto space are a much more global and distributed
phenomenon. “We are going to see a much broader geographical distribution of companies coming up from not just the US, but Europe, Israel, or Asia. We will even see companies like Telegram doing ICOs that do not even have a well-defined location, with headquarters that are entirely distributed,” Carlos Domingo, co-founder and managing partner of SPiCE VC and co-founder and chairman of Securitize says. Gibraltar is also a very interesting case on how to be prepared for the global decentralisation movements. “The Government of Gibraltar has started examining the possibilities of regulation of this area since 2015. The result of their hard work is creating the Distributed Ledger Technology Regulatory Framework (DLTRF). This regulation, which starts running on January 2018, will affect companies and individuals which use DLT i.e. blockchain technologies to handle the ‘value’ (e.g. assets) of third parties. However, this is not a regulation of the very technology. It’s a principles-based regulatory framework that enables the Gibraltar Financial Services Commission (GFSC) bringing the conduct under the microscope,” Denys Goncharenko, CEO at HighCastle comments. He believes Gibraltar will take the lead in the ICO area, as it has a good track of being the first to foster new industries. “When, for instance, e-gaming was in its infancy, it faced many similar challenges that the crypto world does today. Despite this, Gibraltar has foreseen the potential in the e-gaming industry, and developed supportive regulation to welcome a few of the most reputable companies. Thus, their approach worked, which resulted in changing the perception of e-gaming, and the industry began to flourish. As of now, not one of the 30+ Gibraltar-based gaming companies have failed and they took the biggest share of the market. When comparing this with other jurisdictions, there is an obvious difference, as Gibraltar choose quality over quantity. It’s the careful market oversight that not only has created more jobs and affected the growth, and also protected the jurisdiction’s reputation and integrity. Right now, only 25 years later, Gibraltar finds itself in a familiar situation with blockchain technology and cryptocurrencies,” Goncharenko explains.
WHAT CRYPTO AND BLOCKCHAIN TECH BRING TO THE GLOBAL ECONOMY BENEFITS
• Low transaction fees, fast worldwide transfers, financial transparency, high level of security, and no borders – are the benefits of crypto and blockchain world. • The main benefit will be disintermediation; eliminating middle men, and bringing permissionless financial infrastructure to every corner of the earth. • It’s an opportunity for everyone to participate democratising wealth and access to resources. • Blockchain and distributed ledger technology promise that individuals will take control of their personal information. • Companies can become less reliant on centralised systems that are prone to concentrated cyber attacks.
• Without government support, some of the blockchain technology infrastructures and applications can be blocked from happening. • Anonymous and decentralised applications might be misused by terrorists, black markets and dark web. • ICO project scams bring disastrous efforts to some people supporting blockchain developments. • High volatility makes cryptocurrencies a poor choice for regular commerce and business transactions • The slow processing times and significant use of resources for mining, are hampering widespread adoption. • The issues with hackers breaking into exchanges make the crypto-economy an uncertain place for individuals or organizations.
Peer-to-peer transactions and the challenge of tracking the flow of money will be both a threat and a benefit, arising from the greater potential for money-laundering but countered by the opportunities available from anonymity and AI-powered robo-trading.
BLOCKCHAIN THE FIN TECH TIMES
THE FINTECH TIMES SPECIAL: CRYPTO TRENDS 2018 Sky Guo, CEO and Founder of Cypherium
“Transaction speeds will go up. Cost will go down. Inter-blockchain communication will become possible. Government involvement increased. New regulations will set in motion. Central bank digital currencies will emerge. The market will continue to grow, but become more stabilised.”
Dan Gailey, CEO of Synapse AI
“ICOs will finally start delivering products. More large companies will start embracing crypto in ways that make sense. We’ll see crypto become more widely adopted and integrated into operating systems, mobile, IoT, Robotics, AI and beyond.”
Patrick Palacios, CEO at Appsolutely and LoyalCoin creator
“We are optimistic that soon, the blockchain will get the recognition it deserves, and that fundamentally sound blockchain companies will
prevail over much-hyped cryptos with less-than-ideal tech/vision.”
Jonathan Zeppettini, International Operations Lead at Decred
“Micropayments, such as those enabled through the use of Lightning Network, will allow for the monetisation of all sorts of content, and development of totally new business models and use cases for crypto (e.g., paying a few cents to read an article).”
Charles Michael Yim, CEO of Cointopia
“We’ll be seeing a lot more security tokens, especially ones that will actually represent equity. Altcoins will prevail and gain market share. We’ll see thousands of new cryptocurrencies coming out each month.”
Dana Farbo, COO of Augmate: “Educational institutions like Stanford and MIT will bring more
R&D and curriculum into their systems, which will accelerate the development of more protocols and emerging startups.”
Carlos Domingo, Co-founder and managing partner of SPiCE VC, and co-founder and chairman of Securitize
“Some of the top ten cryptocurrencies will collapse and disappear from the mainstream. Decentralised exchanges will start growing faster and get closer in terms of trading to the current model of centralised exchanges.”
Barry Hayut, CEO and CoFounder of Hayver
“The incumbent digital conglomerates will launch blockchain-based extensions of their current solutions or buy emerging leaders and consolidate them into their offerings. The implementation of fiat cryptocurrencies by various governments will happen around the world.”
Eagle An, Co-Founder of MiCai
“Platform cryptocurrency (such as Ethereum) will continue to take more weight of total crypto market cap as many more DApps will be developed and put into practice. Vertical/industry based crypto and decentralised solutions will get more attention as it builds up the bridge between the current real world and crypto world.”
Denys Goncharenko, CEO at HighCastle
“2018 will be the year of regulations coming into place. Particularly, these are introduction of new ICO regulations worldwide, and clarification of ICOs position in regards to the existing crowdfunding legislations in US and UK. Consequently, most of the proper ICOs will be conducted as equity crowdfunding at the licensed fundraising platforms with the blockchain-based stocks issuance.”
February 2018 I 11
BLOCKCHAIN THE FIN TECH TIMES
Saxo Bank, the online multiasset trading and investment specialist, has published its quarterly outlook for global markets and key trading ideas for Q1 2018 with focus turning to bubbles: how they form and how to spot them. Saxo Bank’s strategy team sees a market full of potential hazards. From central bank policy normalisation to rising inflation expectations, from fiscal deficit expansions to cross-asset correlations, the signs are all there. Saxo’s Q1 Outlook covers the bank’s main asset classes: FX, equities, commodities, bonds as well as a range of central macro themes. Commenting on this quarter’s outlook, Steen Jakobsen, Chief Economist and CIO, Saxo Bank, said: “The chase for yield continues while central bank policymakers, supported by politicians’ continued inability to pass real reforms, close their eyes and hope for the best. As we move into 2018’s first quarter, the world is again full of hope and precious little reality.” “The crypto bubble may be the most visible due to the high volatility and performance seen in 2017 but don’t be fooled into believing that other assets are not in bubble territory as well. In fact, the length and extent of some bull markets may conceal just how far from fundamentals these assets have drifted.” “We do not claim to know when the current bubbles will burst. We can, however, identify where they exist and in our view there are a great many bubbles afoot right now. We see them in the bond market, in equities, in private equity, venture capital, real estate and certainly in cryptocurrencies. (Interestingly enough, we see no bubbles whatsoever in commodities.”
Will the speculative mania around cryptocurrency continue?
2018 will be a make-or-break year for the burgeoning crypto asset market. The optimists are looking for the market cap to top $1 trillion while pessimists foresee increased regulation and even the outright banning of cryptocurrencies as monetary authorities decide that the space is out of control.
12 I February 2018
Jacob Pouncey, Cryptocurrency Analyst, said: “Crypto assets are behaving like the dot-com stocks of the late 1990s. We expect more companies to announce blockchain pivots before this speculative phase is over. Q1’18 will see more projects hitting the market, each touting itself as the next crypto revolution in its particular sector. This, again, will only drive further speculation in this nascent market.” “If the crypto space is to see a new leader; Ethereum seems to be one of the assets with real-world utility that goes beyond its standard function. It is now processing over 1.25 million transactions/day and tens of billions of dollars in volume.”
Bubbles – A technical approach More than a simple metaphor, a bubble is a distinct mathematical form in which super-exponential growth causes a departure from fundamentals and an eventual sharp correction. Of all concepts to keep front-of-mind into 2018, this may be one of the most crucial. Anders Nysteen, Quantitative Analyst, added: “When considering a rapidly rising stock such as Amazon, the log-price corresponds to a straight line. This indicates an exponential price rise which is fast, but not extraordinary. In contrast, the price of a Bitcoin has continued to grow even faster every year since 2015 in a super-exponential fashion. In the presence of a bubble, the risk of a crash or at least a major correction is significantly increased. Theories have been proposed for when and how bubbles evolve and burst, but in the end nothing is certain until after the pop.”
