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#23 | OCTOBER/NOVEMBER 2018 | £2



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En Exclusive Interview with....

Moshe Joshua, CTO of Blackmoon

page 08-09

Tel Aviv: the Startup Nation



The Bankers’ view on

Blockchain Infrastructure technology



page 10

The TOP 3

Blockchain Healthcare companies to watch page 18

The Big Picture Interview

Radix: Better than Blockchain! page 26

This year, security tokens and the ‘tokenisation of everything’ have been branded as the future of the investment. But what exactly is it? Though the future is uncertain, the willingness of the ecosystem to abide by regulation through security tokens appears to be a strong indicator that the previously chaotic blockchain investment industry is maturing. Continued on page 3



Join the conversation: t.me/radixDLT ... and find out why at: radixDLT.com


News Updates £500 Million in Fraudulent Transactions Catalyst for Banks to Revamp Fraud Strategies More than £500m was stolen from customers of British banks in the first half of 2018, according to Industry group UK Finance. Whilst £145m of that was due to authorised push payment (APP) scams, £358m was lost due to fraudulent transactions made without account holders’ knowledge. With fraudsters becoming more sophisticated in their tactics, the banking industry has been investing millions in new technologies to replace their old antifraud systems. Customers expect faster fraud detection and seamless resolutions from their banks. Puneet Taneja, Head of Operations from Intelenet Global Services comments: “To combat fraudsters who are becoming more digitally savvy and skilful in bypassing banks’ antifraud systems, banks are boosting their arsenal with extra talent and technology to stay on top of fraudulent activity in real time. Using real-time anomaly techniques, banks can see an overwhelmingly impressive 92 percent reduction in fraud losses and in one case, a UK national bank saved £3.54m annually from credit and debit card fraud. Developing expertise in machine learning and predictive analytics to prevent, detect and investigate financial crimes allows banks to increase efficiency, reduce headcount in compliance and provide a better customer experience. This can result in a 30 percent reduction in complaints. How well a bank deals with a customer who has fallen victim to fraud could determine whether they choose to continue banking with them. Banks need to be seen as being on the side of their customers.”

Alibaba Partners with Banking Circle for Futureproof Payments Alibaba Group has signed up with Banking Circle, the global scale financial utility, to utilise Banking Circle’s groundbreaking infrastructure and global network to facilitate its business. On the announcement of the partnership, Paul Li, Head of Payments, Alibaba Group commented: “We are delighted to partner with Banking Circle. Its global network and disruptive technology


Funding Circle Lists on London Stock Exchange

City of London Corporation Calls on Liberal Democrats to Support Fintech The City of London Corporation is calling on the Liberal Democrats to adopt policies that support fintech, so that London and the UK can continue to lead the world in this fast-growing sector. Fintech in the UK contributed £6.6bn to the economy last year and employs 76,000 people – a figure expected to climb to 105,000 by 2020. The UK accounts for 11 percent of the global fintech industry, with a market size greater than California or New York. The City of London Corporation last year published a report on the Value of Fintech – authored by KPMG – that outlined 10 recommendations to improve the competitiveness of the UK’s fintech offer. This included calling for fintech to secure a sector deal in order to ensure it is better supported through policy, regulation, funding, capital, infrastructure and talent. The Government responded by publishing the Fintech Sector Strategy in March. As Catherine McGuinness, Chairman of the Policy and Resources Committee of the City of London Corporation, said: “Fintech is a major asset for the UK’s economy and London provides a world leading ecosystem for firms in the sector. It is also delivering tangible benefits for customers by meeting their evolving needs. We cannot afford to take this success for granted, however, so it is vital that policymakers tackle bottlenecks that are constraining the growth of fintech firms. This includes ensuring that fintech firms have access to highly skilled international talent, particularly individuals with expertise in coding and software design, and equity finance. The Liberal Democrats should make supporting this high-growth sector a priority.”

Photo: LSEG London Stock Exchange Group (LSEG) has welcomed global small business loans platform Funding Circle to the Main Market. Raising £300m in primary proceeds, with a valuation of £1.5bn, Funding Circle’s IPO underlines the UK’s leading position in supporting ambitious fintech companies to expand globally. Funding Circle has facilitated over £5bn in loans to over 50,000 SMEs from 80,000 investors in the UK, US, Germany and the Netherlands. Samir Desai, CEO, Funding Circle was understandably delighted with the news and commented: “We have always believed Funding Circle would be well-suited to the public markets and today’s listing is recognition of the strength and global impact of our model. We look forward to starting this exciting new chapter for the business as we focus on growth across all markets and seek to create a better financial world for small businesses and investors.” Dr Robert Barnes, Global Head of Primary Markets and CEO Turquoise, London Stock Exchange Group lead the salutations by saying:“We congratulate Funding Circle on its successful IPO. We have watched with great interest the development of the fintech industry over the last decade. Funding Circle’s IPO today further confirms London as a leading international financial centre for raising capital for global fintech businesses.”

makes it an ideal partner for Alibaba’s future ambitions, building on the global infrastructure and technology platform that underpins the financial utility.” Established in 1999, Alibaba Group is a leader in ecommerce, with a mission to make it easy to do business anywhere. Domiciled in the European Union, Banking Circle specialises in providing global payment account transactions and foreign exchange services to financial institutions, including fintechs, banks, acquirers, payment service providers, FX brokers, money transfer businesses, e-wallets, and alternative payment providers. Anders la Cour, co-founder and Chief Executive Officer of Banking Circle added: “Payment providers who join

Banking Circle can offer ‘local’ cross border payments, with low fees, good FX rates and fast transfer times. It’s a cohesive solution – there’s no differentiation between local and cross border payments. All payments occur quickly, at low cost. Payments are simply payments.”

Managing Editor: Ronny Lavie Published by Disrupts Media Limited


To deliver fintech opportunities and solutions to mainstream audiences To identify social, economic, political, and cultural trends To bring stakeholders together to develop solutions To connect the elements of the fintech ecosystem

2 I October 2018

40 Islington High St, London N1 8EQ editor@thefintechtimes.com thefintechtimes.com

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The most optimistic and prophesying minds in the industry are envisaging a future ‘tokenised world.’ A world where anything from traditional financial assets to real estate, public and private votes, and genetic data, will be ‘tokenised’ - which essentially refers to the transfer of the value of underlying assets from paper or electronic form to a digital version. With the principal obstacles to cryptocurrencies and new financial technologies having made themselves abundantly clear over the past few years, a number of players in the ecosystem think they have found the solution in security tokens. They may just be right, and, as we enter the last quarter of the year, it seems wise to keep an eye out for developments in the security token ecosystem.

The evolution of trade and securities In order to fully understand what is at hand when we talk about security tokens, or tokenised securities, which is the term some in the industry prefer, a brief reminder of the role and evolution of securities in the way society has conducted business and trade throughout history can be of valuable help. During the medieval period, Italian merchants began to use what is known in accounting as double-entry bookkeeping. This was in response to the perils attached with travelling with large amounts of money, and what it did is it allowed merchants to avoid taking that risk. Instead, they kept a synchronised record of every accounting transaction. Eventually, this led to the creation of what we know as banks. Further down the line, as the Portuguese, Spanish, Dutch, French, and English began to conduct commerce around the oceans of the world, mechanisms were put in place in order to allow for investment into costly sea voyages that could last several years. It is in this context that the Amsterdam Stock Exchange was established in 1602 by the Dutch East India Company. The first of its kind, it became a place where merchants from all over would come and exchange and buy and sell bonds and stocks, and where small shares in various companies were available, thus creating an unprecedented degree of flexibility for investors, who could mitigate risk by diversifying their investments. Historians have credited this as the breakthrough in the emergence of secondary markets. Fast forward to the twentieth century and the Wall Street Crash of 1929 - which was the culmination of a decade of companies selling securities based on promises of large profits backed by inadequate and fraudulent information and we have what prompted the setting up of what forms the basis of modern securities laws in the United States (US). The Securities Act of 1933 was followed by the Securities Exchange of 1934 and the consequent establishment of the Securities and Exchange Commission (SEC). Regulations and rules have since consistently grown in volume due to recurrent fraud. The financial crisis of 2007-2008 marked another watershed moment, with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 further raising the costs of regulatory compliance. Blockchain has thus emerged in a climate where we are only too aware of the potential dramatic repercussions of operating in an unregulated financial environment What all the aforementioned developments have in

common is a motivation to make trade and securities safer, more efficient in some cases, as well as, and very importantly, up-to-date with their own times. Security tokens are no different.

The situation today: differentiating utility tokens from security tokens Unfortunately, events over the past year in the crypto ecosystem have only served as reminders of the dangers of bypassing regulation and being non-compliant. In particular, the boom in initial coin offerings (ICOs) has been marred with controversy. So far this year, the total amount of funds raised via ICOs stands at over $20bn, more than four times the amount of capital that was raised the same way in 2017. Diar, an institutional publication on digital currency, assets, payments and regulation, has recently revealed that “70 percent of tokens are now valued at less than what was raised during their ICO.” Considering that there have been hundreds of ICOs over the last couple years, this is a damning statistic. With ICOs, companies offer tokens in exchange for funding capital based on the promise of a future product or service. These are known as utility tokens. By avoiding classification as a security - which the SEC defines using the ‘Howey Test’ - companies avoid numerous regulatory constraints on who can invest in their tokens and how these can be exchanged. Ethereum’s ERC-20 token standard has been very important for the proliferation of ICOs, since it allows tokens to be launched without having to build a new blockchain. There is a concern that Ethereum is limited by the number of transactions it can run, and whether or not it would be able to act as a public blockchain that can support an app with a billion users, which is what many hope to see one day. The bigger concern relates to the ambiguity around ICOs and their so-called utility tokens. Many recognise that most utility tokens are in fact securities, this point has been reiterated time and again by the SEC chairman, Jay Clayton. Back in July 2017, Clayton said the following: “Merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasise the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under US law.” Later, in February 2018, the Trump appointee came out with the following remark: “I believe every ICO I’ve seen is a security.” In spite of these damning statements, utility tokens should not be written off just yet. Efforts are being made in Europe to accommodate them. This summer, Malta published a trial version of its financial instrument test, which is designed to clearly define when assets derived from ICOs constitute securities. Nonetheless, there is a growing conviction that the future lies with security tokens and security token offerings (STOs). Many in the ecosystem, like Trevor Koverko - CEO of Polymath, a platform that provides compliant and registered security tokens - and Anthony Pompliano - founder and partner at Morgan Creek Digital, a multi-strategy investment firm that provides blockchain technology and digital assets for institutional clients and wealthy family offices - see this as a multi-trillion dollar opportunity. Although the time frame for this is certainly up for debate, considering the immaturity of the crypto-market, there are many aspects of security tokens which suggests they will play no small part in helping the industry on its path to maturity.

The benefits of security tokens Security tokens are built to work within traditional finance, and thus to be compliant and regulated, whilst retaining the many advantages that are offered by blockchain and tokenisation. Below is a non-exhaustive list of some of the advantages that security tokens offer: Liquidity: Liquidity can be defined as the degree to which assets can be bought, sold, and exchanged, whilst maintaining a stable price. Many of the evolutions referred to in the opening section of this piece directly aimed at offering greater liquidity as the markets of the world became larger and more interconnected, thus showing the potential place of security tokens in the evolution of the world economy. Jeffrey Sweeney, Chairman and CEO of US Capital Global echoed the sentiments of many when he wrote in a piece for The Fintech Times that security tokens “promise even broader participation [than IPOs or secondary market trading in private securities] and greater liquidity through more efficient primary and secondary market trading.” Many of the benefits associated with security tokens fall into the broader category of liquidity. Automation and smart contracts: Smart contracts are programmable computer codes that are self-executing and built into tokens. They can automatically decipher who is qualified to purchase or repurchase a security, depending on their credibility or on their country of residence. They also embed directly within the token itself your rights and preferences as a shareholder. Effectively, they make your tokens ‘smarter’ and thus carry a host of implications, like faster settlement times. But, as a research report by EY into ICOs last year commented, the programme code of smart contracts “can contain errors or latent terms.” Fractionalisation of ownership: Fractional ownership is nothing new, however blockchain and tokenisation certainly make it easier for assets to be divided up into shares, which can be affordable for people in society who have less investable wealth than others. Lower fees: A significant number of the fees associated today with financial transactions are due to ‘middlemen’ (bankers, lawyers, regulators, etc.) Thanks to smart contracts, many of the costs and complexities that come with dealing with securities may be greatly reduced. Larger investor base: A significant benefit of security tokens is that they enable 24/7 trading, with asset owners being able to trade with any individual with an internet connection. For example, this removes the constraints imposed on Asian investors who wish to invest in US private companies and real estate, but are limited by the fact that the New York Stock Exchange closing-bell rings at 4pm during the week and is closed during the weekend.

Important players in the security tokens ecosystem In consideration of the potential of security tokens, a number of companies are aiming to be at the forefront of this aspect of the crypto-industry’s development. Old-timers of the financial sector are also paying close attention. As mentioned earlier, there are concerns with how many transactions Ethereum can handle and how this might prevent the scalability of security tokens. Polymath is addressing this problem by building a platform to accommodate STOs, in effect trying to be what Ethereum is for ICOs. To that end, they have built a token standard, ST-20, with KYC and AML built-in and which, like ERC-20, simplifies the operations of creating and investing in security tokens.

October 2018 I 3



Continued from page 3

BlackMoon has built a similarly impressive product which supports fund investment tokenisations (see BlackMoon interview in this issue of The Fintech Times). Also, tZero, a subsidiary of online retailer Overstock, which is aiming to become the first SEC-licensed security token trading platform, ended its STO in early August, but it is unclear how much of the $250m target was raised. Another promising sign is that Coinbase - a digital currency exchange which became the first billion-dollar company from the Bitcoin boom - is looking to incorporate into its system an alternative investment market for security tokens. Its CEO, Brian Armstrong, has made no secret that he wants his company to be the foremost exchange in the world for people to exchange fiat currencies and get into cryptocurrencies. Speaking at TechCrunch Disrupt in San Francisco at the start of September, Armstrong declared that Coinbase could host hundreds of tokens within years, possibly millions, and that he felt “a substantial subset of these tokens will be securities.” Finally, it goes without saying that regulators and stock exchanges across the world will play vital roles in terms of the rate at which the use of security token systems spreads. Both the Zurich-based SIX Swiss exchange and the Börse Stuttgart (SWB), the second largest stock exchange in Germany, are working towards building infrastructures to accommodate the trading of crypto assets and digital (tokenised) securities. Also, the London Stock Exchange and the UK’s Financial Conduct Authority are working with blockchain experts and startups in order to test a decentralised platform for issuing security tokens. The variety of profiles and companies looking to test and accommodate security tokens appears to be a positive omen.

Further down the line: the ‘tokenisation of everything’? Though the focus of this piece has been on the tokenisation of securities, some in the industry are casting their nets further and are envisaging a future society where not only the financial sector will be revolutionised by blockchain and tokenisation, but also the public and civic sectors. One of them is Jeremy Allaire, who declared at MoneyConf in Dublin, in June of this year, that the world is at the beginning stage of ‘tokenising everything’. The co-founder and CEO of payments company Circle explained that: “Once you have an open global immutable record-keeping system, transaction-processing system and a secure computing environment, you can re-conceptualise on a global basis every aspect of finance, corporate and commercial law, the intermediation of contracts, and crucially all of the systems we use in both corporate and civic decision making.” He further added the following: “With crypto-assets, you can tokenise your house, car or art, and establish open global financial relationships around any physical property.” In Allaire’s mind, there are four principal obstacles in the way of the ‘tokenisation of everything’: regulation, scalability, the need for a more mature market place, and stable coins - digital assets that seek to maintain price stability by being pegged to the value of a stable asset, like fiat currencies - in order to allow prices to be consistent. Considering the above, although it may take more time than some would like, what is certain is that tokenisation and, especially, security tokens are presenting a viable possible next step in the evolution of the way in which our economy operates. Perhaps one day, as Anthony Pompliano commented this summer, we might eventually all be referring to security tokens as simply securities. •

4 I October 2018

“It’s all about giving access to investment to a new generation” CHRIS KIM and SCOTT SIU, Co-founders of Orichal SCOTT SIU

Blockchain has helped to create a new asset class. Utility tokens open an opportunity to invest in very early stage projects, but it’s very volatile. Are you going to find the next facebook? Maybe. But a lot of these utility tokens are probably going to go away. There’s nothing backing a utility token. Security tokens are different - they’re connected to asset backed investments. That could be the next phase, and it’s going to be huge for the industry. It’s all about giving access to investment to a new generation, new audience - people who’ve never had access to Private Equity or Angel investment before. And vice versa, if I am a company who’s trying to do a reverse ICO or an STO, this allows me to get access to funding and supporters. Sometimes Security tokens are asset backed, it gives investors more confidence, and provides a different valuation. It’s a type of asset that’s going to be more attractive, more comfortable for investors, and more aligned with what we see in the stock market. When STOs get more formalised, there will be more regulation around it, which will be helpful. It opens up a new market, and investors would be able to choose. Currently, institutional players are not coming in due to the lack of certainty in the market, the lack of custodians, and the immaturity of the infrastructure overall. We are still waiting for these things to develop for the institutions to come. This will bring a big change.