FX – Currencies eye a bubbly 2018 With strong momentum from an extraordinary risk-taking year in 2017, this year should prove to be dynamic, with many subplots and increased volatility. John Hardy, Head of FX Strategy, said: “Looking ahead, we see clear “known knowns” that are quite likely to disrupt the one-way complacency of 2017 at some point in 2018, whether already in Q1 or not until the second half of the year.” “A number of leading inflation indicators point to the risk of a strong pickup in inflation already in the first half of 2018. The US budget deficit widened in 2017 for a second consecutive year and should widen aggressively in 2018 as a result of the funding shortfalls from President Donald Trump’s rushed tax reform policy. With a possible deficit of $1 trillion for 2018 looming, who will step in to finance when global FX reserves are not building as they have in the past?” “EM and riskier currencies could enjoy some further upside on the global growth upswing story but gathering headwinds will arrive if volatility picks up notably, which is one of our base assumptions. The only perceived path
to a surge of strength in the greenback is if some sort of real liquidity crisis develops at some point – the perennial fat-tail risk. That risk may only materialise if we see the muchdiscussed global market melt-up risk unfolding first.”
Equities – The most important year since 2008
Equities might be at record highs, with sentiment overextended on nearly all fronts, but this does not necessarily point to a bubble. It does, however, mean that a correction is likely and investors should be watching price action for signs of super-exponential growth, as well as central bank policy and of course inflation. Peter Garnry, Head of Equity Strategy, said: “For Q1 we acknowledge the strong price momentum and upbeat expectations together with what will likely become a strong earnings season. This is causing us to believe that equities can push higher in the very short term, but that in the second half of Q1 macro data will begin to disappoint against expectations causing an equity correction above 7%.” “Investors are expecting almost 20% growth in EBITDA in the S&P 500 this year, something that has not been realized since 1991. Hopes are understandably high given the end we saw to 2017, but the low implied volatility should not cause investors to doze off – quite the opposite. A policy mistake in China or the US is still possible and inflation, whether it under-or-overshoots, will be the most important trigger in global markets for 2018.” “Sentiment is so overextended that investors can only be disappointed. Many indicators are elevated, often to an unprecedented degree, which increases the likelihood of a larger setback should macro data disappoint.”
Commodities – Inflation in focus as gold bulls gather strength
Commodities in general are benefiting from an increased focus on inflation as the current expansion cycle moves toward its late stage, where price pressures tend to build.
BLOCKCHAIN THE FIN TECH TIMES
With OPEC and Russia having promised to keep production capped, the three key questions that are likely to determine the price of oil in 2018 are the production response to higher prices (not least from US shale oil producers), the potential from new supply disruptions, and the continued strength of the global economy.
Bonds – Deepwater horizon
Ole Hansen, Head of Commodity Strategy, said: “Barring any geopolitical upsets, the record 1 billion barrel oil long held by funds at the beginning of 2018 could pose a potential challenge to the current bullish momentum. Given the impact on the price of oil of a few hundred thousand barrels per day in changed supply or demand, we see the risk – especially during the coming months – skewed to lower prices, with Brent crude oil at risk of returning to $60/b.”
Simon Fasdal, Head of Fixed Income Trading, said: “When we speak of bubbles we should note that bond markets would have a very hard time coping with a sudden spike in US and global 10-year core yields. I’m also concerned that as the EM bond space and the DM corporate bond market have seen significant growth, the primary marketplace for these same bonds has diminished due to regulatory downscaling from banks.”
“After almost hitting our year-end target of $1,325/oz last year we maintain a bullish outlook for gold into the early stages of 2018. The dovish December 13 Federal Open Market Committee rate hike and the US tax reform agreement both helped signal another low point for gold with inflation once again emerging as a key driver for gold support.”
“Take a look at the 10-year Treasury yield, where we are at 2.57. Q1 is a time to be cautious.”
“Our trade idea for Q1 is to be long gold against WTI crude oil - we favour using WTI over Brent given the lower cost of holding a short position in WTI.”
2017 saw some of the smoothest bond markets in memory, with volatility resting at record lows throughout the year. A flow of continually sideways macro data created the perfect condition for bond yields to stay at low levels for the core segments.
Macro – Housing bubbles are popping up everywhere, so what now?
The most risky real estate markets we currently see are Australia, London, Hong Kong, Sweden, and Norway. All of these markets share these two features: home prices are decoupled from local incomes, and the real economy is
experiencing distortions linked to monetary policy, such as a surge in lending and / or a boom in the construction sector. Christopher Dembik, Head of Macro Analysis, said: “Despite the global financial crisis, real estate prices kept increasing in these five areas. Based on BIS data, since 2007, the boom ranged from 45% in London and its suburbs to more than 200% in Hong Kong. In the long term, however, the riskiest market is Norway.” “The lack of inflation combined with high indebtedness and a high home ownership rate in such a highly leveraged economy means that the housing correction will have ripple effects on the economy and will halt credit and growth.” “Among major economies, investor worries have mostly focused on China where property prices have inflated massively due to excess liquidity. The bright side is that the government’s first measures to better regulate the real estate market seem to be paying off as for the first time since 2015, new home sales contracted. It is too early to draw conclusions, though, and will strongly depend on the economic targets unveiled by the Chinese government at the annual parliamentary meeting in March 2018.”
World’s First Blockchain & AI-driven Marketplace from Dating, Courtship to Marriage - Viola.AI, Sets to Disrupt the Love Industry The project that sets to revolutionise the current love industry, Viola.AI, was created by the team behind Lunch Actually Group which has over 13-years of proven success record and over 1.4 million members. Viola. AI promises to be the most successful and smartest A.I to create a global and borderless full loop solution from dating, courtship, relationship to marriage. The dating industry has grown tremendously in the last decade with the rise of technology and emergence of mobile dating services. However, there are also more cases of online love scams (which is a billions-dollar industry in itself), dating fatigue, abuse of users’ data, and increasing dating and relationship challenges, which contributes to higher divorce rates (as high as 70%) worldwide. Viola.AI is our solution. She will be the first dating and relationship A.I. that evolves with the users to help them in the stages of dating, couple-hood to marriage. Viola.AI will serve users from helping people find love, helping romance blossom, and helping sustain the relationship right till their twilight years. Harnessing on AI, blockchain technology and trustless smart contracts, Viola.AI is equipped with several core capabilities: The Smartest Love AI: Provides highly
personalised matching and discreet relationship advices which evolves according to the user’s relationship status by employing A.I. with personalised machine learning engine and natural language empathy. Viola.AI will be trained by the Group’s 13 years of accumulated service experience, 3500 datasets and 1.1 billion data points. Real ID verification: Protects users with visual recognition technology. The deployment of decentralized system and blockchain technology enables high security and authentication of users, preventing any identity theft and protecting against data tampering and the infrastructure of Viola.AI. Community Support: Offers strong community support via crowd wisdom with quality content and advice that addresses user’s enquiry. Viola. AI will reward users for their good and helpful advice. Recommended-based marketplace: Provides timely recommendations to address each user’s needs for goods and services from merchants, experts and service providers. Secure smart wallets and contract system: All transactions within Viola.AI are controlled by a secure wallet and smart contracts to ensure that users can interact and transact with contributors
and merchants at ease as all parties will receive the agreed-upon revenue share or commissions. “Viola.AI is a project that has been in the making for years based on our 13 years of experience in the dating and relationships industry. We are excited that by leveraging on the latest AI & blockchain technology, we are able to bring this dream into reality and offer the most comprehensive and effective tool to better any relationships. Through Viola.AI, we look forward to help billions of singles and couples worldwide fulfil their dreams of finding love and happiness,” said CEO and Co-Founder of Viola.AI, Violet Lim.
Unlike other cryptocurrencies which are created for projects that are still being developed, Viola. AI has the advantage of being able to integrate VIOLA tokens within an already existing ecosystem of 10 dating platforms comprising of 4 dating apps, 2 online sites and 4 offline services with more than 1.4 million members in 5 countries in Asia under Lunch Actually Group. Viola.AI will be trained firstly by the past accumulation of 1.1 billion data points which is critical to developing the AI Love Advisor. It is now getting ready for the upcoming Public Sale on 14 March 2018. For more information, visit www.viola.ai
After selling out their presale 5 days early with over 7.5 million tokens sold out, Viola.AI also recently celebrated a win at d10e ICO Pitching Competition at Cayman Islands on 30 January 2018. Out of 19 other ICOs, Viola.AI wins 3rd place and will share the prize of $150,000 investment prize with the other 2 winners. Viola.AI is also the only Asian-based company to be participating and clinching a win in the competition.
February 2018 I 13
THE FIN TECH TIMES
Global RegTech investments surpass $1bn in 2017 Last year was a record year for global investments in regulatory technology (“RegTech”), according to research from FinTech Global. Growth is being driven by increasing regulatory pressures faced by financial institutions and coincides with the implementation of legislations such as PSD2 and MiFID II in January this year.
Overall RegTech investments increased by more than 16% last year Capital invested in RegTech companies globally increased steadily at a CAGR of 10.8% between 2014 and 2017 to reach a total of $1.04bn. As the RegTech industry matures the growth in investment is mainly driven by later-stage deals. Last year funding from deals valued above $40m increased by more than 50%, whilst funding from deals in the $0-40m category remained fairly steady. In contrast, deal activity dropped in 2017 to reach its lowest value since 2013. Correspondingly, the average deal size increased from $9.8m in 2016 to $13.5m in 2017.
Nearly half a billion dollars was invested in Q4 alone The RegTech industry attracted $448m in Q4 2017 - more than double the value of the previous quarter. This makes Q4 the strongest funding quarter ever, equating to 43.2% of the total capital invested in the whole year. Deals valued over $40m accounted for almost half of the funding in Q4 2017. The total investment from this category increased nearly five-fold QoQ, while funding for sub-$40m deals increased by 59.8%.
The largest RegTech deal of Q4 2017 went to MetricStream, a provider of cloud-based solutions for governance, risk and compliance. The company raised $65m in a venture round led by Clearlake Capital Group with co-investment from Goldman Sachs, Sageview Capital and EDBI. Despite the surge in total amount invested, the level of deal activity in Q4 2017 remained within range of historic levels at 23 deals, seven less than the same quarter in the previous year.
There is increasing geographic diversity in RegTech investments In 2014, almost 70% of all RegTech deals were concentrated in North America, while Europe held a 25.5% share. Even though deal activity in North America remained at a healthy level, the region’s share of overall RegTech deals decreased by 13% between 2014 and 2017. Over the same period, Asia’s share of RegTech deals increased from 1% to 6.2%. All deals in Asia were located in Singapore, Hong Kong, China or India. Additionally, the ‘Other’ category, which includes South America, Australasia and Africa, increased in deal share from 1% in 2014 to 7.2% in 2017. This highlights the spreading geographic range of the RegTech industry as it matures. Research from the Global RegTech Review reveals that almost half of all RegTech companies address AML or KYC regulation. Over $1.7bn was invested in solutions that address these legislations between 2012 and H1 2017. The third most commonly addressed regulation by RegTech companies is MiFID II, followed by Basel III and PSD2.
GLOBAL REGTECH REVIEW The most comprehensive report produced on the global RegTech market
250 PAGES 17,000 WORDS 100 DATA CHARTS 500 REGTECH DEALS & 400 COMPANIES ANALYSED www.RegTech100.com
14 I February 2018
Global RegTech investments, 2014 - 2017 (USD, number of deals) $0m - $40m
Number of Deals
113 109 102
Source: FinTech Global Global RegTech investments, Q4 2016 - Q4 2017 (USD, number of deals) $0m - $40m
Number of Deals 32
194.0m 45.0m 238.1m
Source: FinTech Global The data for this article is sourced from the FinTech Global database. More in-depth research, data and analytics on investments and companies across all FinTech sectors and regions around the world are available to subscribers of FinTech Global at www.FinTech.Global. ©2018 FinTech Global
GLOBAL REGTECH SUMMIT
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Readers of The FinTech Times can get a 20% discount. Use code TFT20 Join us: www.GlobalRegTechSummit.com
FINTECH 2018 THE FIN TECH TIMES
Fintech 2018 Predictions
Fintech leaders reveal over-hyped trends Last year proved to be another exciting ride on the fintech rollercoaster. In a report by global PR & digital marketing agency FleishmanHillard, 30 experts from brands including Ant Financial, Citi, Ripple, Santander, Western Union, Starling Bank and Visa shared their insights on the biggest opportunities for 2018 and lift the lid on their biggest fears for the year ahead.
In the report, titled ‘FinTech: The Fads, The Fears and The Future’, the experts identified Initial Coin Offerings (ICOs) as the most over-hyped trend of 2017, closely followed by Bitcoin. However, despite the undeniable hype around cryptocurrencies during the past year, many experts predicted there could be a future for both ICOs and Bitcoin with the right regulation in place. Over half of the Financial Services experts questioned believe that “ICOs represent more risk than opportunity and regulation needs to step in before disaster strikes”, with Daniel Aranda, Managing Director Europe, Ripple, even claiming that this year “lawsuits, fines, and jail time [linked to illegitimate ICOs] would not be a surprise”.
Similarly, Bitcoin was identified as an overhyped trend by a number of the respondents; among them Jonathan Vaux, Executive Director, Innovation and Partnerships, Visa Europe, who claimed, “I think we can safely expect the [Bitcoin] bubble to burst at some point as people break from the “inner circle”.”
… but not Blockchain
Despite the undeniable hype around cryptocurrencies during the past year, many experts predicted there could be a future for both ICOs and Bitcoin with the right regulation in place. Meanwhile, Blockchain – and the distributed ledger behind it – were identified as major opportunities for Financial Services in 2018.
… or Open Banking
In addition, 85% of respondents believe that Open Banking – including the introduction of Payment Services Directive Two (PSD2) in Europe – will be the most important development for the fintech industry in 2018, enabling better collaboration between traditional Financial Services and fintechs. However, many respondents also recognise that complying with new regulation, including PSD2 and the General Data Protection Regulation (GDPR) will pose one of the biggest challenges of 2018.
Meanwhile, experts including Anne Boden, CEO and Founder, Starling Bank, revealed that the major challenge for a number of fintech enterprises in 2018 will be reaching profitability – and finally giving investors real returns on their investments.
…but not AI
Artificial Intelligence (AI) was identified by the experts as the second biggest opportunity for 2018. This is despite respondents being largely in agreement that the expectations of what AI could achieve in 2017 were often overhyped.
Chris Skinner, financial services and Fintech influencer:
“The future is uncertain. However, some things are certain. I am certain that the Bitcoin, cryptocurrency and ICO craze will continue through 2018. I am certain that Artificial Intelligence and distributed ledgers will be discussed by many and implemented by few. I am certain that Open Banking, APIs and the collaborative change in banking will still be high on the agenda. And I am certain that Brexit will continue to concern all those in fintech and finance. “ The thing we are normally wrong about is the impact of technology. We nearly always over-estimate the speed and underestimate the impact of technology.”
Based on the report by FleishmanHillard ‘FinTech in 2018: The Fads, the Fears and the Future’ February 2018 I 15
FINTECH 2018 THE FIN TECH TIMES
Expert Comments Yolande Piazza, CEO, Citi FinTech:
Daniel Aranda, Managing Director, Ripple:
“The most overhyped story in 2017 was fintech disruptors vs. banks. It’s an overly-simplistic and outdated view of the space. So much of what’s happening in fintech is about partnerships and collaborations. Pretending that this is some winner-takes-all competition might make good headlines but it doesn’t reflect the reality of what we see happening worldwide.”
“We saw an explosion of initial coin offerings (ICOs) earlier this year and they were easily the biggest trend of 2017. I think in the first half of 2018, we will see regulators worldwide come down very hard on many illegitimate, fraudulent ICOs and the people behind them. Lawsuits, fines, and jail time would not be a surprise. These will impact the crypto space in the short-term, but digital assets with strong use cases - like XRP - will emerge as winners.”
Paolo Galvani, Co-Founder and Chairman, Moneyfarm:
Anne Boden, CEO and Founder, Starling Bank:
“The crypto craze has investors jumping into ICOs as they urgently scramble to replicate the huge and easy gains made from Bitcoin. Too often, investors don’t understand what they’re buying, which is incredibly risky – especially in an unregulated market like this. This momentum has put ICOs firmly in bubble territory. The bubble could pop at any time and investors could lose a large chunk of their money in a moment. It’s time for financial regulators to stand up and do something to improve the quality of these ICOs and protect the consumer.”
Jonathan Vaux, Executive Director, Innovation and Partnerships, Visa Europe: “Bitcoin and cryptocurrency continue to be focus of much debate overshadowing the real value of smart contracts. With valuations careering towards $15,000 (editor’s note: value when comments submitted), I think we can safely expect the bubble to burst at some point as people break from the ‘inner circle’.”
“The real challenge within the sector is monetisation of the large growth in customers in the medium to long term – most investors have put large bets on companies that have experienced growth and large brand awareness, but often have made little by way of revenue. Investors recognise the innovation and potential within these products and many fintech businesses have been very successful in raising funding this year. However, longer term profitability of these propositions remains to be seen.”