There’s a reason why utility tokens are dying. You do an ICO, you raise capital, and then, what you’re supposed to do with that capital is build a company, an infrastructure, so that your utility token actually has a utility. The problem is that, because of the lack of regulation, a lot of ICOs are taking the money, and spending it elsewhere. And because there’s no regulation, there’s no way to stop these people, like you would with a traditional IPO. So, from now, I think, security tokens will be a thing. However, once the regulation is there, and there are certain measures to control utility tokens, then all these utility tokens that are raising capital will create an actual infrastructure and survive. After all, the purpose of raising money through blockchain, is to raise it on an idea. If they had the money to build the infrastructure already, they would go to VCs. I think one or two years from now utility tokens should be trading just as fine as security tokens. There’s a lot of ‘utility’ tokens out there that should be securities. But they hire a law firm, and they give them a utility opinion, even though at their core they’re a security. So it’s all going to be about regulation. From my perspective, it should differ from country to country. But in Korea, going forward, there are going to be set standards for doing an ICO, similar to an IPO, such as X amount of initial capital, X amount of employees etc., so they are going to be classified as the same at some point. •

Crypto-economics of the future: tokenisation and digitalisation RUDOLF MEDVEDEV CEO & Founder, Ternion In the recent year, we have witnessed a boom in the startups that had relied on ICOs as their primary source of funding. As fintech solutions become more conventional and regulatory agencies are expanding the legal frame to account for them, more investors and CEOs wonder about token economics and the possibilities of digitalisation of other industries, such as gold and real estate.

Security or utility tokens? Utility tokens provide users with special promotions, discounts and access to the future product or service. Think about a library card: it gives you access to the books and allows you to access them online, but at the same time you cannot keep or buy them. Security tokens, on the other hand, offer their holders investment interest in a company, including a right to benefit from profits or rise in the company’s value. Utility tokens have become fetishised by ICOs, and they are considered to be an easier and more appealing alternative to security tokens. However, security tokens have more guidelines and rules surrounding them, and that means that they are subject to legal regulations from day one. That puts the onus on the people behind the ICOs: it makes them more responsible for their actions, it gives them more guidance on conducting crowd sales and gives them proper motivation. Investors also feel safer and are more likely to invest in security tokens knowing that there are guidelines, regulations and a burden of responsibility that lies on another party. When purchasing security tokens, people understand what they can get in return, as ROI is the main reason why private investors and VC funds invest in startups.

What about gold and real estate? The current state of digitalisation of the gold and real estate industries is in the stage of staggering development, and it needs more time to mature. The success depends on the exponential advancement in other fintech areas, such as crypto-to-fiat trading and efficient exchange of all digital assets. Once we can see a rapid and efficient development in the crypto trading area, then we are likely to see digitalisation in other areas, such as the gold industry and REITs (Real Estate Investment Trusts). For instance, one can trade bonds of a real estate investment trust and offer the dividends on them using a dividend token approach (a security token). Although this a great idea in theory, in reality, there are no current examples that can be used to support its feasibility. Nonetheless, the more efficient and conventional crypto trading becomes, the higher the chances that not only real estate and gold, but the future itself will be digitalised.

Is crowdfunding dying out? Unfortunately, crowdfunding is becoming less popular, due to the rapid inflow of different ICOs that we have witnessed recently. Supply of ICOs outnumbered the demand for them and many investors got burned when they contributed to crowdfunding. Now that the market has calmed down, we can see that investors are more selective and careful about investing, and there are fewer crowd sales. Currently, we can observe a rise in private sale rounds tailored specifically for VC funds. Investors and CEOs become more diligent and rely on the legal framework when conducting or participating in crowd sales. Security tokens have the potential to outclass utility tokens. The bar has been set high for the newcomers, thus allowing only credible players and future-worthy projects to get through. •



Key design questions for digital equity securities and secondary market implementations: Should each asset or security be a separate token? One token = single share vs token = ledger entry. The classical ledger, or cap chart view, is that each cap chart entry shows a shareholder transaction summary. Our opinion is each token should represent an equity share. Where are the contract terms? In the blockchain itself vs in blockchain indexed database (on chain / off chain). Many current consortia efforts are underway to define exhaustive smart contract terms to be comprehensively incorporated into each blockchain transaction. Another method (appropriate where terms do not change), is to record only transaction specific items in the blockchain, with an index key (recording any optional choices) to a database containing the more exhaustive legal terms. We believe minimal data on chain and maximum practical off chain to facilitate better transaction speed and smart contract specification. What about the custodian function? In traditional security sales, there is provision for a custodian to hold shares in a street name. The owner does not have to take physical delivery of the shares, and future transactions are not delayed by physical transfer. Does blockchain change this? One argument is that the share owner holds the keys to the wallet containing the digital share, and this constitutes the equivalent of self-custody. But more fluid markets are based on intermediary transactions and certain classes of investors (e.g., funds) require a custodian function. Also trading one share is not very risky, but there are already some serious operational security issues around very large volume cryptocurrency transactions. Does the new digital security ‘custodian’ hold all the shares in their wallet for your benefit? We are convinced the custodian function should be provided by a regulated third party.

Regulated Digital Securities on Blockchain Ledger Technology Infrastructure are here to stay and growing. The real story is the Trillions of dollars in illiquid private Alternative assets that will be using this technology to raise money and trade (see The rise and rise of private markets, McKinsey Global Private Market Review 2018).

Why will Digital Securities make life better? This is an exciting way to hold and trade valuable assets electronically. Regulated equity securities, using blockchain digital ledger technology (DLT), will provide opportunities for capital market efficiency and liquidity for issuers and investors. As the digital private securities marketplaces develop, there will be increasing opportunities for valuable private assets and securities to be bought and sold by qualified investors.

Are ICOs Dead? Last year saw an ICO, or Initial Coin Offering, bubble where ‘coin’ = cryptocurrency, tradeable ‘utility’ token, or unfortunately some mechanism to raise equity or revenue sharing financial instruments. More recently, the news wires have been full of stories of many ICO issuers being subpoenaed, ordered to repay funds raised, and the promoters being fined and prosecuted. The attempt to use Blockchain Ledger Technology via the ICO to avoid securities regulations is over. In the United States, the majority of ICOs have been unequivocally determined to be a regulated security. Other key ICO venues, such as Singapore and Switzerland, have seen similar tighter regulation of those ICOs deemed as securities. The regulators have come forward and ruled ‘it is a security’ and subject to all rules and regulations around securities distribution. That ICO marketplace and its use of Blockchain Ledger Technology was predominated by speculative early/angel stage ventures, but now we are seeing Digital Ledger Technology, and the offering of Digital Securities, expanded to a radically larger set of asset classes.

What’s a Digital Security? Generally, there are three top level definitions for ‘digital tokens’… • Cryptocurrencies a general purpose token to represent the digital function of a currency. • Utility tokens represent access to a good or service, essentially like a digital ‘coupon’, e.g., for membership or discounts. • Digital securities represent the ‘tokenisation’ or digitisation of underlying securities. Digital securities are securities. They are regulated, unlike ‘Utility Tokens’ or ‘Coins’ that may bypass regulatory securities scrutiny. Technically, Securities include shares of ownership, income streams (fractionalised loans or derivatives), etc. and include private and public market offerings, encompassing the full range of Alternatives.

Why ‘digital’ and what’s a DLT anyway? Digital Ledger Technology is a technological infrastructure innovation in this sector at a promising inflection point in the history of private capital market innovation. It is one of the most promising technologies for use in keeping track of and facilitating transactions for Alternative Investments to come along. It just must be done properly. Using it with a wider and better class of assets, instead of risky early stage venture equity investments, makes obvious sense.

What other assets can be used by Blockchain Ledgers? There are billions and trillions of dollars of other assets that can be kept track of by Blockchain. Bitcoin is a particular digital financial asset that was instrumental in making Blockchain Ledger Technology popularly understood. It was one of the first assets to come on scene using DLT. Bitcoin and other financial transaction coins have been mostly determined to be essentially commodities and not securities. Commodities have a different regulatory framework than securities. But we are concerned here with alternative assets. This is a multi-Trillion-dollar asset class with very narrow public distribution. Few are able to participate in this asset class - even though the population of qualified investors has quadrupled over the last 20 years, participation in this asset class has barely increased. As the early interest in DLT technology has shown improved transactional integrity, security, and ease of secondary sales of electronically registered assets. DLT can unlock the access to this massive asset class and provide a way to hold and trade these assets in an efficient, secure, and compliant manner. The real insider secret is the conversation about trillions of dollars of private investments in Alternative assets (Alts), and that has almost no internet sizzle at all. Not yet at least.

Types of Alternative assets The Angel Round: The discredited ICO was a cousin to the failed Crowdfunding hype and a hopeful means of investing in a particular Alternative asset class. That particular asset class was an attempted substitute to the Angel Investment Round, or Venture Stage investing. One of the smallest and riskiest stages of alternative asset classes, but essential to the growth and development of our economy. Big money can be made investing in early stages that become successful. The likes of Google, Uber, and Airbnb were at one-time venture stage companies. Successes are rare, and some say failure rates are over 90%, but rewards are huge for backing the winners. These Venture investments are regulated as securities and generally reserved for ‘Friends and Family’ or ‘Institutional Investor’ rounds lead by the issuer and open to almost anyone and private placements, or general investment rounds restricted to regulatorily defined sophisticated investors. The ‘startup’ equity round is an alternative asset class, but only one of thousands, and does not define Blockchain Ledger Technology any more than Bitcoin does.

Trading Platforms Alternative assets are not just made up of early stage venture investments. Sophisticated investors and institutions allocate the bulk of their billions and trillions in valuable assets like real-estate, growth stage companies, private equity and pre-IPO companies. These sophisticated investors continue to increase the allocation into private alternative assets with the motive of potential alpha and outperform the public markets. With the use of DLT, it becomes easier to hold these assets digitally, as well as transfer them to other investors. With an electronic asset and regulated electronic platforms

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for the exchange of these assets, the marketplace for private alternative investment assets will approach the accessibility of the Public market. The financial regulators are preparing for this eventuality with the expansion of the Alternative Trading Systems ‘ATS’ to facilitate these assets to be exchanged. The precursors to these exchanges are the Cryptocurrency exchanges, but they are virtually unregulated and have the reliability, fraud, and theft problems one would expect in an unregulated environment.

IPOs Who moved the goal post? Many venture stage investors were hoping for a huge win when the early stage company they invested in went public. But, increasingly, those IPOs have been delayed, and the early investors or Venture Funds were left with tremendous book value and little to no liquidity. Private companies, their owners and investors, have all the same desires as public companies - to raise new capital more easily or provide liquidity to employees or investors, but with far fewer options.

Venture Secondaries Venture Secondaries are sales of a private security by the original purchaser of the equity to another party. This resale is called a venture secondary or secondary sale of private securities. The delay in private companies going public has spawned a very large market in the sales of these venture secondaries in primarily large, near Billion dollar or greater, private companies. The venture secondary sale of private, very largely capitalised companies, is a complicated and expensive process. Current venture secondary sales require specialised lawyers and complex financial instruments, because the shares were never anticipated to be sold to a second investor. Transaction volumes for private placements are usually low, with high minimum investment, and restricted to sophisticated investor classes. So the recording of shareholdings is a simple paper document / spreadsheet task. Plus, historically, secondary trading was discouraged or restricted. But since today’s firms stay private longer and may want more secondary trading, so having a better company ledger that improves efficiency, visibility, and supports secondary shareholder transactions - ‘digital ledger technology’ (DLT) - is now very desirable.

Blockchain DLT is Evolving to Alts The concept of Blockchain Digital Ledger Technology is now almost completely divorced from Bitcoin and other cryptocurrencies. It turns out what looked like a sideshow for Bitcoin, Blockchain Digital Ledger Technology, has become the main act in a revolutionary technology for so many sectors, financial and otherwise. We are focused here on Blockchain Digital Ledger Technology use in the financial sector and, even more narrowly, its use in keeping track of and, to a lesser extend, facilitating transactions in Alternative Asset Securities. Digital Ledger Technology can unlock the access to this massive asset class and provide a way to hold and trade these assets in a secure and compliant manner. That Ledger service is huge, but it is the Alternative asset class itself that is massive.

Alternative assets… Not just Angel Round Alternative assets are virtually any asset that is not a public security or a ‘rated, i.e. rated by a rating agency, like 6 I October 2018

Moody’s or S&P. Public Stocks and bonds, derivatives, most sizable financial instruments that have a formal equity coverage or rating like BBB or AAA, are considered not alternative but ‘conventional’ investments. Liquidity is a major factor in an investment to be considered conventional. On the other hand, prominent Alternative investments, like Angel Rounds in start-up companies or pre-IPO companies, lack the essential coverage of equity research, credit rating, and readily liquidity, which make them an ‘alternative’. Both early stage companies and later stage companies valued in the billions are in the same ALT category. Spotify was in the ALT status before it went public and became a conventional investment because of its equity coverage. Non-rated Real Estate partnerships are also Alts, as are mid to small size growth private companies, to name just a few. Bringing the advantages of DLT to the full range of alternative assets opens up a huge range of opportunities.

Alternative Investment Uses for DLT What DLT offers is a way to keep track of who owns these companies, when they bought them and for how much, and if they were even qualified to purchase them, from a regulatory perspective. Holding the asset as an electronic record makes it vastly easier to change ownership and display a ledger of other owners of a particular asset, also known as a capitalisation chart. DLT also allows for the listing of assets for sales on exchanges. The use of DLT can have a dramatic effect on the Alternative asset class, but certain building blocks of best practice must be in place. They are the same building blocks and principles which have allowed other markets to thrive and become the massive pillars of our financial communities. When Alternative assets adopt both the principles and standards of the bigger, liquid markets, and with the DLT to facilitate holding and transfer of custodianship, Alternatives and their technology platform DLT will become a massive, widely distributed market. They will rival the public markets in size and ability to create wealth. The private Alternative market already approaches the public market in size, but lacks the broad participation from the general population the public market has. DLT can change and will change that. Even US SEC is coming out with statements they want to encourage and broaden the participation in private, alternative securities.

In Summary – Alternative Investments have always needed and been waiting for Blockchain DLT The Alternative Investment marketplace has been waiting for something like Blockchain Ledger Technology to come along and help make this happen in a cost effective, compliant, and efficient manner. The solution is traditional markets and market functions augmented with digital technology to provide more efficiency, broader access, and increase liquidity. We are convinced the current professional and regulated financial network should be engaged in the digital marketplace. Regulated Custodians, Broker Dealers, and Securities counsel are essential ingredients to a stable and trusted marketplace. Trust and integrity are absolutely required for the alternative investment digital marketplace to thrive and be the wealth creating engine it has the potential to be. •

Steps to success for Digital Securities offerings Digital Securities offerings are a Security Decide what regulations to issue under (e.g. US 506(c) vs 506(b) or Reg S). This will govern the potential restrictions on participation, the availability of solicitations and the required KYC/AML, among other issues. The technology should always follow and comply with the legal requirements of soliciting an offering in each jurisdiction the security is distributed in. Get the technology right Several early Security Token Equity offerings have been frustrated by overwhelmed platforms that had accredited investors or qualified purchasers unable to login or complete simple registrations. These early adopter, sophisticated investors may be attracted to enhanced liquidity and the secure efficiency of digital securities in a digital ledger, but they still want someone to answer the phone. Employ the right amount of technology for the desired business goals, not too much. Leverage the regulatory ecosystem Broker / Dealers, Attorneys, Compliance, Custodians, and Transfer Agents, to name a few. Each of these traditional roles has a special legal and market purpose to protect investors. It has been popular to think ‘Why do I have to pay for so many professional experts?’ However, it can be financially and legally damaging to think technology eliminates professional expertise. Find experts who are experienced with digital security technology, new regulation technology, and the professional distribution of digital securities.


The friendliest jurisdiction to set up your ICO • ICOs (VFA Offerings) need to seek guidance from certified VFA Agents to make sure that the white paper presented is up to standard with the law; • Each VFA Offering falling under the VFAA needs to present its white paper to the competent authority 10 days before the VFA Offering is to be launched to the public; • Services that require a license by the competent authority are those where the services provider is providing: Investment Advice Services, Portfolio Management, Exchange Platforms and Custodian Services;

Welcome to Malta – “The Blockchain Island.” The tiny island of Malta is gaining the reputation as “The Blockchain Island” by many newspapers around the world. Situated in the middle of the Mediterranean Sea, Malta has been at the forefront of keeping a stable economic growth. In the past ten years, Malta has welcomed many iGaming and Gaming companies to operate on the island, which has brought many opportunities to locals and foreign workers alike. New friendly regulations regarding ICOs, crypto exchanges and blockchain related technologies are to be enacted by the Maltese government in the coming months. Through this law, Malta will remain at the forefront of this ever-growing industry. Since the blockchain sector is steadily gaining momentum, Malta has successfully attracted many big corporations to move to the island.

Why are businesses and start-ups opening up an ICO? It is evident that Initial Coin Offerings (ICOs) are continuously increasing in number. It is reported that over 100 ICOs are launched every month. Companies, most of which being start-ups, are moving their business plan from issuing Initial Public Offering (IPO) to operating an ICO. In fact, ICOs have a lot of advantages over IPOs. The purpose of launching an ICO is to get funds from investors without giving away equity and ownership. Since ICOs work on a decentralised platform, they lack any bureaucracy which IPOs face. Another advantage of ICOs is that they do not have any shares tied to a specific company; instead they sell their tokens, which are bought by their investors supporting the project. Furthermore, ICOs do not require verification of their project by any third parties, such as central banks. This is crucial, since the process is quick with no extra charges to be paid to third parties. Moreover, ICOs are launched as means of a crowdfunding process supporting their upcoming projects or other tradeable virtual assets operated on the platform. Tokens issued can be exchanged for services offered or used as cryptocurrencies, in accordance with the project’s business plan. The crowdfunding is done by contributors using their cryptocurrencies or fiat currencies to support such projects, which in turn can be used on the platform. Moreover, most tokens issued are classified as utility tokens, hence having no form of securities tied to it.

jurisdictions decided to ban ICOs, while others tried to implement strict regulations, discouraging companies from raising funds in this way. The threat that countries face is from an investor protection point of view, as fraudulent ICOs have managed to defraud unsuspecting investors. Although uncertainty is still widely seen in the financial sphere, many jurisdictions are testing their way to attract ICOs to their countries. Malta is a perfect example, which has developed progressive, yet investor protective laws to help support the blockchain and ICO sector to grow.

A tiny island is becoming a magnet for blockchain technology innovation Malta has set its position as a leader in the blockchain sphere. Dr Joseph Muscat, Malta’s Prime Minister tweeted that: “We aim to be the global trailblazers in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies.” Since the introduction of the three bills which have successfully passed the third reading in parliament on 3rd July 2018, many ICOs are seeking guidance from local law firms to open up their projects on the island. Karl Schranz, E&S Group director and an advisor in Tokenomics stated that one of the most recurring questions asked by ICO founders is “about Malta’s certainty in the industry, [however] they cease to ask about the tax rate they need to pay [which can] impact the ICO.” Through these set laws, Malta is expecting more blockchain based companies to set up base on the island. Dr Christian Ellul, a director of E&S Group and an ICO advisor stated that “Malta has a clear legal framework for ICOs, on what the law accepts and what it doesn’t accept. Additionally, this law has put Malta at an advantage for ICOs to move forward. In fact, Malta is paving its way to become the widely dubbed “Blockchain Island”. Most ICO startups come from various countries around the world, most notably China and South Korea. In fact, these two jurisdictions have put tough regulations on ICOs and exchange companies discouraging them from operating their business in their country. Since the concept is at its initial stages, governments do not want to take any financial risks that can jeopardize other industries. When asked about the banks’ stance on the blockchain sphere, Dr Ellul stated that “We are seeing many banks and central banks opting out from this technology. In fact, in Malta, banks still need to adapt and implement this new way of doing money.”

Regulation of ICOs

What is the procedure to set up an ICO in Malta?

Since ICOs are gaining popularity, central, state, and transnational governments around the world have taken a varied stance to this technological phenomenon. Some

• The Virtual Financial Assets Act (VFAA), which was unanimously passed by parliament, clarifies the process which ICO Issuers (VFA Issuers) need to adhere to.

The principal authority that governs under the VFAA is the Malta Financial Services Authority (MFSA). This would also be the competent authority that governs VFA Agents. VFA Agents are defined under the VFAA as, “A person registered with the competent authority (MFSA) under the VFA Act and authorised to carry on the profession of -(a) advocate, accountant or auditor; or (b) a firm of advocates, accountants or auditors, or corporate services providers; or (c) a legal organisation which is wholly owned and controlled by persons referred to in paragraphs (a) or (b), whether in Malta or in another recognised jurisdiction, or any other class of persons holding authorisations, qualifications and, or experience deemed by the competent authority as possessing suitable expertise to exercise the functions”. Hereunder are steps that VFA Issuers need to follow, when issuing a VFA Offering to the public: • Before starting a VFA Offering, the VFA issuer needs to appoint a licenced VFA Agent to perform and countersign the Financial Instrument Test with the purpose of determining the nature of the token; whether it is to be a VFA, a virtual token, electronic money or financial instrument. • The VFA Agent has to check if the client has a clear business plan to start their VFA Offering. • Before submitting the whitepaper to the MFSA for approval, the VFA agent has to ensure that the White Paper follows all the requirements, listed in the VFAA. • VFA Agents need to complete a fit and proper test on the VFA Issuer to ensure they are in an acceptable position to issue a VFA offering to the public and have a legitimate opportunity to meet the objectives stated in the whitepaper. • All relative documentation and other important information of the issuer need to be submitted to the MFSA by the Agent. • The VFA Agent is to ensure that all necessary due diligence documentation is in place and kept up to date in accordance with relevant anti-money laundering law and regulations. If you wish to establish your VFA Offering or provide any VFA Services in Malta, contact E&S Group today. Our advisory services include reviewing the white paper, assisting in Token design, drafting of T&C, Tokenomics, meeting the required soft and hard caps provided by the VFA Offering and, more importantly, due diligence and corporate procedures. Set up a meeting today, by sending an email on info@ellulschranz.com or by telephone on +356 2010 3020. E&S Group has successfully advised over 80 ICOs from concept stage all the way through their actual offering.

October 2018 I 7


‘TECHNOLOGY IS NOT AN ECONOMY’ We spoke to MOSHE JOSHUA, CTO of Blackmoon, about how the company is opening up investment to everyone and how they’re breaking out of the ‘regulation straight-jacket’.

Our cover story earlier this summer was on financial inclusion - the cost of being poor. What’s your take on that? There is the idea that you can split every economy into three groups - the wealthy, the middle class and the poor but the question is how much do people have in investable savings? Not because it grants them the ability to invest and to grow their wealth, and become wealthy from that, but it grants them the ability to take risks. If you’re living paycheck to paycheck, you can’t breathe - you’re locked. If you have a little bit of a buffer, and you lose your job or something like that, it’s not so bad - you’re not going to break down. But, more importantly, as you have more investable wealth and a bit more solidification, you can take more risk. In order to gain reward, you must take risk - that’s the formula, but risk requires a certain level of cushion. That, I think, is the key point of the cost of being poor.

How did you get involved with BlackMoon and how did you initially enter this space? I have been a technologist writing code for 25 years for all sorts of different Wall Street based firms. The thing that got me into cryptocurrencies was around nine years ago, I was working at a hedge fund and we started thinking about a crypto fund. Bitcoin was around $8 and we found it interesting. We thought it might be a bit of a bubble, but maybe we should put some real money towards it - create

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a fund and make it marketable. We did the research on it and realised the market just isn’t there to support $100m. There were three exchanges and limits on withdrawals and deposits. There was money to be made in terms of arbitrage, but it was a few thousand dollars a day - it wasn’t a lot. Certainly not enough to be worth our while to create a fund around it. Through some other relationships that we had in the hedge fund, we got invited to be the first market maker on Ripple, through a partnership group that we created specifically for that. I built the model and, when the guys at Ripple saw what I did, they wanted to know how I did it, as their API didn’t support what I as doing. Then, through a lot of other conversations that went down many different paths, Ripple asked me to do the same thing for them. So I wrote and authored a technology called Ripple stream, and that gave me a really good soapbox and understanding of the underlying technology of DLT. Through those relationships, I also built a bunch of crypto arbitrage strategies for other hedge funds that were getting into the space. This started for me about six years ago. Through that environment I realised that one of the main key points missing in the crypto industry is an ecosystem. You have to bootstrap an ecosystem first in order for it to work - there’s a network effect that makes it happen. Through that experience I was a big proponent of ‘it’s not about the currency, and it’s not about banks.’ My view was always that it was about asset management, it’s about the derivative functionality of the inventory management. When I found out what BlackMoon was doing, I called up the CEO, Oleg, and I said- ‘I like what you’re doing, I understand everything that’s going on,’ and through that relationship he made me an offer and I took it without an argument. That was a little over a year ago.

What is the vision behind BlackMoon? There is a tokenisation paradigm related to investment. Making an investment is actually a really hard thing to do on an operational level. You have to consider the onboarding of an investor, the investment itself, the lock-up periods, the illiquidity, the reporting requirements that go along with it. For every fund manager that’s actually making trading decisions and taking risk, there’s probably five other people

surrounding him as his support - the fund administrator, the auditor, the compliance office, the CFO, and everybody that’s sitting on top of him. Never mind the brokers and the exchanges and all the reconciliations that have to go around between all of these different counterparties in order that everybody can oversee and ensure that that trader and fund manager is doing what he is supposed to do - that he’s investing the money correctly and not doing anything fraudulent. The whole blockchain paradigm removes a lot of that inefficiency. We as a platform have made it really convenient and easy to use, to ensure all of those same investor protections, in a compliant and regulated atmosphere, at a much better, cheaper, faster level. But all of that is really geared to the key-stone element of what BlackMoon is doing, which is creating liquidity for markets that traditionally didn’t have them.

How are you doing that, and with what products? Right now, there are three separate product types. The core product, which we built the system for, is to support fund investment tokenisations. Funds can list themselves on the platform and we can do the full service of the operation of managing that fund from a reporting standard. So we take care of the investor onboarding and registrations, KYC and AML; we take care of the creation event relating to the investment itself; we take care of the reporting as it relates to the NAV (net asset value), including the integration with all the fund administrators; we take care of the reporting on the transaction layer, as well as the tracking of your portfolios; and we take care of the redemption. The second product type we have today is equity tokenisation. We have tokenised two of the largest ETFs (exchange traded funds) in the world - SPY and EEM, as well as an IPO that is listed on the Hong Kong Stock Exchange. Both of these product types will grow and expand. The third product type, that we just recently started with, are crypto indexes, which have been very successful since we launched. We have a Top 20 tokens, representative of the Top 20 market cap coins, a couple of rebalanced daily funds - some are looking at the most volatile coins and some have a cash overlay. We’re going to expand that and add new strategies as well. Ultimately, all three products represent an infrastructure


play surrounding the ‘token-redemption-cycle’, for us to be the resource of the ETFs of the token world - not just crypto, but everything. Because the infrastructure relating to creating an ETF, managing the underlyings, reporting the value of it, of the creation and redemption, as well as the pricing of it, is not so simple. There is literally no other token-issuing platform live and operational today, and none of the ones currently coming online are built for token redemptions. This is the main feature where Blackmoon separates itself, and, as a result, is able to formulate beneficial relationships and strategies focused on creating marketplace liquidity.

How does it all work from a regulatory point of view? You do need to be regulated and compliant to be able to do that for securities. We are expecting the MiFid license approval from the Malta regulator by the end of this year. That is the standard of operating procedure that you have to have in order to do that. There are limits in terms of what can and cannot be done, it’s not so simple, but working within the framework of tokenisation, and the the framework of compliance and regulatory oversight, it’s possible, it’s just a little bit different in the token world than it is in the traditional world. We are fully compliant and very much focused on doing everything by the book.

Isn’t that one of the foremost challenges that tech companies have to deal with? Regulation around finance not being quite fit for the tech world. I think that point is lost on technologists. Technology is easy. Technology is not intellectual property. There are real fundamental reasons for that. I think traditionally regulations are built in a bordered environment. A regulator has a jurisdiction, created by a bordered country, that they can control. Currency plays a big role in that. But, tokenisation and decentralisation is a borderless environment. So how does a regulator regulate a borderless environment that effectively is limited to the internet and is global? That I think is where the rubber meets the road between regulation and technology. Slowly, smaller countries are coming up with novel ways to tackle that problem. Primarily because they are a little bit more nimble and they can get legislation passed a little bit faster than larger countries. Larger countries also have a lot more risk involved in order to make fast changes. Quite frankly, I don’t think the market is large enough to gain their attention to do that. I think everybody accepts the promise of blockchain, but where we are today, it hasn’t even begun to reach its promise. What we’re doing at BlackMoon is actually more of a leadership role in terms of trailblazing what can be done versus what should be done, and I think that very much plays into what can be done regulatory and compliance wise. It is a very important limitation and straight-jacket that we wear every day. With a social app, like Facebook for example, they can choose to self regulate. With financial services, it’s the opposite, we start with the regulation - what we can and can’t do, and work our creativity within what we’re allowed to do. So if you think of regulation as a sandbox, what we can do today technically has filled the box - there’s no more room to grow, and we’re just chomping at the bit to be able

to push past those limitations. So I think the limitation of the regulatory straight-jacket is loosening, but it’s going to loosen very slowly. The key point is that because technology is so flexible and so creative, as regulation changes, you’re going to see the changes in the industry immediately. Previously it wasn’t like that. Regulation would change as a response. Regulation is usually behind technology - like it’s being pulled on a leash. I think blockchain, decentralisation and the borderless environment we find ourselves in, has extended the leash to its limit. The leash doesn’t go away, because regulators still empower and control what is a financial market - these limits are never going to go away, but we’re at the edge of it in terms of pushing it forward. There’s so much work to be done. I abide by the 90/10 rule - where 90 percent of the work gets done in 10 percent of the time. It’s always the last 10 percent of the work that gets done in the 90 percent, because it’s about the details.

What’s the biggest threat for the project? I don’t think that there’s an active threat, but there’s a passive threat as it relates to institutional acceptance. I am sitting here in front of you telling you that it’s inevitable that tokenisation will be accepted in the traditional capital markets. But that’s an assumption, and I don’t know when - it might take a really long time. I believe it will take a really long time, it’s not going to be a light bulb event, it’s going to take its own incremental staging to get there. So the threat is time. But really the challenge is, as we mentioned, regulation and compliance. As long as we can abide by the standard of saying - look, this is just a traditional financial company, with or without blockchain, with or without decentralisation or crypto - it’s the same thing, with a different underlying technology layer, that allows us to do things you wouldn’t traditionally be able to do it terms of being creative and creating different financial products. I do not believe that the crypto market is going to change Wall Street - it’s never going to happen. What’s going to happen is Wall Street is going to adopt the underlying technology because of the efficiency that they gain from it, and will continue to be Wall Street. US dollars are not going away just because Bitcoin exists. Bitcoin has its value proposition, and so do US dollars. Technology is a convenience factor, it’s not an economy. It’s just not big enough - that is the threat. If it doesn’t get enough traction, what we’re doing won’t be enough of a threat to the traditional economy to pay attention. But I do believe that the efficiency factor is too great to ignore and we see the traditional companies and banks looking at it, considering it as an option, but it’s not going to happen so fast.

What is your strategy as a business? Today we have our three product types. A couple of months from now, we will have a secondary market exchange listed, the BlackMoon exchange, which will be a secondary market for those tokens that we issue. Going into the new year, and working within our Maltese broker-dealer license, we will be an issuer of STOs, which will become our fourth product line. What you know as an Initial Coin Offering, an ICO, wrapped up in a box with a bow on it called regulated security issuance, like something that’s allowable in securities markets versus ‘hey, I just created a coin.’ There is an internal strategy supporting all of the four

spokes on the wheel, and again that’s the liquidity provision. Even the fact that we’re creating crypto indexes today, it’s really an infrastructure play surrounding the tokenredemption-paradigm, where the crypto indexes act as an ETF infrastructure that creates liquidity. So as a businessstrategy going forward, I’m actively engaging with other exchanges, other advisors, other aggregators, to not only increase the flow of businesses that are going to be listed on the BlackMoon platform, but also to brand together with them and leverage our infrastructure.

Are you going to work with asset managers? This is a different product type. The core product type of what BlackMoon is, is the fund token issuance. This is live today. For example, we launched with a company called Prime Meridian, a $700m fund that is managing real-estate loans, they have an expectation of an eight percent return. Today, on BlackMoon, at the click of a button, you can become an investor in Prime Meridian, something that you probably would not be able to do by picking up the phone, calling Prime Meridian directly. There are limits that Prime Meridian has, and they recognise that tokenisation helps them.

What’s the smallest investment possible? There’s no limit.

Won’t it potentially lead to the same thing that happened in crowdfunding, when completely ignorant people were investing? I think crowdfunding is a bad example, primarily because the crowdfunding laws were built prior to tokenisation. The other, better example is decimalisation. If you go back 20 or 25 years, at the New York Stock Exchange, for example, the spread of stocks were an eighth of a penny. So, a stock would go tick, tick, tick, and it would be up and down 50 cents. The volatility of that was just huge. Today, stocks are trading at the fourth decimal point because of the fractionalisation and the thickness of liquidity. What ends up happening is that the decimalisation of fractional ownership creates liquidity in of itself, and I think that’s ultimately where we’re going with tokenisation. So if you were to call up Prime Meridian today, you would be required to invest a minimum of a hundred thousand dollars, but tokenisation allows them to not just aggregate smaller amounts, but allows them into a decimalisation paradigm of liquidity creation, which is also an event that’s going to help us in the secondary market.