Ruth Foxe Blader, Director, Investments, Anthemis Group: “The term ‘artificial intelligence’ is overused. We tend to get very excited about enabling technology rather than its applications. Artificial intelligence enables new applications in everything from fraud detection to intelligent cash flow management to automation in insurance claims handling. It’s the applications that are worthy of the hype.”
Based on the report by FleishmanHillard ‘FinTech in 2018: The Fads, the Fears and the Future’
16 I February 2018
More “air” is needed for the system… LUDWIK SOBOLEWSKI, ExCEO at Warsaw Stock Exchange and Bucharest Stock Exchange, Board Member at HighCastle Group, explains the future of fintech and financial markets What is the future of the capital market?
The future of the capital market is now and increasingly will be - characterized by a constant tension between, from one angle, a trend to innovate and to translate technological revolutions into the world where capital flows are handled, and, from somewhat opposite side, a trend to regulate the radical change of the mechanisms of the capital markets. Hopefully, these two trends will be resulting in a quality that will be a good combination of a progress, efficiency, formal certainty and protection of the market’s participants.
FINTECH 2018 THE FIN TECH TIMES
Blockchain and restoring capitalism’s lost promise The rise of a new generation signals a shake up to our current form of capitalism. Sascha Ragtschaa, CEO and co-founder at Chainium, the firm reinventing the global equity m arket, argues that by connecting investors directly with businesses on the blockchain, we can restore its lost promise.
How do you see the future of tokenisation of assets?
I tend to see the future of tokenization of assets as a concept to build up “tiers” of financial instruments. There are clear differences between a representation of assets by means of tokens and classical derivative financial instruments, but in essence, these two constructs resemble one another. Having said that, there is a viable perspective for the new concept and its implementations by different companies, like HighCastle, which combine DLT with securities-backed notes in one HighCastle’s SmartNote solution. It is also a signal for the regulators, that more “air” is needed for the system. Capital markets, as we know them today, are definitely over-regulated.
What is the role of blockchain in the development of the stock market and trading infrastructure?
It is clear that blockchain technology will cause a new wave towards operational excellence. First applications are already being tested, in the area of clearing and settlement of financial transactions. As regards the stock exchanges, apparently they are exploring blockchains much less, for their operations - even though they invest in companies that act in this field. Blockchains will influence business in general, therefore it is unlikely that trading platforms will be exceptions to that.
How does Blockchain influence the work of financial services regulators? Regulators evolve and, for instance, some of them have already acknowledged the
Capital markets, as we know them today, are definitely overregulated… existence of fintech as a new category of entities subject to financial supervision. Blockchain seems to be a technological support for doing business in the financial markets, which means that the regulators should already be acquainted with this technology.
What is the role and future of crypto in the global economy?
We are in the course to discover new continents within the global financial markets. Apparently, blockchains bring new solutions to old problems and create new problems and new opportunities. Cryptocurrencies have the same features. No doubt the world of finance will not be the same after the discovery of these new continents had been made.
he last 10 years have seen a significant change in the status quo, and nowhere more so than in politics. Figures who were formerly on the fringe like Trump have entered the mainstream, and two years on, the Brexit debate is still raging. But how has this change come about so quickly?
Enter the centennials The arrival of millenials disrupted every industry imaginable, and now the centennials are joining the electorate. This generation has grown up in an era of austerity, and evidence suggests they have become more sober and serious, with a view to changing the world. As they vote, politicians are rising who reject the economic status quo, who argue that the current regime has been reduced to a small class of ever fatter cats creaming off the top of a system that locks most people out. Although anti-capitalism in its current form, this generation is by no means anti-money. Young people today simply want to access investment on their own terms. The problem is that the current equity market doesn’t support such ambitions.
A global solution? Since 1800, we’ve had country-bycountry stock exchanges. However today’s businesses, equity market, and even investors are global. We need an update. Businesses are essential for any economy to grow, but our current financial model can’t sufficiently
support either ambitious firms or investors. Global businesses looking to raise capital are limited to options which are complex, time-consuming, expensive and largely limited to a single country. They’re required to jump through pointless hoops and to pay pointless middlemen. As for investors, opportunities to buy shares are restricted to public companies on the exchanges – they’re charged high fees and they aren’t able to invest in businesses abroad. This can mean they miss out on the best opportunities or even forgo investing altogether. Unsurprisingly, centennials want something better. Imagine a quick, easy and free system in which investors and businesses of any size could make deals that suit them, anywhere in the world, without the need for a middleman. It’s perfectly possible.
A new digital certificate
With a digital share certificate, built on the blockchain, business owners and investors can connect directly to buy and sell equities – without any bureaucracy. This means that capital can finally be democratised, so people can invest in and grow businesses that build a better world. And without middlemen slowing things down while getting rich on the inefficiencies. This development is not only imminent, but unstoppable. For future generations it’s the only way to restore their faith in the true promise of capitalism.
February 2018 I 17
INTERVIEWS BY FINTNEWS.COM THE FIN TECH TIMES
BREAKING MENTAL MODELS INNOVATION IN A CORPORATE
We sat down with Russ Kliman, Global Head of Innovation & Strategic Programs for SEI, and chatted all things innovation, fintech and the latest disruptors in the ever-changing industry. First, tell us a little bit about your current role - working alongside some of the fintech’s leading innovators. RK: In my role, my focus is to look beyond our current product roadmaps, beyond the 18-month timeframe, and over the horizon to see what’s next. To really place a focus on the next disruptor, the next key influencer in the wealth management and financial services space. To achieve this, it can’t be done in a vacuum, and as such I work closely with each business unit across SEI to see what their opportunities are, what problems they’re trying to solve, and what they’re hearing from the pulse of the marketplace. At the same time, we’re monitoring the market, engaging with fintech startups and other organisations and seeking to create connections by matching fintech opportunities and what we see out there with the market needs and the client needs. It’s an ever-evolving landscape, yet an exciting one. As we start to hear from our client relationship teams as to where the market is moving in a particular segment, we can then partner together and look at opportunities that are happening in the fintech space, and try to see if there are unique and compelling solutions that can help us advance or differentiate within the marketplace.
And what are the major challenges in innovation for established companies like yourself? RK: Often, many of the key challenges are not necessarily the technology itself, but rather the ecosystem that surrounds that technology, and how that adoption’s going to happen within the industry: how do we introduce emerging technologies into an industry that is typically very risk-averse and highly regulated? When you look in the rear-view mirror at the robotised advice disruption, so much of the conversation at the time was around ‘is it advice, is it guidance? What’s the FCA position on guidance vs. advice? Who’s the fiduciary? SEI has a long history of innovation and it is part of our DNA. With that comes a mindset that necessitates us to embrace risk and fail ‘well’, because we know that we need to continuously challenge ourselves to improve 18 I February 2018
our capabilities and deliver differentiation and value to our clients. Likewise, as we look at our clients our focus is to ensure we have solutions that can support their business models and manage the risks they’re trying to mitigate. We want to help them to create scale, and still fit into the regulatory framework within their particular markets. It’s a blend of experimentation, failing well, embracing risk, but also having the right clients and partners that are willing to embrace a similar mindset to drive growth.
Last year SEI opened the ‘IdeaFarm’, aiming to foster problem-solving skills and revolutionary thinking. In your opinion, how has this space managed to help innovation so far? RK: The IdeaFarm is a unique blend of a physical space that takes you away from the day-to-day, combined with specific processes, technologies, and tools to achieve creative problem solving and innovative thinking. While its situated on our US headquarters campus, it’s a separate physical structure that really lets you step away both mentally and physically from the day-today. It’s not just a physical environment of separated space with some really cool aesthetics to it, but it’s an environment where people have the tools and the techniques to help them solve problems creatively. We launched it back in March of 2017 and we’ve learned a lot using it over the course of the last year. Often there are sceptics in using certain tools or techniques, which is wonderful for me as I love taking people through an experience to unleash their creative talents. Ultimately the process that we go through using facilitators, using both technical tools as well as process techniques, helps people uncover new ways to solve problems that they never would have achieved sitting at a desk or in a typical conference room. The project has been a real success and we’ve got some great plans to bring the concept, albeit in a slightly different format, to our London office in the coming months. What we’ve also learned is that having facilitators really helps make that happen, as it gets everybody involved. The techniques we apply get people to open their minds to the art of the possible and solve problems in creative ways. We run sessions with
internal SEI teams as well as co-design and collaborative sessions with clients and prospects. We’ve also run sessions with vendor partners and startup companies that we work with, seeking to collaborate to solve current challenges. Some sessions run 2-3 hours, whilst other sessions can be multiday design sessions, it really all depends on the challenge or opportunity we’re working with.