How do you make money as a company? We make money by charging platform management fees to funds. We are a one-stop shop solution for fund managers - we’re a better, cheaper, faster model, but they still have to pay for the service, they just pay less. We also charge investors for access to these investments. It’s cheaper than you would pay in fees if you were investing directly, but there’s still a cost to investments. Cost to investments will always exist. That’s it, it’s really that simple. The profit model is not this fancy algorithm that we have. BlackMoon is a very traditional model, it’s just that we have cooler technology. •

October 2018 I 9



RONNY LAVIE Managing Editor of The Fintech Times Israel is a small country with a population of just under 9 million people. Despite this, in recent years it has become a global leader in tech advancements and exports, with Waze and Taboola being just a couple of successful examples. Where innovation is happening, the money usually follows. Q1 of 2018 saw $115.1m of investment come in to the Israeli fintech market, which was a rise of 49.1% compared to the previous quarter, and double the same time the previous year. So, what’s the secret? Is it something in the water? The air? The beaches? Well, sort of. Israelis have a number of factors that put them ahead of the game. To start with, education is considered very important, and most Israeli children grow up being encouraged to do well in school, and pursue higher education after their obligatory army service. Without involving politics, the IDF is considered to be one of the most advanced army forces in the world, and its intelligence, technology and engineering divisions are the stuff of legends. Many of those who go on to develop successful startups and tech companies learn the ropes during

Introducing BeeEye Assaf Binstock, Co-Founder and CEO of credit scoring platform BeeEye, chatted to us in Tel Aviv about how the company is revolutionising money lending, and why Israel is such a hotbed of tech innovation. Tell us about BeeEye. What is it you are trying to do? First of all, what is a bank? A bank is an institution to which people give their trust - it’s got customers and means of distribution, and it has years of customer data stored up. It’s supposed to specialise in two things - the selling of financial products, and risk evaluating for its customers. Beyond that, there is not much else. We’re coming from a place of combining the question of who the customers are with the quality of the underwriting which is given to them. Banks are still using relatively traditional sources for information - unsophisticated and lacking in data, and, even though they often have the information internally, it stays buried in the basement and not used. Therefore, the decisions they end up making about their customers are not optimal. People who qualify for a loan don’t get enough credit, and good people, who the bank can benefit from lending more money to, and they in turn can benefit from receiving more credit, are being left out. We come from this industry and we identified that we have the ability to take information and connect it to the customers the bank has. Whether it’s connecting different information stores within the bank about a specific customers, or acquiring information from third party

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their army service, with the elite intelligence unit 8200 being a regular feature on CVs. So, in short, most Israelis spend the first quarter of their lives undertaking some sort of educational or vocational training. However, that is only the outer layer of what drives innovation in the country. Sure, having the know-how is important, but risking everything to start a company takes more than book-smarts. The fact of the matter is, growing up in Israel isn’t always easy (which I know from personal experience), but it also makes you brave - almost fearless. What’s more, anyone who has had both business and private dealings with Israelis know we are a direct bunch, with strong opinions and more than a little Chutzpah. All of this activity needs somewhere to happen from, which is probably why there are around 70 co-working spaces in Tel Aviv alone (plus a few more in other cities around the country). On a recent visit, I had a look around a couple of the more prominent hubs, to hear about all the exciting things that are happening in this booming market. My first stop was the local offering of the global chain, Mindspace. With five floors and impressive sea views, Mindspace also plays host to the Israeli branch of Barclays’ Rise, complete with its accelerator programme. Fintech Innovation Manager, Blake Korman, showed me around the impressive

building, which is currently operating at full capacity. The partnership with Mindspace is unique to Israel. “It’s great to be a part of Mindspace and get the benefit of their facilities and the contact with the companies that sit there”, Blake said. “They are a really cool space. No other Rise has that - they all have their own building”. Barclays’ UK management is very interested in the activity of its Tel Aviv resident companies, who also enjoy support from the bank’s mentors and investors. And it’s not just Barclays who are paying attention - a representative from Chinese giant Ant Financial recently spent a month as a resident in the building, looking for promising Israeli companies to partner with. A Manhattan Native, Blake believes the work/life balance is much better in Tel Aviv. “You work to live, not live to work”, he said, “and it helps that the beach is just next door!” Another option for Tel Avivian companies looking for a base is Urban Space, which currently has three locations in Israel and one in Paris. With a gym, relaxation room, and yoga on the terrace, this boutique location is quite a different proposition than the cool and stylish setup of Mindspace and Rise. Daniel Rubin, Urban Space’s VP of Operations and Growth, gave me a tour of the newest edition to the company’s property portfolio, and explained that the good thing about the wealth of co-working spaces in the city is that companies get a choice of spaces to suit their needs. Urban Space houses a combination of agencies, startups and solo contractors like lawyers and accountants. They are constantly developing their offering to residents, including an upcoming partnership with Bloomberg, which will see their members get free access to advice from Bloomberg consultants. Daniel said hello and good morning to every person we passed and seemed to know everyone by name. This is another way in which the Israeli industry is different - because the country is so small, not only can you visit a bunch of companies in one day, it’s easy to make connections. Whatever the reason is for the success of Israeli companies both locally and across the world, it doesn’t seem to be slowing down. It’s exciting to see this tiny country help shape the world around it, and watch new companies as they emerge to make their mark.

sources or from the public web itself (like, for example, public information from the UK government). We then analyse all of the information and give a credit scoring based on it. So, the ability to create this model about all of the customers, and to explain how it all works and why certain decisions are reached (which is another thing we do), and to do it to scale for millions of people, that is what makes BeeEye different.

There’s good early-stage funding - there are a lot of private investors. Later, when you go into the growth stage, there’s an increasing number of funds available. That said, we’re not necessarily looking for Israeli investors - we’re open to American, British and European funds. We also have Asian investors looking into our company. This kind of funding will help us with the next stage, which is expanding globally.

Do you think this will contribute to financial inclusion?

I believe more and more banks, credit card companies and lenders will adopt AI and machine learning technology, in order to perform smarter underwriting. As a result, the credit offer people will get will be more suitable to their abilities. This will eventually lead to a greater opportunity in the market for different players to receive credit, and the consumers are ultimately going to benefit from this.

Yes. Credit is a vessel of social mobility - it’s a great thing. That’s not the original purpose for which we set up the company, but it can certainly help. The startup and fintech scenes in Israel are very strong. What do you think are the contributing factors to this? I think there are two points that make Israeli engineers so unique. One is the high level of intellectual focus in the country - education is very important. We have the Technion, and the army. Plus, a lot of people start gaining experience at a very young age - there’s widespread early adoption for tech that comes into the country. Another thing is a lack of fear of breaking conventions, and the ability to try and find out whether things that didn’t work elsewhere might work this time round. The combination of a good engineer, who has the professional know-how to do things without fear, creates a very good foundation for groundbreaking work. From an entrepreneurial perspective, it’s easy to build up an early-stage startup here. Whatever field you can think of, there will be at least 10 companies doing really amazing things. So the infrastructure’s good? There’s support, funding, a sense of community?

What do you think the future of AI looks like?

And the future of financial services as a whole? Do you think banks will disappear? No. I think for the foreseeable future, banks are the one that are going to manage money globally, not P2P networks. But they will go through a transformation, and will become organisations driven much more by data and technology, and less by physical branches, size and tradition. What the vision for BeeEye? The ability to bring the highest level of data-science technology to as many leading companies in the industry, and to upgrade the core of the banks with our technology. It’s a huge undertaking. It will take years, but it will be very significant. Check out www.beeeye.com for more information



celebrating female fintech leaders RONNY LAVIE Managing Editor of The Fintech Times

This month, we chatted to Shira Kaplan – founder, CEO & owner of Cyverse, a Zurich-based cyber-security firm which provides best-in-breed cyber-security solutions made in Israel to global and local corporations. Shira served as an Intelligence Analyst in the 8200 unit of the IDF - widely known to be the elite technology unit of the intelligence in Israel, in itself a renowned force globally. She completed her undergraduate degree at Harvard on a full scholarship and spent some time studying in China, as well as working with Israel’s Securities Authority’s Chief Economist. While studying for her MBA at St Gallen’s University in Zurich, Shira reinstated the school’s Women in Business club and set up a mentoring program with women from leading companies and organisations for the female students at the school. In 2017, Shira was selected by the World Economic Forum as a ‘Young Global Leader’.

How did the idea for Cyverse come about? Seven years ago, I moved to Zurich with my husband and took a position in private banking, but very quickly realised that that was not where my future was, especially if I wanted to build a family, together with my career. That notion was not welcome in a Swiss bank. The thesis I was writing for my MBA was about Israeli cyber security and how it was relevant to the Swiss market, and I decided to turn this thesis into a company. This is how Cyverse started. Three years ago, we started taking the best in Israeli technologies and distributing them here in the German speaking market of Europe. Cyverse today is serving around 50 customers in the German speaking market in cyber security and we’re having a lot of fun.

So did you start Cyverse to have more flexibility? That was a part of it. More specifically, I think a lot of people fit into the corporate career, but it wasn’t really for me. Working for a Swiss bank is very challenging, and being an ambitious woman wanting to make a difference wasn’t trivial there. So I realised that I would be much better off starting my own business.

Was it challenging as a woman, or just in general? At the time, the private banking industry was changing there was a lot of compliance and regulation-driven pressure on both men and women. But, for me, the trigger was specifically when I got pregnant - I was 30 years old and I started getting all of these looks from the HR people, asking me if I was going to come back to work when my baby was born. I just though - ‘what are you talking about? Of course I’m coming back to work. I’m here to build a great career’.

Running a company is a pretty tough thing to do. How do you balance that with building a family? I find it easier. Obviously, you work around the clock in the first couple of years - you work 20 hours a day, but you’re

much more flexible. You don’t need to be at the office at eight in the morning. I have two daughters, a two-year-old and a 5-year-old - I was writing the thesis Cyverse developed from when my oldest was born. I can be much more flexible as a mother - if they’re sick, for example, I can take the time off because I’m my own boss. So it’s much easier in that way.

Why do you think there is such a lack of women in the industry? I think it depends on the geography. If you look at Israel, you find many women in senior positions in the financial industry, the fintech industry, banking - we have so many women CEOs at our banks. So I think in Israel the situation looks pretty good. If you look at Europe, there are clearly not enough women at financial conferences and board meetings. I was once invited to do a presentation on cyber security threats for the board members of one of the biggest European stock exchanges - there were 15 people in the room and they were all grey-haired men who looked pretty much the same. That said, women often drop out of senior executive positions. They don’t pursue a very aggressive career in a lot of these places, because they want to focus on building families, and I think there is still a problem with juggling these two things, especially in places like Switzerland. It’s almost horrifying when I tell people I have a business and two little girls - they look at me like I’m a bad mother. So there’s still this social unacceptance of women pushing their careers and rising to the top. And I guess it’s also true for the corporate industry. The other thing is about empowerment - are we being empowered enough to build entrepreneurial careers and take major risks as women? I’m not so sure.

Let’s talk about Tel Aviv. What do you think makes it such a great hub for startups and innovation?

into this ecosystem of Israeli cyber-security startups in a very smart way.

It’s a combination of things. The army infrastructure provides the talent to feed into the hi-tech industry. The fact that everybody is drafted into the army, and that a lot of these people go into technology-oriented positions, means that there’s a constant pool of people going into the hi-tech industry when they finish the army. The other thing is that there is a well-oiled ecosystem in Israel that doesn’t really exist anywhere else, other than Silicon Valley, Berlin increasingly and maybe London. You have the government’s support for startups, you have the presence of around 280 foreign companies that are bringing money in, and the venture capital that is there as well - it’s a real machine around the Israeli hi-tech scene. It’s also geographically very convenient - you can visit 1,000 startups in less than an hour, because the country’s so small. I think that makes the ecosystem so unique.

How about the future of the industry as whole what do you think that looks like?

To go back to Cyverse - what’s the vision? What is the future like for the company? The way we started was we wanted to take the best next generation Israeli technologies and distribute and sell them in Europe. We said - cyber security is moving so fast, that there’s no point in developing new technologies here in Europe, so why don’t we just take the incredible knowledge from Israel and use it in this geography. Where we’re headed is we’re increasingly not just partnering with the best Israeli startups and selling their technology, but we’re also investing into these startups. So we’re headed towards becoming a vehicle to allow European investors, both corporate and individual, to invest

When I look at the fintech revolution, or evolution if you prefer, I think that without cyber security it’s not going to go anywhere. The whole idea of financial technology is that it has to be trusted, and the way for it to be trusted is to be secure. So cyber security is going to be at the forefront of all the big buzzwords, like AI and blockchain. All of these things will have to have security by design. Meaning, you will have to integrate security into them in order for them to be successful, and this is why we’re betting on cyber security to be critical for anything that we do for the next 50-100 years. We’re all so connected - industry 4.0 and digitalisation taking place everywhere, it’s all going to be about cyber security.

Finally, what are your own personal goals? First of all I want to build a big family, I think that is the most important thing. The thinking that you cannot build an entrepreneurial career because you’re a mum is not correct, and we have to understand that when we bring children into the world, we act on our responsibility to make it a better world. Professionally, my plan is to grow Cyverse significantly in this region and to make this incredible Israeli innovation much more available and protective of European businesses. I love seeing brilliant career women who are also mums it is one of my favorite things. •

October 2018 I 11


Why the fintech sector is struggling to find the right talent Not a week goes by when migration to and from the UK isn’t talked about. Ward Hadaway’s immigration expert Flora Mewies explains why recruiting and retaining talent is essential to the Fintech sector. FLORA MEWIES, EMPLOYMENT & IMMIGRATION SOLICITOR, WARDHADAWAY An Open University study this month (September 2018) revealed that three in five employers believed skills shortages had worsened since 2017. The findings also suggested uncertainties with EU Nationals’ rights as a result of Brexit had caused concern among businesses and individuals. To enable the UK to maintain its leading position in the international fintech sector, recruiting and retaining talent is essential. This is why the Tier 1 Exceptional Talent visa was introduced by the UK Government in 2014. Tech Nation has been devolved power by the Home Office to endorse applicants for this visa with exceptional talent and exceptional promise in the field of digital technology. The threshold isn’t as unattainable as it may first appear, as it applies to those with proven commercial expertise as well as those with proven technical expertise. Further, while those with exceptional talent must be able to evidence their status as a world leader in their field, those with exceptional promise are individuals proven to be an emerging leader in their field. Each year (April to April) there is a maximum 1,200 visas available for experts in digital technology and there is a twostage application process. Firstly, this requires endorsement by Tech Nation and secondly, submitting a visa application to the Home Office. Stage 1, the endorsement application, is by far the most complicated and time consuming part of the entire process. In order to be endorsed by Tech Nation’s panel of experts, applicants must provide documentary evidence that they meet Tech Nation’s criteria. Breakout panel: The criteria differ slightly depending on which route you are applying under. Looking at the slightly lower threshold of Exceptional Promise rather than Exceptional Talent, an applicant must satisfy one of the below Key Criteria and two of the below Qualifying Criteria:

Key Criteria: 1. Provide two or more examples of innovation in the digital technology sector as a founder of a digital technology sector company or an employee working in a new digital field or concept that must be clearly evidenced, for example patent application. 2. Proof of recognition for work outside of your immediate

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Case study

occupation that has contributed to the advancement of the digital technology sector. For example, evidence that you have gone beyond your day to day profession to engage in an activity that contributes to the advancement of the sector.

Qualifying Criteria: 1. Have made significant technical, commercial, or entrepreneurial contributions in the digital technology sector as either a founder or entrepreneur or employee of a digital technology company. 2. Have been recognised as having the potential to be a leading talent in the digital technology sector. 3. Have undergone continuous learning / mastery of new digital skills (commercial or technical) throughout your career. 4. Provide two or more examples of exceptional ability in the field by making academic contributions through research endorsed by a research supervisor or other expert. As a very general rule of thumb, if an applicant has less than ten years’ experience in digital technology, the Exceptional Promise is most likely to be best suited to them. This visa type is being used more in the fintech sector. Tech Nation has seen the highest number of applications from employees (64%). These are commonly individuals who have been living and working in the UK for many years in a tech role (not necessarily with a tech company), who have been sponsored by their employer to fill a specific vacancy within their business. The Tech Nation visa removes this dependence on the employer, as the individual holds the visa in their own right and it is not reliant upon them holding a specific role and there is no minimum salary they need to be paid. The majority of the remainder of applicants are founders (28%), usually who have either set up and run a successful tech business overseas and are seeking to establish the business in the UK, or who have founded their business in the UK under a different visa type, commonly Tier 1 Entrepreneur or Tier 1 Graduate Entrepreneur, and are looking to remain in the UK to run their business and explore other opportunities in the tech sector. Since the creation of the visa, Tech Nation has seen the highest number of applications from individuals specialising in apps and software development (187 applications). This is closely followed by applicants from those in the fintech sector, with 129 applicants, of which more than half have been endorsed as having exceptional promise or exceptional talent (57%). •

One individual who Ward Hadaway has recently helped obtain their endorsement and visa is Krishna Kopuru, Owner at Sreeven Solutions Limited. With nearly 20 years’ experience in IT infrastructure transformation, Mr Kopuru was working as an Enterprise Architect in the UK office of an international business consultancy. Having built up this wealth of experience, his future intention was to start his own consulting firm in the North of England. He was unable to pursue this ambition whilst sponsored by his employer, but through a friend and through research, became aware of the Tech Nation visa. With Ward Hadaway’s support, Mr Kopuru prepared the supporting documents, CV and personal statement required to demonstrate his credentials as a digital transformation expert, with a particular focus on his work in the fintech sector, leading projects for financial service providers in the UK and overseas. As a result, he found it to be a “very well structured process” which “validates the applicant’s credentials in terms of his skills and his future plans in the UK and how these will contribute to the UK economy”. Throughout the application process, Tech Nation is particularly keen to understand how the applicant has made a significant impact on their digital community, be that in the UK or overseas, as well as how their planned activities in the UK will benefit the UK digital technology sector, as well as the UK digital economy. Another who was granted this visa with the help of Ward Hadaway had a background in technology and cyber security, mainly in financial services, online and digital services and products. At the time of applying, his role was to provide strategic cyber security advisory services to financial service providers in the UK. In his view, the Tier 1 Exceptional Talent visa “is very beneficial, as it can provide an easier route for obtaining a UK visa which is not limited to specific employer or employment restrictions”. This visa type is ideal for “career driven individuals with clear ideas and a career plan, capable of demonstrating a significant individual contribution to the UK fintech sector, based on their individual experience and skill”. Since 2018’s application cycle opened on 6th April 2018, the Home Office’s statistics to 7th September 2018 reveal that 201 applications for endorsement in digital technology have been received and 83 endorsements have been granted, meaning that there are hundreds more of these visas available for the right individuals. •


IF YOU KISS ENOUGH VC FROGS, YOU’LL FIND A PRINCE Online Investment service Wealthify recently sold a majority sharehold to Aviva (the insurance giant now owns 60% of the company). CEO RICHARD THEO gave us his views on what it takes to create a successful exit, the current and future challenges in the investment market and why he believes Bitcoin is a sham.


In your experience as a CEO, what do we all need to keep in mind in order to one day be acquired by a big corporate? One of the challenges that fintech has is that a lot of the CEOs are very young, so they don’t actually have huge amounts of business experience, and that’s fine. Experience can be overrated, but it’s also very valuable at certain moments. In doing the deal with Aviva, my experience definitely counted in terms of understanding how to approach it, play it and see it through to completion successfully. But if you’re a young entrepreneur or CEO and you don’t have that experience, then I would advise you to recognise that limitation and seek support through investors, non-executive directors or mentors and take the benefit of their knowledge. With mentors, if you cheekily ask - ‘can you help me?’, they often will. I sometimes receive questions myself from somebody saying - ‘Hi Richard, I’m starting this company and I need your help’ and I find it quite hard to say no. Sometimes I have to, but don’t be scared to ask. Another thing CEOs need to remember is that sometimes the skills required to start a business are very different skills to scaling up a business, and I think that that’s where a lot of people go wrong. They do a really good job of starting a company with a product or idea, building a small team, developing it, launching it, and then they get into the scale up phase where they have to deal with people problems detailed operational problems and incremental innovation, where you’re now trying to add not just one or two new features, but multiple new features for partner apps, and it can often go wrong. So the thing to do there is to bring people in who have taken companies through that journey and can operate at that level. And to not be scared to hand the reins to this person if you feel like you can’t handle that. Equally, however, I think that, if the business is growing enough, you can bring people in to handle the scale and still carry on and be the CEO you want to be, concentrating on strategy, vision and leadership - the big topics.

What has been your biggest challenge in the past three years with Wealthify? Definitely funding. The business model of online investing

doesn’t generate large amounts of revenue in the early years - you have to acquire a lot of customers without making any money out of them. If you’ve done the job right then, in seven or ten years, those customers will be investing more and more money with you and become profitable customers. We solved that problem by working really hard on crowdfunding campaign and business angels in the early days. Obviously we self funded it with our own money to quite a significant degree, but that was because, being a little bit older, I was lucky to have a bit more money than perhaps some of the younger entrepreneurs, so I was able to do that. But later on, when we went to the VC world to try and raise money, we were unsuccessful in raising backing for the business. Largely because our business model requires patient capital that is prepared to wait for an exit for around ten years, and most VCs need an exit in five years. So it’s just not a fit. Last year between January and May, we went and saw 50-100 VCs and pitched to them all. Mostly they sounded really interested initially, then suddenly you can’t get the phone answered or an email back from them. But you have to keep fighting - if you kiss enough frogs, you’ll find a prince. The other challenge we had at Wealthify was customer acquisition. The market in the UK for online investing is tough, because financial education is really weak. We rank something like 15th out of 30 countries in Europe in terms of financial literacy and financial education. We also have very powerful traditional financial services companies who, despite their obvious and large failings over many years, are still retaining their clients very effectively, and it’s really hard to persuade those people to move. What these companies are really good at is creating enough fear, uncertainty and doubt in people’s minds that traps them where they are. So in the UK, we have a huge problem with people being trapped in savings and earning three quarters of a percent interest. With inflation being three percent, they’re losing upwards of two percent every year in real terms in their wealth, and yet they sit there for five or ten years with all their money in cash. In their minds, they’re saying to themselves - ‘I must keep it in cash because I’m saving for a big event like my wedding, or a car or house deposit, but in reality, evidence shows that those people end up leaving their money in cash for extremely long periods of time - longer than they ever imagined, so they’d be much better off investing it in a sensible way. Investing your money is never without risk, but it’s not as high of a risk as investing in private business, P2P lending, a startup or Bitcoin trading. So of all the forms of investing that are available to you, with something like Wealthify, and some of the other online investing services, you can take your money out straight away, because it’s invested in very diversified, passive investment strategies. The statistical probability of you suffering a significant loss on it are very low. There is a risk of loss, but if you’re taking a long term approach to your investing, then you should enjoy returns that significantly outperform anything you get from savings or any other strategies.

People who struggle with VC investment usually go the ICO route. Do you think that might have helped you when you were looking for investment? I have to say, I’m not at all a fan of cryptocurrency. I’m a great fan of the blockchain technology and its potential, but I think that the world is being led madly astray with Bitcoin and, whenever anyone asks me about ICOs, Bitcoin and cryptocurrencies, in general I advise them to steer clear of it, because I think it’s a market heading for disaster. There are opportunities for some people to make money, and some have, but that is part of the recipe for failure - when people become obsessed by hearing that someone else made a small fortune. It does not necessarily mean that you’re going to make a fortune too. So, personally, I think the risks outway the potential gains on it, like we witnessed when Bitcoin went from $18,000 to $6,000. If you were unlucky and came in at the top of that, then you’re not a happy person now. I hear stories of people borrowing money - using debt - to buy into that market - it’s crazy. So personally I avoid it at all cost.

What do you think the trend is for long-term investment - are customers becoming more educated? And are they more or less risk averse? I think we’re in a difficult economic climate right now. We’ve got Brexit looming; we’ve had distracting factors in the world of investing, like Bitcoin, coming along; we have a massively exploding market, and yet so many people are still stuck in savings. So it’s a difficult market, but the sheer weight of the number of people launching products, and the fact that the big players have also launched services, is waking both the market and consumers up. We’re not quite at the tipping point where we’re seeing enough volume, but I’m very optimistic that that point is coming in the next year or two, once we get over some of the economic hurdles that we have coming up. At Wealthify, having taken Aviva as a majority shareholder, we now have the benefit of their marketing machine and their 15 million UK customers, to whom they are now promoting Wealthify very heavily. We’re seeing our customer base expand dramatically through Aviva’s support, as well as our own marketing efforts, like the ads on the tube (some of which were done by us directly).

What’s your growth plan for the next two years? Our arrangement with Aviva gives us a potential full exit in a couple of years’ time. If we can increase the business above a certain level, we can increase our exit value. So we are very motivated to work really hard for the business, and passionate to do so anyway because it’s our baby that we’ve created and we want to see it flourish and succeed. •

October 2018 I 13




Top to bottom: Oleg Gorokhovskiy, Dmytro Dubilet, Michael Rogalskiy


Monobank is the first mobile-only bank in Ukraine. The company was founded by three partners — Oleg Gorokhovskyi, Dmytro Dubilet and Michael Rogalskiy, former managers of the nationalised PrivatBank, the country’s largest bank. The monobank project was developed from scratch in just one year and was launched in October 2017. As of 1st September 2018, monobank has already served more than 400,000 clients. This has meant that, with just ten months of operation, monobank has managed to rank among the top 15 Ukrainian banks (based on number of clients). The ideology of mobile-only allows the bank to operate without the costs of maintaining offices and classic banking infrastructure. And since there are no other neo-banks in the country, it was easy to offer customers cheaper rates than elsewhere in Ukraine. 14 I October 2018

Oleg Gorohovskiy believes that affordable loans to Ukrainians, and a mobile app as a convenient tool for managing a credit card, have a good effect on purchasing power and, as a result, on the well-being of business in the country. The company issues credit cards and provides the best mobile app in the market. Michael Rogalskiy says that their affordable rates were achieved due to the fact that 80 percent of clients learned about the bank from word of mouth. The bank became a hit on social media thanks to its clear UX, the use of the character the QR Cat, and its referral program. You have created the first-ever Mobile bank in Ukraine. What was your biggest challenge? Misha Rogalskiy: I would say the biggest challenge was to create all processes and procedures so that the bank could function without physical branches. No one did it before us in Ukraine, and there were gaps in regulation. For instance, to be compliant with KYC procedures, we had to create our own network of couriers who meet customers face to face for card issuing.

Even at the pre-launch stage, the amount of publicity you attracted was incredible. How did you achieve that? Oleg Gorokhovskiy: We got tremendous support from social media. Before the launch, we got 50,000 pre-subscribed customers through facebook posts. We were very open about our plans and execution, which is very unusual for the corporate world, and banks especially. This openness attracted a lot of media attention and helped us gather our most loyal customers. Dima Dubilet: There is another funny element here. Several months before our launch, I posted a funny picture of my cat on my Facebook page, which went viral, and suddenly the cat became popular on Ukrainian social media. So we leveraged the cat a lot in our marketing communications, people just love him! You are highly integrated into communications with your clients. monobank appears approachable and user-friendly. What do you think are the most important aspects of communication for the bank of the new era? MR: All our media and public relations come directly from us, the founders. It became a part of our culture. Any of our customers can reach us via Facebook seeking support if a problem hadn’t been resolved by standard channels. Also, we invest a lot to make our customer support really friendly and helpful. OG: We also have 10,000 beta users. These are our most


Highlighting some of the bank’s most exciting services: A unique installment system that works instantly and in any store in the world. The user only needs to fill out an application in the app, and the next lot of spending on the card will be processed in installments for the selected period. The shake-to-pay feature is fun P2P transfers to people who are close by. To make the transfer, you just have to shake your smartphone - you don’t need to know the recipient’s details and even his or her phone number. The Sports Deposit is a deposit that motivates you to stay in shape! If you perform a set sports activity (taking 10,000 steps or more), you get a 21% per annum interest rate on your money. If the activity is not fulfilled within four days, the interest is accrued at the rate of 11% per annum. monobank provides a large number of other, more traditional banking services: free transfers and utility payments, deposits and financial management. Its users appreciate the app, which has gained it a Google Play score of 4.8, and 4.9 on the App Store!

loyal and valuable customers, who test our new products and give us recommendations on what products or features to launch next. What is the background and what is the expertise of your management team, and your IT team? DD: Our company has 150 specialists with huge expertise in IT and banking. Prior to monobank, we all worked together in one of the largest banks in Eastern Europe for over 10 years. This makes us very different to other fintech startups. What do you think the future of digital banking will be like? DD: I think banking should become more invisible. Like water or electricity supply, all the financial services should be just happening in the background. That’s what I love about Uber-like services compared to regular cabs — you don’t think about payment at all, it just happens! OG: Аnother obvious trend is that big players like Apple or Google are trying to enter the market. It’s both an opportunity and a threat to traditional banks. From the moment of your launch, your user base grew to over 400,000 users, and your growth seems to be non-stop. How do you manage to keep the growth pace steady?

MR: First of all, it’s the product itself. We have the best value proposition in the market. Because we don’t have costs for physical infrastructure, our interest rate is lower; we practically don’t charge any fees for day to day transactions; and we have a loyalty program, which gives customers the ability to get substantial cashback from all purchases in two categories of merchants, that they choose. We have already paid out more than 100m hryvnias (£3m) through this programme. We’re also really proud of the application itself. We got rid of everything that wasn’t crucial for banking apps, and that gave us an opportunity to make everything much simpler. For example, making a peer-to-peer payment is as natural as sending someone a text message. You just know how it works. DD: But on top of that, we managed to create a bank with an emotional connection with customers. For instance, we have a cat mascot in the app which appears on every success screen. And we put a sticker pack into every envelope, with a card. The cat itself became popular on the social network, which helps us promote the brand. Do you think clients are ready for a fully digital bank? OG: Yes. I’m sure that the majority are ready. And I think the demand shift here is even stronger than in other industries. I can understand the value of a brick and mortar store when it’s about buying groceries, for instance. But even the most active retrograde wouldn’t think that going to a bank branch to make a payment is ok! So yes, I think clients are ready, banks - not so much. Did you have to rethink your strategy along the way, or was your concept immediately 100% correct, and appeared to be an exact fit for the market? DD: We are constantly trying something new every couple of weeks. Something becomes an instant hit, or sometimes we have to alter our product after receiving feedback from our beta-testers. For instance, we had to change our installments offering slightly after the first month of going live. But in general, our strategy remains untouched. We want to create the best credit card.

One of your core offerings is lending, and it attracts a significant amount of clients. How does it reflect on the economics of your bank? OG: If done right, lending is a great business. It’s something that customers want. To have a reliable and fair lender in your corner gives you a little calm and confidence. The most challenging thing here is the risk assessment. To assess creditworthiness, we use a lot of data from various sources, together with information that we can reach through a mobile phone. Analysing that with machine learning algorithms and AI, we manage to archive NPL of less than 2%. All of these efforts made us operationally profitable in less than one year after going live. I don’t think it would be possible without lending. Is your business model scalable? Do you plan to expand to new geographical areas outside Ukraine? MR: Global companies erase lines and differences between markets. Today the interface of Uber, for instance, has become a universal language of ordering a taxi. It doesn’t matter where you are, all process and interactions are the same. This goes for Google, Facebook, and Amazon as well. I think that banking will also join this movement, and we will see global players like Uber, but in the banking field. We won’t be standing on the pavement watching this happening in front of our eyes! We’ll try to be a part of it.

What is your competition like at the moment? Which digital banks do you see as your main competitors? DD: We don’t see digital banks as competitors, we see them as an ally in the war with traditional banks. Our goals are the same and the market opportunities are so big that it would be counterproductive to spend time fighting each other when we can grow the pie for everyone. •

What is your business model? MR: Our business model is around credit. We provide two credit products within one card. This card is a hybrid between a credit and a debit card. You can have a positive balance and get an interest rate on it, or you can go into an overdraft within your credit limit with a grace period of up to 62 days. The second product is the installments loan that I mentioned earlier. It gives customers the ability to buy anything from any merchant in the world and pay it back in installments, whether it is a nearby computer store or Amazon.

October 2018 I 15


Cryptocurrencies – an accountant’s view Interview with Paul Twydell, Director and Jon Dawson, Senior Manager at haysmacintyre

Tell us about your background.

PT: I am a chartered accountant, chartered tax adviser and a director in the Creative, Media and Technology team at haysmacintyre. JD: Like Paul, I am a chartered accountant and senior manager, also working in the Creative, Media and Technology team. I advise clients on a variety of services, ranging from audit and accounting to special advisory and corporate finance. I also take a real interest in the fintech space and I work with a number of fintech clients.

As an accountant, how has the rise in cryptocurrency adoption affected your work?

JD: The emerging market of cryptocurrencies has been of interest to a range of our clients, including those in the financial services sector. Some clients have started to show an interest in cryptocurrencies for investment purposes, some use cryptocurrencies to invoice customers and pay staff, whilst others in the fintech space are developing products on the blockchain. Despite their different interests, most clients are concerned about the tax issues relating to cryptocurrencies, particularly due to the fluctuations in their value. PT: The biggest challenge when advising on cryptocurrencies is that HMRC has not updated its guidelines on cryptocurrencies since 2014. Given how far the market has come over the past few years, we would expect clarification sooner rather than later.

How easy have you found it adopting these new technologies as part of your role?

JD: Cryptocurrencies have certainly brought new challenges for the audit sector. The audit process has remained relatively unchanged for many years, and auditors have found ways to prove the existence and valuation of common assets. It is harder to prove that cryptocurrencies exist and what their value is, as they are a completely new type of asset and there is much debate within the audit sector as to which category of asset cryptocurrencies fit into. This makes it more difficult to confirm what a client’s assets are, and how much they are worth. When advising clients who work with these technologies on a daily basis, the process can get very technical and it is important that we understand and keep up-to-date with the technologies involved. PT: From a tax perspective, the technology has been quite easy to adopt, especially with clients who claim research and development (R&D) tax credits – typically, these clients work on the blockchain. When making an R&D claim, businesses have to clearly explain the complex technologies used in their products to us and HMRC, which means we gain a good understanding of the

16 I October 2018

technology from the outset.

When did you first realise that cryptocurrencies are a serious business and are here to stay?

JD: I have been interested in blockchain technology for a while but three years ago, a small number of our clients began using cryptocurrencies when the market was still relatively unknown. Over the last twelve months it has become much more widely accepted that these technologies are here to stay PT: It is worth keeping in mind that the market hasn’t yet determined whether cryptocurrencies can satisfy the definition of being currencies in the long-term. However, a lot of growth in the use of cryptocurrencies’ underlying distributed ledger technologies (DLTs) will be seen: these eliminate the need for a third party when distributing records of anything of value, and will have a number of uses that could be of great value to many businesses. JD: The accountancy industry could end up viewing DLTs, which hold information relating to all historic transactions, as a secure way for the whole accounting system to work, which would change the face of some services, such as audit.

What do you think of the current state of regulation in the crypto sector and where it’s heading?

PT: The FCA are responsible for regulating everything that relates to securities and financial instruments, with the objective of protecting consumers, as well as the market. However, cryptocurrencies don’t meet the definition of a security or of a financial instrument, so the FCA don’t currently have a responsibility to regulate the sector. There is increasing pressure on the FCA to re-evaluate its stance on cryptocurrencies. JD: HMRC has remained quiet on this issue. If, for example, the value of Bitcoin is rising, there is no clarity on whether those increases in value should be taxed in the same way as other assets. However, recently, when the value plummeted, ’non-day traders’ might have argued that they could set off any resulting losses against other income or gains. So, with tax revenues at risk and this could be a potential trigger for HMRC to clarify the tax treatment. PT: The Government’s default position on day trading in cryptocurrencies is that, unless it is set up properly as a trade, any investments that are made do not qualify as trading income, so there is less flexibility for maximising losses. As a result, HMRC may view most losses as capital losses, and unless a person has significant assets from which capital gains can be derived, they aren’t going to have any opportunity to use those losses against their other income.

A lot of people compare blockchain and Bitcoin to the start of the internet age in the early 90s. But we recently heard Maya Middlemiss from BlockSparks compare it to the Gold Rush in California in the late 1800s. What do you think of this comparison? Is it a fair one?

PT: It is difficult to compare the uptake in cryptocurrencies to the Gold Rush in California, because the value of gold was clearly defined at the time. Investors are able to see the potential of cryptocurrencies, similar to the way in which the markets could see the potential of the internet. After the ‘dot com’ boom, we saw a contraction in the market; we could witness the same scenario with cryptocurrency and blockchain.

Which industries do you think stand to benefit the most from blockchain technology?