And was the idea influenced by the startup world at all? RK: Certainly. Many of the techniques we utilise are design thinking techniques and other collaborative co-design techniques that originated in Silicon Valley and with many startups across the globe. We’ve also researched and studied what some of the leading university and design schools teach, such as the D-School from Stanford University or IDEO, a leading design firm that really brought the concept of Design Thinking to the forefront. However, we also know we need to blend the academics and concepts from the start-up world with own unique lens based on SEI’s culture. This includes the comfort levels that we have with trying new things, asking questions, and challenging our mental models around how we solve problems. I think that the key opportunity is to take multiple different techniques from academia, industry, and the startup world and blend them with your firm’s unique culture – that’s where the magic can happen.
“ It’s a blend of experimentation, failing well, embracing risk, but also having the right clients and partners that are willing to embrace a similar mindset to drive growth.”
INTERVIEWS BY FINTNEWS.COM THE FIN TECH TIMES
What has been the feedback so far? Did you use this method with all of your clients, or would you say it’s not appropriate to some of them? RK: The feedback has been tremendous, especially when working with our clients in the space and using the techniques to solve problems. But I would say that there’s not a one-size-fits-all approach, as it’s contingent on the problem we’re trying to solve. Not every technique applies to every problem or opportunity, and that’s the art of knowing how to structure your sessions. For example, it’s not the kind of space where you’d do a project review or walk through a project plan. It’s a space where you’re trying to solve problems, by coming up with creative solutions. These can range from something as simple as an operational process that we’re trying to do process improvement around to reduce risk, to (on the creative end of the spectrum) a new digital experience for our consumers where we’re trying to do creative wireframing and design around the digital experience - and everything in between. So it can apply to all of our clients, it just really depends on what kind of problem they’re trying to solve. We recognise that the IdeaFarm has become a physical manifestation of who we are from an SEI perspective, and our DNA around innovation. It’s something that we’re excited to engage our clients with, but we don’t want to make it artificial. We want it to be something that’s meaningful to them, so that they can get something out of that process as well.
That actually brings me to my next question: How do companies who don’t yet have the innovation mindset or space create their own Idea Farm? RK: Great question - that’s actually part of how we came to think about adapting that experience to a space for which you don’t have a 17th-century farmhouse! What we identified was that there’s always different techniques, facilitators and technologies which are critical to the success of a session. I think various tools or techniques do help do the discovery process, whether it’s various approaches to brainstorming, or prototyping and wireframing, different elements that fit within the Design Thinking umbrella. The last element to add is that there’s still some physical quality to it, such as not having a conference table, having movable furniture, different elements within the space allowing flexibility. Those elements combined, those core elements - the physical space of the seating and tables, the technology, the tools
and then the facilitators and the techniques that you use, I think those elements, apart from a physical building, really allow you to capture the essence of that creative, innovative spark, to gain new ways of looking at things.
You also talk quite a bit about breaking mental models - how does one do that effectively without breaking the business? RK: The notion of breaking mental models is about stepping outside of how you see the world today and forcing your team to be unconstrained in their thinking of what is possible. This approach is to create divergent thinking on what the possible options are during the ideation stage of working on a challenge or opportunity. This is where breaking mental models is most critical to free the current thinking and not limit you and your team on how things have always been done. Ultimately the challenge is that when you have everybody in the room sharing the same experiences and perceptions of the client, regulations, technology constraints, or budget, everybody’s going to look at how to solve the problem in the same exact way. Everyone will have the same lens by which they look at solving the problem because they’ve lived the problem first hand. This is where not only a facilitator can help, but the techniques to challenge the mental models of what is possible. It also is a key driver to increasing the diversity of the team to bring in outside perspectives who are not close to the problem, and thus can bring new ways of looking at ideas. The best example is small fintech companies: They aren’t burdened by the legacy of ‘how it should be done’ so they come up with, by definition, new solutions without that legacy of saying, ‘No, you can’t do this’. They are blessed with the benefit of not having someone saying, ‘we’ve always done it this way’. Whereas a typical incumbent is always looking at things through the lens of how things have always been done. Ultimately, the inflection point of breaking the mental model vs. breaking the business comes during the incubation phase (prototype or proof-of-concept), where you slowly begin to layer in constraints, limitations, regulatory elements, risk elements, and other limitations. The key is that you can’t burden yourself with those elements early on in that ideation phase, or you’ll never even explore what’s possible or find new ways. There are many industry examples, such as when Nokia had 54% of
the market share or when Apple launched the iPhone or Uber, who knew that offering a ride-sharing service in a heavily regulated industry would be incredibly challenging. In all instances, both firms had to break the mental model of what is possible – either attempting to unseat a firm with dominant market share or enter a highly regulated industry without regulatory approval. These firms had to break the mental model of what is possible, and then approach the constraints and limitations as they progressed to a full market launch. Absent of challenging the mental model of the possible, neither would have launched and ultimately disrupted their respective industries.
Speaking of disruption, and of the new thinking behind it, what was the biggest disruption in the wealth management industry so far in your experience? RK: I think in the last 5-7 years, certainly the robo-advisory space has been a disruption in the industry, both from a technical standpoint but also from a fee model perspective, in the UK and US markets. The robo-advisory space was a catalyst and a disruptor within the industry that has transcended digital advice. It’s changed the entire consumer behaviour/ consumer expectation, and disrupted the fee side and caused fee compression within the industry, creating different expectations for consumer behaviour around digital engagement. To a certain extent, the roboadvisory experience was at the forefront of the digital transformation of the wealth management space and became the catalyst for many other changes in how consumers expect to engage digitally. I think there’s also a coming wave of disruption, based around AI, cognitive computing and deep learning, and I think that’s the wave that’s really going to be impactful not only on how financial advice is delivered by intermediaries, but the entire value chain of delivering wealth management. Some impacts will be client-facing such as chatbots, and digital advice, whereas some are more operation-centric, such as AIenabled robotics or trade compliance. I think that’s definitely the next wave of disruption and an area which we’re trying to identify areas for experimentation and opportunities.
Keeping on theme of disruption, how would you assess cryptocurrency and the current hype around it? RK: From an innovation and disruption standpoint, cryptocurrency is in that typical
“The roboadvisory space was a catalyst and a disruptor within the industry that has transcended digital advice.” disruption hype-cycle. I think the best way to view it is if I parallel it to the robo-advisory space. Initially there were 3 or 4 robo-advisors who jumped into the market, made the big headlines, and caught everybody’s attention and disrupted the marketplace. Then everybody else looked at that, saw the opportunity and the next thing you know you have forty fintech startups jumping into the robo-advisory space and everybody’s trying to play the same game. Then over time, one by one they either disappeared, pivoted, or got acquired, in a very typical disruption hype cycle. I think in the cryptocurrency marketplace (and accompanying ecosystem) you’re going through that same cycle. You have a handful of cryptocurrencies that are in the market today, getting a lot of press and a lot of attention, and you’re getting this euphoria and excitement, enticing everybody to be in the game, artificially inflating the interest in the market - no different to the robo space. I think the cryptocurrency space has that same hype cycle, making people think they need to ‘get into the game’, and if they’re not in, they’re missing out. But what I think’s going to happen, no different to any disruption cycle, is that you’re going to see a lot more fintechs come into the market that are part of the cryptocurrency ecosystem, and then, eventually, you will begin to see a consolidation and drop-off of the hype cycle. I think cryptocurrencies are too early, looking at it from an innovation standpoint, in the cycle of the disruption curve to react to it in a material way. February 2018 I 19
CEO INTERVIEW THE FIN TECH TIMES
Company SteelEye •.www.steel-eye.com• Interview with Matt Smith, CEO • Subjects Data, MiFID
SteelEye CEO, MATT SMITH
Open and democratised data Every modern business in today’s tech-driven world is inundated with data, yet until recently, this data was ‘owned’ and only made accessible to IT departments and data analysts who used it to drive business decisions. We are however, seeing a new wave of data democratisation, where businesses can own and access their own data with fewer limitations, silos or gatekeepers and greater freedom to present data in a way that people can understand. This shift to information democratisation stems from the large quantities of data created on a daily basis, also known as big data, and the rise of fintech and other tech advances, including improved data visualisation tools and accessible cloud software, which have enabled non-tech people to make sense of this data and gain wider business insights. The impact of democratisation now extends as well into the financial services industry through the second Markets in Financial instruments Directive (MiFID II), which came into effect on 3 January 2018, and was designed with the goal of democratising access to financial market data by forcing the manufacturers and distributors of financial products to unbundle information and reveal more to the consumers of their products. Though met with challenges, open, democratised data has the potential to change the way businesses use the data they generate, providing valuable business insights, improving access and encouraging collaboration. Below, Matt Smith, CEO of SteelEye, the regulatory technology and data analytics firm, explains how open and democratised data can improve the way business users access data and some of the barriers it has faced along the way.