PT: In order for cryptocurrencies to succeed, a large number of consumers and suppliers need to be willing to circulate the cryptocurrencies. For example, some social networks have organised currencies where people can sell certain products in exchange for advertising or shares. Where those networks are controlled by one overarching company, they will all utilise the same currency: helping boost the currency to become a success. JD: I think two sectors stand to benefit among the most from blockchain technology: not-for-profit and fraud prevention. In the not-for-profit industry, some donors have the notion that if you donate £1 to a charity, only a fraction of that amount will reach the intended recipient. By using blockchain technology, there is no reason why a donor couldn’t transfer a value directly to the cause, without a third party controlling the process in the middle, and you could trace the transaction. Equally, there is also huge potential for fraud prevention. Cash is one of the easiest assets to launder, and whilst the introduction of credit and debit cards have made it more difficult, it has not eradicated the problem. Blockchain should make it even more difficult to commit fraud.

What can the Government do to help further developments in blockchain technology?

PT: The Government already has a generous scheme in place concerning tax credits. However, the Government needs to clarify how companies undertaking initial coin offerings (ICOs) should be taxed if that ICO will be used to fund future developments. As things stand, if a company invented a cryptocurrency, that cryptocurrency could be treated as income in the company’s accounts at the time. That income could then be utilised for future development costs, but it is still not clear how this should be taxed. JD: As with the development of the internet, if the government acknowledges cryptocurrency and blockchain, it might help different generations take an interest in the sector and consider it over more traditional career paths.




OR YOUR TURNFIRM FIVE TECH RISKS INTO OPPORTUNITY FOR YOUR FIRM As rapidly evolving technology, profitability pressure and customer-driven experiences continue to shape the wealth management landscape, traditional financial services firms face an array of risks that are growing more prominent. If you don’t take measures to safeguard against these risks, the potential impact could put your firm at a competitive disadvantage. But viewing these increasing risks as an opportunity to drive change throughout your business offers much to gain in tomorrow’s wealth management world.

Risk #1: The rise of disruptive technologies While disruptive technologies have recently garnered significant attention in the financial services industry, thanks to the rapid proliferation of fintech startups, disruption isn’t new. Motorways threatened the trainlines, and on-demand TV content providers upset traditional television. Innovation is around every corner. A single microbrewery could probably never take down a national beer distributor, but a lot of those small breweries together can affect that major player’s distribution lines. The biggest threat from the recent growth of fintechs is their cultural ability to fail quickly and use that failure to adapt and move on. They embrace a culture of learning through failure without fear. The ability to pivot and persevere takes them to a potentially successful idea they never considered in the first place. Every successful firm experiences failure. Traditional financial services firms need to determine how to adopt this “no fear” approach to change and embrace new technology, while operating inside a heavily regulated environment.

Risk #2: The assumption of information security Data security has evolved, and it’s not all about hackers

and the threats they pose. You’re handling vast amounts eic.com/seiwealthplatformuk

of confidential data every day, and technology is rapidly accelerating the movement of this data. Data leaks are just as damaging as data breaches. That’s why you should treat information security as a continuous process—not just a onetime event. Taking a systemic approach and addressing risks in a prioritised order will benefit you and your customers. Controlling implementation within all areas of your organisation—from HR security to communications to software development—gets everyone on the same page. The business and technology sectors will begin speaking the same language, supporting the core that ensures security. When you implement a systemic strategy for information security, client confidence increases. This function cannot be undervalued or under-prioritised in today’s world.

Risk #3: The reality Risk #5: The challenge behind disparate systems with adviser/client alignment

It can be all too easy to respond to the challenge of constantly evolving technology by continually adding new, best-of-breed applications to an existing infrastructure. As a result, you may find your firm managing a large number of disparate systems. The benefit of best-of-breed function points quickly becomes outweighed by disjointed data, manual workarounds and swivel chair processes that proliferate when connecting these disparate systems. Further, the need for constant upgrades to systems in this type of environment can be daunting and expensive, as it costs more to support the structure and connectivity. You might feel as if you’re on a technology treadmill, struggling to keep pace with the non-stop process of managing so many applications and vendor relationships. Depending on the size of your business, you could be maintaining 30 to 50 (or more) separate systems, with each system requiring vendor management oversight and separate upgrades. The cost and maintenance cycle are complex and never-ending. The decision to modernise a platform and consolidate disparate systems is significant. Be thoughtful and stay focused on the value of integration and improvement of your employees’ and customers’ holistic experience. If you’re replacing core mainframe legacy platforms, you’ve already succeeded by taking that “no fear” approach to adopting new technology. It’s also important to spend time identifying your unique value proposition within the markets you serve. What is it that your firm does better than anyone else? More important, do all of your disparate technologies enable your value? If not, why pay to maintain them? Focus on creating substantial differentiation for your customers, and consolidate systems that don’t support that value, and you can gain a better technological cost structure and seamless end-to-end experiences for your advisers and clients.

The adviser is the face of a wealth management company. It is often the trust an adviser builds with the client that promotes and differentiates a firm’s brand. When an adviser and the client each use different systems to view and manage customer wealth, the experience suffers. The adviser’s focus and productivity diminish when spending more time with daily administrative tasks in multiple systems. The effect here is a double-whammy—when both adviser and client are frustrated, your firm is liable to lose both. A fully integrated, modern platform provides a unified experience that takes customers from “prospect” all the way through the client lifecycle. When information is shared seamlessly across an organisation, from executive management to an adviser or portfolio manager to the endcustomer, all stakeholders remain on the same page. It is imperative that you build your firm’s own unique strategies to safeguard against these risks, and it must start at the top. Prioritise at the highest organisational level and develop a systemic, holistic approach. These risks are here to stay, and they trigger a great opportunity for those willing to take a risk and get started on the future.

As rapidly evolving technology, profitability pressure and customer-driven experiences continue to shape the wealth management landscape, traditional financial services firms face an array of risks that are growing more prominent. If you don’t take measures to safeguard against these risks, the potential impact could put your firm at a competitive disadvantage. But viewing these increasing risks as an opportunity to drive change About the SEI Wealth PlatformSM throughout your business offers much to The SEI Wealth Platform (the Platform) is an outsourcing solution for wealth managers encompassing wealth gain in tomorrow’s wealth management world. processing services and wealth management programs,

Risk #4: The (un) sustainable investment Keeping pace with the technology treadmill requires a lot of money and management focus. Often overlooked, these costs can build up over sometimes not easily visible, and may not be aggregated in a single report. Once your firm stops to perform the analysis, you should be able to identify inefficiencies. Technology’s price tag can overwhelm the largest of organisations, and paying disparate systems a la carte can quickly run up the tech bill. Consolidating onto a unified platform creates a cohesive environment that brings cost benefits, and it creates transparency and simplicity in understanding cost drivers.

combined with business process expertise. With the Platform, SEI provides wealth management organisations with the infrastructure, operations, and administrative support necessary to capitalize on their strategic objectives in a constantly shifting market. The SEI Wealth Platform supports trading and transactions on 157 stock exchanges in 56 countries and 43 currencies, through the use of straightthrough processing and a single operating infrastructure environment. For more information, visit seic.com/ wealthplatform. For professional investors only. The opinions in this document are from SEI only and should not be constituted as investment advice. Contact us to learn how the SEI Wealth PlatformSM can enhance your business. Call 020 3810 8000 Email SEIWealthPlatformUK@seic.com Visit seic.com/seiwealthplatformuk

October 2018 I 17


HEALTHCARE BLOCKCHAIN TOP 3 COMPANIES TO WATCH BE HELEN DISNEY, CEO OF UNBLOCKED Blockchain in healthcare still remains a smaller subset of the overall blockchain marketplace, lagging far behind investments and applications in finance, which still dominate the marketplace. Yet a survey of senior pharmaceutical and life science leaders, conducted by the non-profit Pistoia Alliance last year, found that interest in blockchain is high – with 83 percent expecting blockchain to be adopted in the next five years. Companies in the field tend to fall into a few categories, with the most prevalent looking at aspects of the supply chain, B2B applications which reduce administrative costs within healthcare systems, and companies which are focused on sharing patient information. Within the field, a few companies are taking the lead, especially in solutions which serve industry clients, while consumer applications of blockchain for healthcare are still largely in their early stages. We take a look at some of the players making waves in the sector and advancing beyond proofs of concept into real-world use cases and partnerships.

SOLVE.CARE Solve.Care, run by CEO Pradeep Goel, is building a blockchain platform which it describes as “combining decentralisation with synchronisation to connect stakeholders with each other and redefine care, cost and convenience for everyone”. Earlier this year, the company announced a partnership with the Arizona Care Network and recently launched its Care.Wallet for physicians. Over the next few months, up to 5500 physicians and care providers will become early adopters, and will be able to begin downloading the Care.Wallet from the App Store and Google Play for use within the ACN Care Administration Network. The wallet serves as a system for checking physicians’ performance analytics and earning rewards. The next phase of Solve. Care’s development will look at expanding the platform to cater more directly for the needs of patients. In August this year, Solve.Care also announced a partnership with the Dinocrates Group, a consulting and advisory firm with expertise in healthcare administration, to deliver blockchain-based healthcare benefits management solutions to government clients in the US. According to ICO tracking websites, the company raised £35m with its token generation event, which closed in May, and says it has recently expanded by hiring 22 new members of staff in the past 2 months.

SPIRITUS PARTNERS Run by its energetic and inspiring Founder, Susan Ramonat, who comes from a solid Wall Street background, Spiritus Partners, which is based in Edinburgh, is taking advantage of Scotland’s advancing role as a fintech hub to launch a blockchain healthcare business focused on the security and safety of the medical device

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supply chain. Spiritus is devising digital service records and analytics that bring together clinical asset management, decontamination and sterilisation services with infection control. Often in modern healthcare systems, problems arise because we simply don’t know what equipment we have, what state the equipment is in, whether it is prone to infection due to being incorrectly cleaned and reused and whether or not it is compliant with existing safety regulations. Overall cybersecurity in medical devices is worryingly poor – and the risks of infections like MRSA and C Difficile are real. Ramonat’s concerns about cybersecurity risks and operational resilience led her to explore blockchain’s disruptive potential across industry sectors back in 2014. Susan and her partner Bob Clint believe it is possible to dramatically reduce unnecessary injuries, complications and deaths associated with medical devices and equipment. The company is delivering a private, permissioned ‘middle ground’ where hospitals, device manufacturers and 3rd party service providers can share vital information in a timely, secure manner. Backed by funding from The Data Lab, they have begun an NHS blockchain-enabled pilot project which will track the chain of custody of connected medical devices throughout their lifecycle. Widely used to help people manage chronic conditions, such as asthma, diabetes, heart disease and neurodegenerative disorders, the project involves Edinburgh Napier University and NHS National Services Scotland. The business is self-funded and says it has no plans to launch a token.

globally. Value-based care is a system in which payment or reimbursement is based on outcomes. SimplyVital’s platform creates an audit trail of activity to be able to track and process rewards within such a system. The company is creating a permissioned system using validators who are compliant with the USA’s HIPAA regulations (similar to Europe’s GDPR). The company started by building a practical implementation of blockchain: an audit trail which brings providers together from different clinical organisations onto the same platform, where they can view the same data for shared patients. Financial and clinical algorithms powered by AI then provide actionable opportunities for all users. This means providers can, for example, work collaboratively to drive down the cost of care and can be paid by results. The next phase of the company will focus on building a blockchain infrastructure and protocol called Health Nexus. A fork of the ethereum blockchain, the platform aims to create a new validation and governance protocol focusing on HIPAA compliance with a key pair system built into the protocol for safe data sharing. The ultimate goal is to develop a fully-functioning healthcare data marketplace, which will be attractive to all major players within the healthcare industry. The company held its ICO earlier this year for its HLTH token and previously raised funding from Anorak Ventures, a San Francisco-based boutique VC firm, and Med-Metrix, a leading provider of performance management analytics, consulting, extended business office, and revenue recovery services to the healthcare industry.

SIMPLYVITAL HEALTH SimplyVital Health, launched in 2017, was also created by a dynamic female founder. Katherine Kusmeskas, who was listed in Forbes as one of the global leaders changing healthcare, is focused on delivering valuebased care, which is a growing trend in the USA and also

Helen Disney is CEO of Unblocked which will be hosting Healthcare Unblocked 2018 on 9th November in London, looking further at blockchain applications in healthcare.


Blockchain takes on healthcare and delivers Solve.Care CEO, PRADEEP GOEL, told us about the company’s groundbreaking partnership with the Arizona Care Network and how this is just the first step in revolutionising the healthcare industry on a mass scale.

Tell us about your launch with the Arizona Care Network. The Arizona Care Network is a network of 5,500 healthcare providers who are all working together to deliver coordinated care for high risk, high cost, complex cases. We have just launched Care.Wallet for Physician for primary care providers of Arizona Care Network (ACN). This is the first solution utilising blockchain technology and digital currency adopted by a leading Accountable Care Organization. Through the wallet, Arizona Care Network is now delivering to the physicians real-time information about the opportunities to improve care for every individual the physician sees and, based on these improvements, reward the physicians in real time. We launched the Care.Wallet for Physician to do three things; better care coordination, better disease management and instant payments. Care.Wallet for Physician contains Care.Cards that interact within the blockchain ecosystem of ACN. The wallets and the cards automatically sync with each other, resulting in real-time coordination of information and administration across stakeholders, and create a unique user experience. Transactions in the network occur using the digital healthcare currency called Care.Coin, the first digital currency used for healthcare payments. The primary advantage of Care.Coins is instant and transparent payments across the system. Physicians receive Care.Coins into their Care.Wallet and can redeem them for USD. Next, ACN will launch a Care.Wallet for patients. If I make an appointment to go see the doctor tomorrow and I’m in the Arizona Care Network, then ACN will analyse my clinical data and tell the doctor not only what I’m coming in for, but also that I have a potential risk of diabetes, for example, so to run some tests for that. So, each visit then becomes a lot more effective, because I’m going in for A and I’m getting B and C service based on my healthcare history analysis, which will prevent me from getting chronic diseases. The whole idea of the blockchain here is to keep all the parties coordinated, keep them in sync with each other without needing everyone to have some complex integration, and pay them in real-time for good behaviour and good results. That’s the core use-case for Arizona Care Network.

Congratulations on the launch, it sounds amazing! What are you most proud of so far? From my point of view, the main point here is the

launching of a blockchain network for these physicians. We’ve already launched a provider reward program for this network of doctors, and in the near future all of them will be able to coordinate care across specialties and patients - a primary care physician, or GP, will be able to refer to an ophthalmologist, and the patient is always in sync with both. What’s happening now is that several insurance companies are asking ACN how to use the leverage the power of this network to manage their members’ conditions such as diabetes, cancer, mental health, sunstance abuse and happy episodes such as pregnancy. Almost every day, there’s a conversation with an insurer about how they can leverage this care coordination framework and provider network to deliver better care, better value with lower administrative costs and faster payments. And the use of Blockchain as the foundation of this platform makes this network highly shareable with appropriate data security and transparency between all network participants. For example, a large insurers with several million members are considering issuing Care.Wallets to all their members, so the members can make appointments with the provider network in real-time and eliminate need for benefit plan verification and in many cases eliminate referral preauthorization step. This changes the equation in terms of access to care, administrative cost of care and patient-provider engagement. This is a completely new way for insurers to manage risk, cost, provider relationships and patient experience. That’s the vision behind blockchain, right? To decentralise all the administrative barriers which make healthcare so complicated. If you start decentralising the physicians first, the patients come.

How is this going to revolutionise healthcare? We started with only a few use-cases - eligibility, enrolment, billing, payment, and now we have about 24 use-cases in flight. This is really exciting, because I’ve always come from a view of making healthcare easier to access, easier to manage and easier to pay for, and now we’re entering the realm of easier to measure and instant rewards based on result, instead of just paying for services rendered. We are also building very innovative patient engagement cards like ‘How Are You Feeling Today?’, which is a card that lets patient form a peronal network with their family, friends, concerned colleagues, doctors, specialists, and other care givers and providers, all of whom can keep real-time tabs on how you’re doing; post-surgery, post-accident, chronicdisease, and other types of health episodes. All these people stay in sync for clinical and administrative fucntions, and it’s very secure network. You have to give them permission to access your chain, and you take it away, so we manage the patient’s control over who gets to see what about them. Healthcare is always a catch-22, right? Doctors won’t adopt a technology if patients are not on it, patients won’t adopt it if doctors are not on it and insurance companies won’t adopt it if both are not on it. So, there’s always a question at the beginning - who will, where will you start? I’ve always said, initially it needs to be a top-down model. We create economic incentives for a group of providers to

adopt, and then will draw the rest of stakeholders in. Having a physician centric view is great because it draws in both the payer and patient. The physician centric launch has been a very good decision. Each doctor sees thousands of patients a year, so when they adopt a piece of technology, a thousand patients adopt it by proxy. Doctors talk to certain specialists, they talk to certain labs, they talk to certain pharmacies, they have this network within a network, and everybody’s coordinated, without the need for a big mainframe in their backyard. It’s in your hand, in your phone, and the doctors have all the data on the chain on their phone. If you’re looking at a fintech audience, I would like them to hear the following three things; this is mass adoption of blockchain in healthcare that will really save clear economic value for payers, providers and patients, all three. Insurance companies, doctors and patients all have economic value, clinical value and administrative value. Economic value for the payer is lower cost and better results. For the doctor it’s faster payments, accurate payment, less bureaucracy and more time to spend with the patient. Faster payment and fewer administrative steps is a really important thing for doctors. And for the patient it’s clarity on what’s happening and why it’s happening, what their role is in getting well. It’s better transparency and better results. So, the point for the fintech community is that our platform and use cases are driving real economic value, not theoretical value. The second thing is that this model is extremely replicable and expandable. It will grow rapidly, because key stakeholders in the US, Canada and the Middle East are getting very engaged. We’re in deep discussions with several players that can create significant adoption in different markets. The third thing is that we’re starting to see significant third party services providers wanting to inject their services into this network. For example we will soon announce a medical transportation partnership that will offer patients the ability to get from home to the hospital and back in a much more elegant and cost effective way than ambulances and other mechanisms’ and reduce the number of missed appointmens that are harmful to both patients and doctors. This integrated transportation capability for people around the world is coming to the wallet and you’ll be able to pay for it using our Solve digital tokens. We’re talking literally hundreds of millions of dollars worth of services being accessed by patients using the Care.Wallet.