Providing valuable business insights
Typically, large organisations have the resources and teams they need to analyse their data and make informed business insights, but for small and medium sized businesses (SMBs), this can be daunting and leaves them with more limited insight into key areas of their business, with the potential to affect their financial and business decisions. The democratisation of data involves making data 20 I February 2018
more accessible and easier to understand so that business insights are easier, cheaper and quicker to access. For example, dashboards and platforms for collating and displaying data help businesses become better-informed about the decisions they’re making, from trades to communication to the products they are selling. By identifying patterns and trends in their business, firms can innovate and launch new products, segment marketing campaigns to reach different consumers, and even invest in new channels.
Improving data accessibility
With the democratisation of big data, we have seen a rise in fintech firms who create data analysis products and services that are faster, cheaper and more transparent. The resulting flexibility can extend both to giving clients total control of their own data via open APIs and the ability to choose the geographic location where their data is held. Due to their lower price and agility, these new products are attractive to companies that may be unable to commit a large portion of their budget to traditional methods of data storage and analysis. The mainstream acceptance of cloud storage has also made data analysis easier for all. As businesses amass increasingly large amounts of data, this inevitably creates demand for more storage and overhead costs. However, using the cloud as a central location to store data helps limit the scope for a silo mentality, and the lower, easy-to-understand fee structures involved appeal to smaller firms with limited IT resources, allowing businesses of all sizes to access similarly scalable and secure technologies.
Data democratisation also facilitates improved collaboration between traditional services and technology by increasing the interaction between advisers and technological tools to improve the customers’ experience. For example, the recent introduction of Open Banking has demonstrated that collaboration is possible, with banks opening up their customer data to fintechs, which will encourage the provision of new services, increase competition and enable customers to understand their data. When made readily available, data, and the technology that helps to break it down and analyse it, enables businesses to instantly
engage with the information they generate, moving ahead of the competition and showing true measurable value. Services don’t have to be either-or: face-to-face service and technology can harmonise with one another and be combined to enhance the service being provided to consumers.
Barriers facing data democratisation
One of the main challenges facing the democratisation of data is a tendency for resistance to change by the industry incumbents such as the traditional market data providers. Fintechs are a fairly new addition to the financial industry and have grown rapidly over the past few years, bringing with them a number of benefits to smaller businesses, including helping to reduce cost and complexity by using innovative technology and approaches. A key component of data democratisation under MiFID II is the timely release of posttrade transparency data. In essence, this is ‘free’ market data which APAs must make available free of charge after 15 minutes, available to everyone. Unsurprisingly, a fear that fintechs will erode the franchises of traditional financial service players has left the industry unwilling to embrace new technologies creating slower adaptation, to the cost of the customer. Many APAs are seeking ways to monetise this data, or to introduce barriers to making the data as accessible as intended by the new regulatory framework. However, with market participants coming to understand the benefits of working with such companies and with ongoing customer demands for faster and more convenient services, we will likely see continued innovation and consolidation in this sector. As businesses become increasingly digital, it is paramount that these security concerns are managed, particularly in light of new regulations, including the General Data Protection Regulation (GDPR), which requires businesses to improve their due diligence and security measures or risk facing fines of up to €20 million or 4% of annual turnover. By implementing proper processes, including spending time and resources on effective security capabilities, businesses can help alleviate these risks, while making the best use of the data available to them.
STARTUPS TO CHANGE THE WORLD THE FIN TECH TIMES
Startups and ideas to change the world
Co-Founder & CEO Autobooks.co
CEO & Co-founder Yoyo
mall Businesses have always struggled with finance, cash-flow and bookkeeping. Most financial institutions provide small businesses with the same antiquated tools they provide to consumers and retail customers – thus limiting their potential and leaving them no choice but to look for alternatives from nonbank providers. More than 80% of small businesses do not use an accounting system, contrary to popular belief – presenting a huge market opportunity, if only these business owners valued accounting and bookkeeping. But they don’t. They value cash-flow. Autobooks, a fintech company based in Detroit, MI works with financial institutions to provide integrated payment and accounting software for small business, that integrates directly into internet banking. Put another way, Autobooks helps businesses bring money INTO the bank, similar to how Bill Pay has helped to move money OUT of the bank. By helping businesses ‘automate’ bookkeeping, more businesses can get the benefits of accounting, without needing to learn (or hire) an accountant. As it turns out, banks have customers that need help with finances. Banks already have their trust and their attention – as they hold their money. Autobooks helps banks bring critical services down market to a new audience, providing contextually relevant and increasingly personalised services to support each of their customers respective stage; whether they are opening their first checking account, looking for convenient ways to get paid by their customers, or whether hiring employees or shopping for insurance. By providing products and services customers actually want, to those who need them most (small businesses) and integrating them, making them easy to use and affordable – all banks, not just Mega Banks can compete for the next generation of businesses while at the same time rebuilding relationships that have drifted to non-bank providers. Autobooks believes businesses with better cash-management tools have a higher likelihood to succeed; building larger, fiscally disciplined businesses that create wealth, increase GDP and have social & environmental impact on their communities.
s the rising adoption of smartphones has changed the way people shop, consumers - especially millennials, a digitally savvy population that makes up more than 50 percent of AutoGravity’s users - center much of their lives around their phone and other digital platforms. Clothing, groceries, and even mortgages can be secured through apps, but until AutoGravity, there wasn’t a way to obtain financing to seamlessly purchase a vehicle. AutoGravity is the digital glue that connects car shoppers, dealerships and lenders through a proprietary user experience that makes financing a car quick and easy for the consumer, (it takes less than 10 minutes!) while retaining revenue streams for the lenders and dealers. Consumers can now shop for their next car the way they want to, bringing the process into the 21st Century and providing the industry with a modern mobile platform. AutoGravity has experienced substantial growth since its first apps hit the marketplace in the summer of 2016. The company has had more than 700,000 downloads of its native mobile app. As the business grows, it is imperative that the company maintains its agile product development methodology to meet consumer demand. In order to do this the company is building squads to serve a broader spectrum of unmet needs, working in harmony to make the digital car purchase, finance, and ownership experience even more gratifying. We do this in part by maintaining an open office with frequent town halls, ensuring that any employee can reach any executive with feedback on any aspect of the product or business. AutoGravity provides transparency for everyone in the car shopping and buying ecosystem: consumers, lenders and dealers, using technology to solve problems and create value for each of its key stakeholders.
ith the onslaught of online shopping, high street retailers are constantly looking for new ways to better engage with their customers and increase retention. As it stands, most traditional loyalty and CRM programmes don’t cut the mustard. Through its unique omni-channel point-of-sale acceptance network, Yoyo delivers a combined payments and retailer loyalty experience for consumers, whilst providing retailers with the tools to better engage, reward and retain their customers. For consumers, the Yoyo app provides secure mobile payment, automated retailer-specific loyalty and digital receipt collection, as well as offers personalised to their buying preferences, along with wider functions including in-store preordering. For retailers, Yoyo uniquely identifies every customer at the point-of-sale by connecting their payment with their basket data, which turns anonymous shoppers into individuals with purchasing preferences and habits, which leads to enhanced engagement, personalised rewards and increased retention. With the introduction of Open Banking, trusted third parties can now access a consumer’s banking data, which opens up a whole new world of opportunity. As we hurtle towards a cashless society, Yoyo wants to continue to transform the payments process for every retail customer, whether they pay through card or mobile. We’ve already started work on this by opening up retail loyalty to the wider banking experience through a unique partnership with Starling Bank. Since launching, Yoyo has gained over 700,000 users, processed more than 20 million transactions at over 2000 retail outlets, and rewarded users with more than 2.7 billion loyalty points. We started by targeting the trend setters - students - and soon became available in over 70 universities across the UK. Word spread and Yoyo then became a regular feature at more than 200 corporate canteens.
YMBUS was founded with a simple concept in mind: Help community banks and credit unions embrace a digital-first view of banking. We do this by providing an open, cloud-based core banking platform, which serves as the central nervous system processing all daily banking transactions and updates to accounts and other financial records. The core system not only drives the day-to-day operations of a bank, but also serves as the core IT platform for new capabilities and growth. We also accomplish this mindset by aligning on how and when our customers use banking technology. Today, it is through mobile. Our Internet and mobile capabilities give banking customers the freedom to bank when and where they need to. Banking sector still needs to catch up to the expectations of consumers who want an Amazon or Google experience. It is essential to understand the needs of Millenials, and take the steps to align their values with the banking experience. Our biggest challenge is arguable our great opportunity. Current legacy core systems that run most banks and credit unions are significantly ill-equipped to support the digital age. These legacy systems were typically built around an account and not a customer, thus were never designed with current digitalchannel requirements in mind and are unsuitable to service the needs of today’s digital economy. NYMBUS was born in the digital age, for the digital age, so we’re approaching the industry problem differently and with open, modern technology. This innovative thinking and technology often requires a vision match with senior leadership at financial institutions. NYMBUS aims to level the playing field between large financial institutions and smaller community banks and credit unions.