So you’re one step closer to achieving your visions to transforming healhtcare? Of course, we will expand carefully, step by step, as our main goal to always have satisfied clients and excited users while maintain security and safety of patient and their information. Each day, we get further proof and feedback that reinforces our mission and vision of redefining patient-provider-payer relationship. We are the beginning of a massive shift in how to coordinate, manage and pay for healthcare, in the US and globally.I am sure we will look back a few years from now and ask the question – how did we do things before and why did wo do things any other way?

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The topic of trust is one of the most crucial issues for the global economy. Alongside this, different markets and different countries have their own understandings of the ‘paradigm of trust’ – and this further complicates establishing trust-based relationships between buyers and sellers. One solution, which could solve this problem, would be the use of an escrow service. There are already existing successful examples of how such a service has been able to alter the image of an entire country’s economy, and has managed to onboard over half a billion users into the financial system. Yet the future is not limited to an escrow service offered by a single provider alone – but for an open-source escrow-as-a-service solution, able to integrate seamlessly with marketplaces and logistics providers. A solution of this kind – called ‘Escrow Box’ – is already in operation, developed by the fintech provider UAPAY, and could be cloned and upscaled to meet the needs of any global market.

Dmitry Gololobov, CEO of UAPAY

A quick look at the backstory

Future prospects for escrow-as-a-service

There’s no need for an in-depth investigation to be convinced of the viability of the escrow-service working model. The clearest example of a successful implementation of this kind of ‘trust-based solution’ was rolled out in the early 2000s by the leading Chinese service Alipay, which was developed by Alibaba. Yet we can trace the development one stage further back, to the online platform Taobao – a platform where small businesses could sell their goods with the confidence of being paid for them, while the purchasers knew they could expect to receive the quality of item they’d ordered. Up until that point, the absence of trust between buyer and seller was an integral feature of Chinese economics, which made for an inefficient economic set-up. Since there was a basis of distrust, sellers were unwilling to despatch unpaid orders to buyers, while buyers didn’t want to prepay for their orders without the certainty of receiving what they expected. This problem was resolved once sellers were offered the option to provide information about the orders they’ve received by fax to the offices of Alibaba, who held onto the money until the buyer confirmed receipt of the goods, and that they met expectations. The sellers were informed that payment had been made, and would be credited to their account as soon as the buyer gave their confirmation. This escrow system contributed to the rapid development of Taobao, and ultimately led to the appearance of the Alipay payment system. Over the course of a decade, this system grew from a somewhat primitive deposit-paying method, into a way of processing payments in real time. In future, there are plans to incorporate aspects of artificial intelligence and machine learning into the system.

Individual companies adopting this innovative solution has brought in numerous positive improvements for the entire economic ecosystem. However, the next development in the sharing service is set to be an open-source escrow-as-aservice solution, with seamless integration at a global level. UAPAY Escrow Box is a new service from the Ukrainian payments provider UAPAY, launched in September 2018. The purpose of the product is to provide mutual trust between buyers and sellers during the online shopping experience. “The service integrates easily with any global marketplaces or shipping providers,” CEO of UAPAY, Dmitry Gololobov, explains. The solution was initially developed in 2017, and implemented for use by such major Ukrainian marketplace firms as Olx.ua, Prom.ua, and Bigl.ua. Escrow Box helped to realise over one million transactions last year. So far this year, the volume of transactions completed using the escrow system has continued to expand dynamically. UAPAY has broadened its experience with marketplaces and shipping providers, thus creating a boxed solution that can easily be upscaled. “Of course, developing and tailoring this kind of solution for each individual client is possible – but it’s a long, costly and complex task. That’s why we’ve decided to offer a box version of the solution – UAPAY Escrow Box, which is ready for integration into any system, in any market,” CEO Gololobov went on to explain.

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How it all works Sellers – whether a private individual using classified advertising, or an internet store – advertise the descriptions

of their goods, providing all the necessary information buyers would want to know, alongside a photo and the price. They then list information to ensure a secure transaction, including the weight of the shipment, the delivery service details and the payment details. UAPAY Escrow Box can integrate with the API details of any shipping provider (including the shipping costs, according to the delivery address and category of delivery), and make this information available to buyers through classified sites or online stores. Once all the information about the delivery has been obtained, UAPAY Escrow Box calculates the overall shipping costs and automatically informs the recipient of them. If the buyer is satisfied with everything and presses the ‘purchase’ button, Escrow Box completes the two transactions: the shipping costs are paid to the shipper, and the costs of the item itself to the seller. The funds are then debited from the buyer’s card, and credited to the seller’s card if the delivery proves successful. Next, a waybill is completed and sent out to all the transaction participants – the seller, the buyer, and the shipping contractor. The waybill is the primary document for checking the status of the transaction. The seller can then go to the shipper, provide the number of the consignment note, and pass the consignment to the logistics company that ships the items. The recipient can collect the item by simply quoting the waybill number, but the seller is credited with funds for the item only when the buyer confirms receipt and accepts the item’s condition. If the buyer is, for some reason, unwilling to accept the item as delivered, he or she can decline to accept it and receive a refund on the same day. UAPAY Escrow Box conforms to the PCI DSS security standard (Payment Card Industry Data Security Standard), which was established by


If consumers need to make use of classifieds, littleknown internet stores, or sellers on Instagram or Facebook, there is often a lack of trust between the buyer and the seller. Buyers remain uncertain as to whether their order will be shipped, or if they could get their money back if the item is not what they expected. Sellers, on the other hand, have no guarantee that the buyer will pay for the order. The guarantee of an honest deal can be provided by UAPAY’s Escrow Box in these cases.

payment systems including Visa, MasterCard, American Express, JCB and Discover. “In reality we have a smart contract approach in place, although without blockchain,” Gololobov clarifies.

How this system can be integrated into your business The Escrow Box solution can be integrated into the operations of any kind of classifieds, internet store, marketplace or logistics operator, with an option to add your payment partner into the chain. Depending on the technical requirements of each of these outlets, the integration process can take up to two weeks. “We are currently working on improvements, which will reduce the integration period to just a few days”, Gololobov confirmed. Integration works like this: UAPAY creates an account for the client within its system. After this, an outlet integrates Escrow Box functionality via API. In the context of Instagram or Facebook sellers, they can create their own secured transactions with just a few clicks at the site https://escrowbox.uapay.ua. This functionality is currently available for the Instagram sellers located in Ukraine. The number of transactions is unlimited. In turn, Escrow Box enables shipping operators to perform not only the delivery functions, but to serve as a transaction platform too. “If we are discussing the integration of major platforms such as Amazon, the world provider receives a model protected against fraud, as well as access to the Ukrainian market. In addition, when it comes to the protection of rights and guarantees on Amazon, there are different rules for dispute resolution procedures, depending on whether the users involved are registered or unregistered. But in our

case, it makes no difference whether the user is registered or not - each transaction supported by UAPAY Escrow Box is protected. We see potential for an effective collaboration in such circumstances with global marketplaces and logistics providers,” UAPAY explains. The integration of the UAPAY solution on your website is free of charge. The ‘integration fee’ appears, but it is refundable – your site gets it back, once sales begin. Once integration to the UAPAY Escrow Box service is made, a commission is levied on each transaction. This might be payable by either the buyer or the seller – the decision

on this is left to the discretion of the seller. In the cases of Olx.ua, Prom.ua and Bigl.ua (marketplaces where UAPAY escrow services are already in operation), UAPAY receives commission at the rate of 0.3% + $0.1. However, this very low rate is only possible in cases where there is very high turnover. Partners’ outlets, in turn, receive increases in the conversion of the purchases, as well as increased levels of trust with buyers. “By way of example, when we launched a solution on Olx.ua, the turnover exceeded our expectations six to eight fold,“ Gololobov commented. •

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‘THE TRADITIONAL BANKING SECTOR HAS HAD ITS DAY’ YASIN QURESHI, founder of the NAGA GROUP and the youngest person in Europe ever to have obtained a banking license, chatted to us about the shortfalls of the banking industry, and how he and his company are helping to change things for the better. Tell us a little bit about yourself. How did you start out in the finance industry? Having Indian roots, I was born and raised in Hamburg. I began to study Arts and then business administration at the University of Hamburg, but dropped out after I figured out that experience is the only worthwhile study. I got kicked out of every job I had as a student for trying to implement more efficient ideas. Then, I founded and ran my first algo trading company, which later turned into an investment bank. I was turning my passion into money (which is today’s mission of my current company, NAGA). Most likely I ended up in this industry thanks to my obsession with the relationship between numbers and psychology – a chart of a financial market represents fear, hope and greed in a fascinating mathematical, and sometimes logical, way. It represents an attempt to grasp and make sense of an incredibly complex wider reality. How does it feel to hold the record for the youngest person in Europe ever to obtain a banking license? I think it’s both a privilege and incentive at the same time. Getting a banking license involves a very complex and long process of inner planning and preparing, as well as constant reporting to regulatory authorities. I was working during the day on the business and working on the application at night myself because I couldn’t even afford a proper law firm, being just a college drop out with a small algo trading business. I had to adapt to an ever-changing and increasingly regulated environment. But above all, gaining public trust is paramount, and this can only be ensured by embracing the higher regulatory and reporting burden, to demonstrate your ability in meeting the challenges. That said, I think that regulations within the banking space have run out of proportion. Compliance paranoia has made people scared of their own shadows and banks are hence unable to move, and have forgotten about innovation. This complete over-regulation is one of the reasons I quit banking. Looking forward, regulations etc. should be implemented within technology

(like smart contracts that trigger certain actions), rather than wasting billions of dollars in human capital and brain resources on accounting, audit, tax and compliance, that do nothing else but dissolve within themselves in an artificial, self-created and zero value generating world of entirely useless self-administration. However, back then when things were still reasonable, trust was given to me when I was 25 years old. I take pride in this, of course, but more than that, I feel great responsibility and take it as a source of motivation for the ongoing realisation of my new projects. Do you feel a responsibility to ‘pass it forward’ and help make the industry more accessible and diverse? As innovators and providers of financial technology, we have to have the responsibility to make the industry more accessible and diverse. This includes not only creating and providing new financial disruptions within the entire banking sector, but, moreover identifying, acknowledging and mitigating potential negative risks on the very global audience we aim to serve. A lack of transparency, greediness and other factors have led to a huge level of distrust in the financial industry. The new technological advancements, however, have given the industry a second chance to change the perception of the customers and end users. The structure of society is constantly changing, and with it, behaviors and expectations. As clients are becoming more accustomed to the customer experience provided by global companies such as Amazon or Facebook, they expect the same level from their financial services providers. Customer centricity, therefore, should become the main priority in driving and shaping the financial industry to the better. Tell us about NAGA and what made you start it? Me and my colleagues were keen on bringing technological disruptions into the financial industry and to create exciting new applications, markets and products for billions of people, that function on the basis of apps, digital platforms and smartphones, all coming together in a one-stop experience. By including asset classes like virtual goods or crypto currencies that are used by billions of people, NAGA enables people to turn their passion into wealth and participate in the financial markets. We’ve built and are further

expanding a comprehensive ecosystem that unites financial, cryptocurrency and virtual good markets. How do you choose which projects to support? The greater the impact of the project, the closer you have to look at the structure, plan and the people behind it before sticking your thumb in the air. We at the NAGA GROUP consider ourselves a family in which decisions are taken by consensus. Everyone looks independently at the projects we might support, and in the end we come together, discuss the issue in detail and trade off the pros against the cons. In this field of business, you cannot make decisions by guess, as your decisions may affect a large crowd of people. Which financial products that are out there at the moment do you think are likely to make a real change in the industry? I think Social Trading will make a real impact on the structure of the current industry. So far, analysts, bank consultants and financial journalists have told us where to invest your money best. This concept is highly patronising and reflects a vertical relationship between different sets of stakeholders. Social Trading, however, has made it possible for anyone to manage an online investment portfolio exactly like an experienced investor would, with easy-touse platforms. Just like with any other social media platform, social trading allows you to copy or follow those that you admire (for their successful trading). This concept empowers individuals and will lead to a more horizontal banking industry. The second concept is AI and machine learning. Human beings have certain weaknesses, inconsistencies and biases that algorithms, AI and ML don’t have. I personally started coding my own strategies in hard wired algos because I often found myself unable to consequently execute them

for different reasons (which were basically just ‘being human’). By merging these two concepts of ML and AI, as well as wisdom of the crowd, you will benefit from the best of both worlds. Do you think blockchain and crypto technologies are likely to make the finance industry more inclusive? Without any doubt, yes! The NAGA GROUP, including me, are absolutely convinced by the potential of blockchain and crypto technologies in making the financial world more democratic and, thus, inclusive. Just like the African continent skipped landlines and went straight to mobile phones, a lot of users will go straight to digital wallets without ever having had a bank account. The only thing you need is a smartphone or a laptop, and here the internet is globally more evenly spread than income. Our company is working on creating a framework for financial inclusion in which you can turn passion into wealth – whether in financial markets, cryptocurrencies or virtual goods. For instance, imagine a World of Warcraft gamer in India will be able to use his in-game acquired weapons or tools as collateral to buy apple shares and load the profit on the NAGA CARD to do grocery shopping at his local supermarket. Blockchain technology makes it possible. What do you imagine is the bank of the future, say, in 10 years’ time? I am pretty sure the traditional banking sector has had its day. Today’s global connectedness and the increasing movement of people is absolutely at odds with the way old financial institutions use and think of finance. We need an entire reconceptualisation in this sphere, and the transformation is already taking place. The bank of the future will not necessarily exist on a certain spot, but will instead be available to anyone with a laptop or other mobile device. Neither will the banks of the future have their focus on the traditional asset classes – investment will evolve into virtual assets like cryptos or virtual goods. So far, we have only scratched the surface of the behemoth investment banks’ businesses, but this is about to change. •

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Launched in 2015, UK based bank OakNorth provides fast and flexible debt finance to fast-growth businesses and established property developers and investors. The company recently announced closing a $100m funding round, putting it at a valuation of $2.3bn. We spoke to OakNorth’s CEO, Rishi Khosla, about the company’s unique proposition, its place in the market and the future of the banking industry as a whole. Firstly, tell us more about OakNorth. What made you and Joel create it and what are you working to achieve? Joel and I started our first business in our 20s, in 2002 – it was called Copal and did financial research outsourcing for investment banks, asset managers, PE firms, etc. About four years into that business, we were looking for capital to grow. We had strong cash flow, a great client list and were profitable, but the best offer for debt finance that we could get from a UK high-street bank was £100k, and only if we could secure it against a property. This was in 2006, so pre-financial crisis and before the days of crowdfunding or P2P lending. We went to the US several times over the next 12 months and eventually decided to do a dividend recap with an institution there, providing us with the breathing room to continue scaling the business without having to dilute. This negative experience of trying to borrow money is what first got us thinking about the ACORN OakNorth proposition. In terms of what we want to achieve – for OakNorth, we want to build a leading bank here in the UK that provides fast, flexible and accessible debt finance to the country’s strongest businesses. And for ACORN machine, we want to provide lenders around the world with the tools needed to unlock the potential in bespoke lending to SMEs in their own markets.

What aspects of OakNorth do you attach particular importance to in terms of determining its success? Our speed: the fact that we’re able to 24 I October 2018

complete loans in weeks rather than the months that it takes traditional lenders provides us with a huge competitive advantage. Our transparency: we give every borrower the opportunity to meet the Credit Committee and discuss their borrowing needs directly with the decision makers. This has not only been hugely impactful in terms of developing stronger relationships with our borrowers, but it has also enabled us to make even more informed credit decisions. Our flexibility: unlike incumbent lenders, we’re willing to look beyond traditional assets (i.e. real estate) and consider alternative assets (stock, debtors, plant and machinery, art, intellectual property, etc.) to widen the collateral pool. Our technology: because without it, we wouldn’t be able to do any of the above! The people we work with: whether that be our team, our clients, our investors, our partners, etc. they’ve all played a vital role in our success.

Have you noticed other banks operating similar flips of their infrastructure? When we became the first UK bank to be fully cloud-hosted back in May 2016, it paved the way for other banks to follow suit. Since then, I believe that Starling, Monzo, Metro Bank and Redwood are now all fully cloud-hosted. A full cloud migration would be harder (if not impossible) for older / incumbent institutions due to their legacy systems, but they can migrate certain ancillary services (such as their CRM, email, etc.) to the cloud.

What’s different about your technology, ACORN machine, to other financial technologies? The first point to note is that our technology is fully cloud-hosted, which makes it dramatically different to any other financial technology that’s not, as we’re able to make changes faster, more securely and at a lower cost. However, I don’t think it’s about the tech so much as what you do with it. Our platform is built using algorithms that are available to anyone. They’re on open source – i.e. not proprietary – but the machine learning and training we apply to those algorithms is. This is what makes our technology different.