Yoyo is already available at chains including, Planet Organic, Harris + Hoole, HOP Vietnamese and Wrap it Up, as well as the UK’s third largest coffee chain, Caffè Nero.
February 2018 I 21
FINTECH IN AFRICA THE FIN TECH TIMES
Fintech in Africa SPECIAL REPORT BY YINKA OPANEYE A People Consultant supporting technology startups in developing their teams and organisational growth. He also conducts research into Digital Finance. He is currently reviewing financial sectors of the EU-28 countries.
Unlike in the Western countries, fintech in Africa have been led by telecommunication firms who have leveraged their large and dispersed networks to reach the un- and under- banked. As a result the term often used is “mobile money”. As the term clearly suggests, subscribers of these services store ‘value’ or ‘credit’ which may then be topped up, debited or transferred to other users. Their devices function as simple debit accounts or more commonly known “money wallets” or “mobile wallets” and allow users to make payments for a range of items including utilities, rent, school fees, online shopping, government payments and more. For this article, we’ve chosen to focus on three unique financial markets from around the continent at various stages of advancement: Kenya (the epic-centre for fintech on the continent), Ghana (a very stable country with a steady rise) and Morocco (an often overlooked financial juggernaut, just entering fintech).
>> Kenya Kenya is well-renowned as the birthplace of the giant mobile money transfer entity known as MPESA which has revolutionised the way people handle and think about money. It is a mobile money payment platform that allows users to make P2P payments by sending a text message. Users can deposit, send and receive money as well as pay for goods and services from their mobile phones. The service has been lauded for its convenient remittance of money through a cashless system and continues to spread to other countries. It has also been integrated into platforms like woo commerce. In just three years after its inception in 2007, MPESA was being used by 70% of the households in Kenya and covered 50% of the poor population found in remote regions. According to a financial report released by Safaricom, which is the service’s parent company, on September 30th, 2017, MPESA’s revenue grew by 16.2% to 30.05 Billion ($290.4 million). In June 2017, MPESA introduced a new product known as M-PESA 1 tap. The solution allows users to simply tap on a near-field communication (NFC) card, NFC enabled wristband or phone sticker and thereafter the user would be prompted for their MPESA PIN number and the transaction would be over in less than a minute. In 2016, Safaricom launched a mobile application called mysafaricom app for smart phone users that allows users to access all Safaricom and MPESA services and later introduced 22 I February 2018
scanning QR codes as a payment option In the banking sector, banks have not quite capitalised on the fintech sector. This was partly caused by the capping of interest rates set by the Central Bank in 2016. It in-turn led to a further reluctance by banks to extend credit to small businesses, high-risk clients and small savers. Banks and other financial institutions are still playing catch up to MPESA. However, it’s important to note that most banks have partnered with MPESA to allow customers to access banking services straight from the comfort of their mobiles. In Dec 2015, The Central bank of Kenya put a disclaimer on bitcoin and other forms of virtual digital currency terming them as unsafe and risky. The bank questioned their unregulated nature, instability in value and transactions which largely remain anonymous and untraceable. This has dampened not only Blockchain and cryptocurrency penetration in the country, but also innovation within this space. It remains to be seen how Kenyans will use this technology to disrupt their financial sector further.
>> Ghana The emergence of fintech in Ghana has sparked off a tremendous increase in domestic and cross-border payments. The mobile money industry within Ghana has witnessed stiff competition between Telcos with MTN Ghana as the leader in terms of
active subscribers (5.6 m) and transaction volume (485 million). It is closely followed by Tigo (Tigo Cash) and Airtel (Airtel Money) whose platforms became one as a result of a merger announced in October 2017. Despite mobile money being the headliner in the FinTech industry in Ghana, there are other well-known companies which include Hubtel and Dream Oval that are influencing the e-payment industry. Their platforms offer services that are similar to that of a mobile money wallet except they have APIs that can be integrated into websites that enable payments to include VISA and MasterCard. One of the most famous of these service providers is Zeepay which facilitates mobile money payments, domestic transfers and international remittances. The company has also put financial inclusion – often one of the forgotten original goals of fintech – at its core. Unlike mobile money, the use of cryptocurrency has not gained much traction in the country. The adoption rates are low due to the same fears of uncertainty witnessed in the West. Regardless, a few cryptocurrency exchanges which include Payplux and Remitano have emerged to profit from the minority of enthusiasts. Another area which has received some wide-spread attention within Ghana’s fintech sector is micro-insurance. Leapfrog Investments – a financial services fund which is a leader in emerging markets – has invested over $15 million in Ghana’s insurance sector since 2012. MTN Ghana in 2011, partnered with Hollard Insurance, MicroEnsure and MFS Africa to launch a microfinance product called mi-Life. A similar product was set up by Tigo Ghana in partnership with Bima and MicroEnsure. These advancements in fintech beyond the basic current account functions of mobile money are proof of greater financial inclusion and deepening. However, at present, the Central Bank of Ghana (BOG) is still taking a light-handed approach to regulation. In the meantime, the BOG has issued guidelines to regulate mobile financial services in the country. These guidelines issued in 2015, are known as the ElectronicMoney Issuers (EMI) and Agent guidelines. They have been employed as a means of reducing the risks associated with the mobile money platform, whilst still not trying to stifle the seedlings of innovation within the country.
>> Morocco With a GDP of $120 million, the Moroccan economy is considered the fifth strongest economy in Africa according to the African Development Bank. The service sector dominates the Moroccan economy, contributing around 55% of GDP. Within this stands its financial services sector which has the highest ranked global financial centre in Africa (2017); and according to the latest financial system stability assessment conducted by the IMF its banks remain well-
regulated and sufficiently capitalised. Banks, monitored by the Central Bank of Morocco (Bank Al Maghreb - BAM), account for nearly half of the country’s financial system. Of the 19 banks, the top three are responsible for over two-thirds of all bank assets and deposits. These are: Attijariwafa Bank, La Banque Populaire du Maroc and La Banque Marocaine du Commerce Extérieur which account for 25%, 24% and 12.7% of the market respectively. But, this does not mean the system is not witnessing dynamic changes. Within the past ten years (from 2007), the level of bank penetration jumped from 43 to 63 percent and the rate of bank density (branches per 10,000 residents) increased by 50%. Since 2007, BAM has been making discernible efforts to improve financial inclusion. In 2014, it developed a new framework (No. 103-12) published in the journal Officiel in March 2017 (Banking Law). The law creates two categories of financial providers thereby increasing competition within the payment services arena. A new category, loosely translated as ‘participative banking’, allows non-banks to offer payment services enabling cash transfers and withdrawals of cash from payment accounts. Of the ten operators that applied to BAM to join the scheme, five were granted licenses. However, there are some delays in the launching of these new services. The Council of Ulema, responsible for declaring them ‘Sharia compliant’, has been slow in doing so. This meant that as of September 2017 only three were available to offer their services. Within the realm of cryptocurrencies Morocco is following a similar route to its African neighbours in its slightly sceptic treatment of the instrument. As recently as November 2017, The Exchange Office (L’Office Marocaine de Changes) banned Bitcoin and issued stiff threats aimed at cryptocurrency enthusiasts in the country. According to the governor of BAM, Abdellatif El Jouahri, Bitcoin fails to meet the three criteria required to define it as a currency: be a means of payment, a store of value and an instrument of saving. This interdiction came nearly one week after the announcement of accepting Bitcoin payment by Morocco Trade and Development Services (MTDS), the country’s first interview provider. It means MTDS now only accepts Bitcoin payment only from foreign customers. It remains to be seen whether mobile money will take off in Morocco as it has in some other African nations. However, this new law opening up its banking system is mirroring the actions taken by other countries where fintech is thriving. --For a more detailed report on fintech across the continent, please read our free report: Exploring African fintech (www.okahr.co/ exploring-african-FinTech/).
Events THE FIN TECH TIMES
eFintech Show 2018 Barcelona
Finovate Europe 2018 Excel London 1400+ attendees. 70+ companies demoing. Countless opportunities. See cutting-edge banking, financial and payments technology in a unique, short-form, demo format. Plus new for 2018….after the 70+ demos, get advice and insights from another 100+ fintech experts in a newly expanded programme. All taking place in a larger venue to accommodate increased Use promocode demand. FKV2335FTL and get 20% finance.knect365.com/ discount
The International FinTech Conference 2018 London In 2017, over 100 of the UK’s leading fintech firms were hand-picked to join the world’s biggest international investors in London for the UK’s first International FinTech Conference. With keynote speakers including Philip Hammond, Chancellor of the Exchequer, and Mark Carney, Governor of the Bank of England, global industry leaders highlighted the leading approach to fintech policy and regulation that makes the UK’s industry an invaluable opportunity for investment. At the same time, UK fintech firms had the opportunity to pitch directly to global investors.
eFintechshow 2018 to focus on the new desentralised economy. The consolidation of decentralised technologies such as Blockchain together with the various fintech business models that exist today make the financial sector has to reinvent itself more than ever. Join the event to know more on how desentralised economy will affect.
21-22 May Connected Claims USA Summit 2018, Chicago
The insurance industry is entering an age of disruption and digital transformation, and as both the moment of truth for fulfilling the customer promise, and a significant cost centre, claims is a priority for transformation. At the Connected Claims USA conference, join claims visionaries and leaders to gain inspiration and tools for immediate implementation from innovative insurance case studies.
In June 2018, Money20/20 lands in its new home – the Rai in Amsterdam – to once again focus the world’s eyes on Europe. Everyone is here, every time, coming together to explore unique regional insight and trailblazing enterprise, seizing the opportunity to meet the person or land the deal that will change the trajectory of their business.
Money 2020 Amsterdam
Investing for impact 2018 The Economist London
The largest ‘must see’ insurtech event worldwide. 2 days. Over 50 insurtechs on stage. 7 Thought leader keynotes. 1000 Attendees representing 40 countries from all 6 continents. C-level and C-1 decision makers of all major insurance carriers.
As with the previous Economist summits on investment and impact, speakers and audience members will include leaders from the world’s premier financial institutions, wealthiest families, largest companies, innovative startups and most influential foundations. The conversation and debate will be challenging, cutting through the hype to focus on the real issues that will determine whether investing for impact remains niche, or is becoming a revolutionary agent of global change.
February 2018 I 23
BIG PICTURE THE FIN TECH TIMES
When Renaissance and Blockchain come together... We had a conversation with STEFAN FURLAN, Director of Viewly Inc, a decentralised video platform, about new ways of supporting creativity, and how there’s more to video sharing than YouTube has to offer. What was the problem you were trying to solve with Viewly? Platforms like YouTube are essentially ad- based and I think ad-based solutions stupefy people. They’re pushing these pesky ads, and promoting a binge-watching culture. If you’re a content creator you’re trying to generate an audience that will follow your channel, and obviously if the platform is only interested in how many videos the audience watch they will essentially ‘clickbait’ your audience away. With content creators and video sharing platforms, their goals are misaligned: we saw our opportunity here to create something different.
How does a decentralised video platform work? There is the front-end where we want to create a better user experience, by allowing content creators to tie-in the monetisation layer. For example, you can watch a video and “like” it and in “liking” it you give the creator 5 pence. If you really love it you can donate £5 or you can make a patronage pledge, where you choose to give the creator £5 a month just to keep up the good work. It’s a more stable revenue stream, whilst simultaneously allowing them to create the experience that they want. If they want ads and they want to promote a product, they can agree on some form of sponsorship; they can integrate it into their videos in the way that they’d like, as opposed to the current situation where a video creator talks about something and an unrelated ad pops up. It just ruins the experience.
Anyone already doing it? Obviously, there are big names out there. We don’t position ourselves as competitors to YouTube because what makes one a competitor is not having a video player, it’s not the technology, it’s the market you’re after. The most popular video sharing platforms are after the most popular creators, they create millions of views and YouTube can play tons of ads on those videos, and that’s essentially what they’re after. Then you have the mid-tier level platforms where you have smaller content creators, and they’re producing quality content — on topics such as cooking, sports, music, travel, tutorials, and education. That’s who cater for; they usually have much smaller audiences and thus don’t have enough followers for these large platforms to be profitable for them. Just a few weeks ago I was watching a tutorial where a guy explained one part of the blockchain technology incredibly well. If there were an option for me to donate money, I would do it - but there isn’t. That’s what we’re creating; the immediate option to donate, built into the platform, so that when somebody watches a video, they can reward the creator immediately.
24 I February 2018
What do you think about platforms like Patreon and Twitch, that support their content creators? I think Patreon is really good. They moved away from the ad-based model and it’s more about finding high-quality content and consuming it in a healthy way - they avoid binge-watching. However, one thing about these platforms is that they’re usually fixated on one specific monetisation option which might work for certain content but other content might benefit more from another method. We were even talking with one of the big charity organisations and they said they wanted to create a video that might showcase some of the economic hardships around the world so people can donate to those. We want to give the power to the content creators so they can create the customer experience they desire.
Why blockchain? Well with blockchain, you have this concept of distributed autonomous organisation. It’s like open sourcing the organisation the way you open source software. There is no middle man.
You’ve mentioned crypto tokens when talking about this previously. How are they integral to the product? We have a token for two purposes. First, we want people to have some form of currency to reward content creators, and secondly, we want content creators to be able to pay for the content distribution network. So they are essentially paying for the storage, but it’s not socialised, like on YouTube, where the popular users are subsidising the less popular users. With Viewly you pay for your storage and if it doesn’t add up then you delete the videos.
What are the risks involved with this model? How do you intend to mitigate them? There are many aspects we’re starting to solve, that are important to get right. One is, obviously, creating this huge decentralised content distribution network. If you look at popular platforms, you have farms of computers and servers in hundreds of locations that enable you, when you go on YouTube and select a video, to actually play the video of your choice. We’re looking at how torrents work — focusing on peer to peer. So if you have spare storage on your computer, your computer sits at home connected to the internet and you just install the software that’s doing the job. You’re earning some money because the content creator actually pays you to provide this. So creating this is the main challenge. As to how we actually do it, we have to think of the infrastructure. Another challenge is control over the content,
how to strike the right balance - how to ensure it doesn’t suddenly become a centralised system where we act as an authority, deciding what’s good and what’s not. There are also digital rights to consider.
“I think ad-based solutions stupefy people, promoting bingewatching culture”
Right now, our focus for the next stage is actually on how to attract good content creators to come on to our platform. As well as how to attract viewers to the platform, to watch the content and support these creators. So this is our next challenge.
You talk a lot about how the content on YouTube is draining everybody’s brains, can you elaborate a little more on that? Certainly. If you’ve watched videos on YouTube, then you’ll have experienced what I’m talking about. Perhaps you intended to watch one thing but two hours later you’re watching a mindless video about cats or pandas or something. You’re manipulated into consuming this empty content because YouTube, like all ad-based platforms, uses algorithms to discern your interest and then bombard you with similar content in order to show you more ads. The focus is a kind of binge consumption, where they encourage people to mindlessly consume videos. On Viewly, if we have a content creator who has his own channel, we don’t want to clickbait the consumer away from his channel. We intend to have a landing page with sophisticated recommendation tools.
Both now, and in the future, how do you see the content creation landscape developing? I think we can look at history for a model. If we consider the Renaissance period, where visionaries like Michelangelo, Da Vinci, Bernini and Raphael thrived, we realise that it wouldn’t have been possible without patronage. They were supported by wealthy families like the Medici and the Catholic Church; they were able to create without worrying about the commercial value of their work. We obviously shifted from patronage to community sponsored art, with theatres and galleries and so forth. Now, technically these things are free but we’re still paying, we’re forced to consume ads and, of course, we’re giving away our personal data. We have a different approach. Ultimately what we’re trying to do is solve some of the problems caused by ad-based platforms. We want to use the new opportunities with blockchain technology to do things differently, and to offer a platform to promote creativity and quality content, moving away from mass market consumption.
STEFAN FURLAN OCCUPATION:
Director of Viewly Inc
PhD in Computer Science, University of Ljubljana
The founder, partner, and director of several startups in data science, analytics and blockchain space, including Dodona Analytics, Unblock Technology, Behaviour Exchange and Optilab.
FAVOURITE BOOKS: Nassim Taleb’s Antifragile
Gostilna Za Gradom “Rodica” in Koper, Slovenia
BUSINESS PHILOSOPHY: Superior team + Empowerment
Payment Services Directive 2 is explained as the second iteration of the Directive on Payment Services adopted by the European Parliament. T...
Published on Feb 1, 2018
Payment Services Directive 2 is explained as the second iteration of the Directive on Payment Services adopted by the European Parliament. T...