I heard that you were expanding internationally by licensing your technology to other banks. Why that approach, rather than expand OakNorth itself? Firstly, because obtaining one banking

license was time-consuming and expensive enough. Having to get multiple licenses to operate in multiple markets would be extremely expensive and would take years. Secondly, because we’re not as familiar with the credit market or regulatory framework in other countries as we are in the UK, and we don’t have the same relationships with SMEs in other markets as we have here. We’d rather leave it to the banks who are the experts in that market and do have the relationships with SMEs, and simply provide them with the technology to operate even more effectively in their markets. By licensing out our technology, we don’t take any of the credit risk in markets we’re not familiar with and can scale our proposition (and help millions more SMEs than we’d be able to on our own), in a much more effective way.

Yourself, OakNorth’s CFO and also your director of growth and communications, have all at various points spoken about how it’s larger banks, not the new banks, who are the ones coming to you and buying your technology. How surprising have you found that? Are you able to tell us which banks have been particularly keen to adopt your tech? It’s been very surprising – when we first began licensing out our technology last year, we expected the majority of the conversations we had to be with small, new banks who were keen to build an OakNorth in their own market. However, what we’ve actually found is that the majority of interest has come from larger banks who are keen to use the technology to improve their SME lending – whether that be by being able to offer more bespoke lending structures, reducing transaction times, broadening their portfolios, or improving their monitoring capabilities. We currently have about a dozen different banks using the platform across North America, Asia and Europe, and $5bn of assets under service. One of our clients, NIBC Bank, actually invested in us in our most recent funding round which closed in September. That’s a pretty clear demonstration of their belief in the strength of the platform’s proposition and its value to lenders globally.

OakNorth combines a traditional and entrepreneurial approach on a number levels, do you think that more fintechs should be thinking in those terms? I think every business must find a combination that works for them. We’re

entrepreneurs so we love building things and like to challenge the status quo. At OakNorth, we adopt a very traditional banking model – i.e. we use the deposits to help fund our lending – but use technology to offer savings and lending products that are dramatically different to traditional banks.

Do you have some advice for other challenger banks in the UK? Not necessarily lending banks, but retail banks like Monzo, Starling or Revolut? It’s not the market we operate in, so I wouldn’t want to presume that I know more about their market than they do. They’re all showing great growth so hopefully it continues – ultimately, the more challenger banks that succeed, the better it will be for competition and consumers.

What’s next for OakNorth? How do you see OakNorth evolving and developing over the next few years? Well, with ACORN machine, we want to continue growing the business with more new clients across the world. We have a fantastic team made up of data scientists, engineers and developers from some of the world’s most renowned institutions (Palantir, Amazon, Intel, etc.) and will continue expanding this team. With OakNorth, we expect to lend at least another £500m this year and want to continue building our robust SME loan book in the UK. To date, our loans have directly helped with the creation of 8,500 new homes and 8,000 new jobs in the UK. With every business we help, we can increase this number further.

What about banking as a whole – what do you think the future holds there? There is a lot of noise in the fintech / banking space and a lot of hot air – solutions without problems. There have been a few successes, especially at the consumer and smaller SME loan level, but I think we’re going to see some dominant players emerging in the next few years. Several incumbent banks want to start up digital banks, but they don’t appear to be doing it for the right reasons in my view. Rather than spending millions of pounds setting up a new bank, they should focus on trying to improve their existing propositions for the tens of millions of customers they already have. Given their size and heft, the tech behemoths are likely to make a more significant and obvious play in this space over the coming years. •


Startups and ideas to change the world






CEO, Founder and Partner Nine Dynamics

CTO and Co-founder Stealth Security

Founder and CEO yulife

CEO & Founder Albert

ine Dynamics is a fintech company based in Calgary AB Canada. We recently launched our core ‘TITAN’ platform at the 2018 Microsoft Build Conference. 1. I’m a CFA Charterholder, and have worked for over 15 years in financial analysis, including work at the National Bank of Canada as publishing Equity Research Analyst. I soon became frustrated with the lack of finance tools available to make my job easier, and knew that there was simply a ‘better way’ to get things done. I wanted to build something that was easier to use, and drove better actionable insight, than anything available in the market. My personal interest in the fields of emerging big data, advanced analytics, interactive media, machine learning and AI, also drove the dream behind bringing TITAN to the market. Along the way, I was lucky enough to form a like-minded team of financial analysts, management consultants and technology investors that coalesced behind one major goal: to truly level the investing playing field and put a best-in-class cloud-based equities analysis tool into the investing world for everyone. 2. TITAN is the first financial analysis platform to tie together AI, advanced data science, machine learning and end-to-end cloud infrastructure, under one roof. This has been a major undertaking, and not without technical challenges. However, strong strategic partnerships with Microsoft and FactSet Data Systems have provided the technical support we’ve needed. The result? World-class power and performance to all investors. We set out to revolutionise the investing world, and we feel like we’re on our way. 3. TITAN is democratising access to data, by offering access at a fraction of the cost of industry incumbents. TITAN now provides data-driven insight, that was before only accessible to the relatively few that could afford it. Our goal has always been to put true, actionable insight into the hands of all investors. The response so far has been amazing. 4. Data democratisation is a major social goal for Nine Dynamics. While we’re still early on in our journey, we feel that TITAN will bring true investment insight and access to all investors. •


utomated bot traffic now accounts for nearly half of all Internet traffic. The majority of this bot traffic is malicious, initiated by fraudsters with the intent of committing various types of attacks against organisations that rely on web, mobile, and API applications within their business model. Stealth Security has developed a distributed software platform with applied AI technology that protects organisations against these bot attacks. This is accomplished by first discovering all application assets across the organisation, then deploying lightweight software sensors that collect specific data targeting these applications. The Stealth Security AI engine consolidates and analyses this traffic in real time to accurately identify malicious bot activity. The platform automatically blocks these attacks to ensure that confidential data within the customer organisation remains secure. Educating customers is an ongoing challenge as these attacks continue to grow. It’s important to understand the limitations of traditional network security tools, as well as early bot defense technology. Advanced bot attacks require advanced technology to detect and mitigate attacks before they achieve their objective. Our challenge will be to continue this market education. Most financial services organisations rely on a secure, private connection with their customers so that both sides can safely conduct confidential financial transactions. It is the perfect environment for targeted bot attacks to disrupt the process by leveraging stolen credentials to gain access to financial data. We can help minimise this threat. These growing bot attacks raise concern among everyone that doing business or connecting socially on the Internet may no longer be safe. Over time, changes in consumer behavior as a result could disrupt the way we communicate, share information, and conduct business worldwide. We are trying to prevent that from happening. •

Fuelled with a message of ‘love your people’, yulife is on a big mission to help companies inspire and empower their people to be mentally, physically financially, well. We do this using a gamified app which encourages, tracks and rewards healthy behaviour, along with simple, easy to join life insurance. yulife makes wellbeing easy, fun and rewarding. Our gamified app allows employees to collect our unique wellbeing currency called yucoin. The more employees do healthy things, like walking and taking time out to relax or be mindful, the more yucoins they earn to spend with the amazing brands we’ve partnered with, including Asos, Amazon, Avios, Eat, and SoFar Sounds. To make things super exciting, yulife runs daily challenges and ad-hoc lotteries and streaks which help to boost the amount of yucoins employees can earn. yulife is effectively a 3 in 1 benefits package which appeals to everyone. It’s a great way for companies to attract and keep the best people, and with no paperwork and no P11D to pay, yulife has made things nice and easy for HR and benefits teams. Finally, but very importantly, as we all know, healthier people tend to be more productive and engaged in their work and take less time off sick, which is good for everyone. The yulife team brings together deep experience and expertise from the worlds of insurance, app development and gaming, alongside thought leaders from fields such as psychology, wellbeing and behaviour change. Together, we make tech that makes people happier and healthier. Our in-app challenges are all designed with clinical data in mind, meaning that we have the tools to keep everyone progressing and creating lasting change. You can check us out at www.yulife. com •


lbert, your pocket bookkeeper, has already received over 3,200 five-star ratings in the App Store, just got featured by Apple again last week, and we’ve just been nominated as fintech founders of the year. Albert - www.getalbert.com - exists to make life easier for the growing numbers of solo self-employed and contractors – from those who have jettisoned the corporate life to pursue their own venture, to the plumber, tiler, electrician, freelance journalist or farrier. There are so many calls on self-employed time, and many contractors or solo workers find ‘business housekeeping’ taxing: bookkeeping, invoicing or filing expenses. But if you don’t send your invoice out you don’t get paid, so someone has to do it … step in Albert! We launched Albert to automate the mundane bookkeeping tasks and allow the self-employed to do more paid work or enjoy more leisure time. How? well, they just need to download our easy-touse pocket bookkeeping mobile app. We’ve harnessed the power of the mobile to produce HMRC compliant and customisable invoices, which are automatically sequentially numbered, have auto-address completion, and can be duplicated instantly when required. You get notified when the invoice is opened by your client. The app holds your receipts and expenses, keeps all your record in one place, and can produce instant reports. It holds all the data necessary for your tax returns, and we’ve even got a support team that understands the UK legal and tax systems and is there to help. Albert can take much of the timeconsuming admin tasks and angst out of running your own business. Don’t just take our word for it: we’ve received many highly positive reviews. And we offer two-versions, one of which is free. The paid-for version, which provides more flexibility, costs £2.29 a month, but those signing up with the FINTECHTIMES code can get a 3-month discount. •

October 2018 I 25


BETTER THAN BLOCKCHAIN All DLTs are blockchains, but not all blockchains are DLTs! built is a massively scalable, totally decentralised, completely permissionless, super secure digital database, that everyone -and everything- can access simultaneously.

Can you expand on the problems Radix is trying to solve?

We talked to ROBERT OLSEN, the Chief Operating Officer at Radix DLT Limited, about providing an alternative to blockchain, the pitfalls of block-thrashing, and how to break Bitcoin! Firstly, can you tell us what Radix is and how it came about? Originally, the company was called eMunie, which Dan Hughes started circa 2012. He was fascinated by the Bitcoin blockchain - he wanted to invest, and get involved in its development, but right off the bat he felt it had issues, namely, it wasn’t going to scale. So, he shared his thoughts and observations on Bitcointalk, and essentially said ‘look, this is going to have problems going forward’, and almost everyone was shutting him down. He knew these were nontrivial problems to solve, and once you get a lot of money behind something, it’s really hard to move it, to change directions. Anyway, the community weren’t that nice to him, so he thought, ‘Okay, I’m just going to do my own thing’. It won’t take you long to figure out he’s a really clever guy. Self-taught, self-funded, methodical, and inquisitive. So basically he tried to break Bitcoin, pushing it to the MAX: How fast can it go? When does it become unstable? When does it break? He discovered that best case scenario you’re probably looking at 400 or 500 transactions per second (tps), which he didn’t feel, and most people would agree, was enough for mass-adoption globally. And that’s just people, forget about IoT, which is the big picture for us. So Dan set about building a better Bitcoin! Regarding the name: I was invited to The European Card Payments Conference in Madrid and was sat on the top table between the Head of Visa EMEA, the Head of Samsung Pay, and opposite the VP of Western Union. I proudly presented my eMunie business card as I was explaining our Decentralised Debit Card, and was asked if we had our e-money transmitters licence? When I got back to London, I knew we had to rebrand and came up with Radix, mainly because it’s the latin for ‘root’ and, if we do everything right, we deserve to be the root of the new financial ecosystem, the root of the new digital economy. What we’ve 26 I October 2018

Two big ones are scalability and sustainability. If you look at CryptoLights.info you’ll see what Bitcoin and Ethereum are doing, in real time. I found out in 2012 that Bitcoin was capable of 3 to 7 tps and thought it was a joke. Sadly not, and 9 years of R&D, it’s still the same. Even people who’ve been in the space a long time don’t know it’s that slow. I’m always keen to remind people that I’m a huge lover of Bitcoin and Ethereum, but I’m just stating the facts, and I don’t feel it’s good enough. By comparison, Visa ticks over around 1,500 tps, and can burst to 50-60 thousand tps on mad shopping days like Black Friday. As Radix isn’t a blockchain there’s no mining, so there isn’t the colossal energy costs to run the network as with the usual suspects.

Thanks to Leslie Lamport’s work, we can order events, so we know exactly when things took place chronologically. What that means is if you placed a trade in London (the Fintec World Capital), with one party in Auckland, and the other in Zürich, you’ll know exactly who executed the trade first, regardless of the number of hops in the internet to reach the deal desk in London. Our system knows which broker clicked first. Tempo is extremely efficient, fantastically fast, and totally transparent. Basically, the adage is, ‘all DLTs are blockchains, but not all blockchains are DLTs.’ I like to think of DLT architecture as being the next version of blockchain, whether that’s 2.0, 3.0, ... There’s a good analogy to think of traditional block chains as vertical bricks, it gets a bit unstable (bloated) the higher you go. Dan chose a horizontally sharded architecture from the very beginning, which enables massive scalability from inception.

Well, it’s just not enabling certain things to take place.

There’s an unfortunate phenomena in block chain once you get a really big network, and/or really big blocks. It’s called ‘block-thrashing’, which is when you can’t sync all the blocks across the network quick enough before the next block is produced. Block-thrashing, ‘speed of light’, CAP theorem; it just doesn’t work, it falls over, and that’s exactly what Dan predicted. So, we’re not using blocks, and that’s a fundamental difference.

Such as?

How does your token-system work?

Well, two of my personal favourites is a DEX (DEcentralised eXchange), and Decentralised Debit Cards. The Radix protocol supports both. Just Google “radix pos” to see a live demo a friend of mine videoed to get an idea of how much potential our platform has. In an ideal world you want real time settlements, if you can get them - you want it instant, and you want it irreversible (immutable). I’m all about on-ledger, on-chain in old english. I’m not saying it has to be done that way, I’m just saying, if there’s a choice of doing it ‘the right way’, that’s obviously preferable because it’s clean, it’s elegant, and it’s the way Satoshi envisaged it from the beginning. So, that’s scalability.

The Radix token, is called a rad, and its ticker is XRD. It benefits from a dynamic money supply model, similar to central banks, but without the bankers! In terms of token-economics, with our platform, we create the tokens and we also burn the tokens, so when the market wants more, we create them, when the market’s selling, we burn them. There’s a stable token element as well, we’ve got the decentralised debit card as I’ve mentioned, you can create assets on the platform. Basically, what ever the current tec has, we have, and a lot more besides. But I feel it’s unrealistic to launch everything on day one, because we don’t want anything to break, and Dan is a perfectionist!

Another yuge issue right now is speed/ throughput: approximately 10 minutes per block on Bitcoin’s block chain, 2.5 minutes on Litecoin’s, 15 seconds on Ethereum’s, and none of those are fully confirmed transactions (immutable). The Radix protocol achieves full immutable finality in <5 seconds, but typically 0.2 of a second, so it’s absolutely next level.

How do you make money?

And all this is slowing down the industry’s development?

You describe yourself as an alternative to Blockchains & DAGs. Could you explain how Radix’s technology differs from those? And also, what are the advantages of your platform? It might sound cliché, but our protocol isn’t like anything you’ve seen before. For example, our consensus mechanism, Tempo, was inspired by science, specifically Special Relativity, and is totally unique. In order to design and build this, Dan’s borrowed wisdom from geniuses, past and present.

There’s multiple ways. One of them is by earning a fraction of our fixed one cent transaction fee, so, effectively dust, but cumulatively, over billions of transactions, it’s going to pay the foundation, the entity, a requital. Another one is white-label solutions. Samsung will roll out 100 hundred million smart fridges, and they’ll need a low-cost, fast, scalable, secure network to run that. The legacy blockchain technology is too slow. Can you imagine if they chose Bitcoin or Ethereum, processing 5 tps for 100,000,000 devices? By licencing the Radix protocol they could run it in-house. And of course there’s bespoke solutions, for blue-chip multinationals, who demand the best-of-the-best, no compromises. •

The Radix main net launches in Q1 2019 For more information, please visit their website radixDLT.com and join their Telegram group @radixDLT


9-10 October PayExpo, London

1-2 November Blockchain Summit, Malta

PayExpo, the UK’s leading payments conference is back for its sixth year and takes place on 9th and 10th October in a new central location at the Business Design Centre, in the heart of London’s Silicon Roundabout start-up community. With three streams over two days dedicated to payments across the banking, retail and gaming industries, it is the best place to share knowledge and rub shoulders with the disruptors and innovators driving change in payments.

Boasting over 2000 delegates, 100 speakers and 150 sponsors and exhibitors, Blockchain Summit promises to be an innovative and momentous opportunity for global influencers to network, forge new connections and debate the potential applications of blockchain across a myriad of industries such as health, entertainment, government, and banking.

paymentsworldseries.circdata-solutions.co.uk/ rfg/publish/PEE18/

15 October TechNOVA: AI 2018, London Many have heard of artificial intelligence, but do you truly understand the role it could play in your long-term strategy? TechNOVA: AI 2018 will bring together expert speakers, tailored stages and in-depth case studies to help you approach this continuously evolving period of technological disruption. It is the event to learn how transformative technologies will impact your business and show you how to take AI to the board. new.marketforce.eu.com/technova

17-18 October DIA, Munich The largest ‘must see’ insurtech event worldwide. 2 days. Over 50 insurtechs on stage. 9 Thought leader keynotes. 1200 Attendees representing 50 countries from all 6 continents. C-level and C-1 decision makers of all major insurance carriers. digitalinsuranceagenda.com/dia-munich-2018

21-24 October Money 20/20 USA, Las Vegas Money20/20 is the anchor event on the industry calendar where leaders, innovators, and disruptors unite to drive change and revolutionise the future of money. It’s a truly unique 4-day experience that facilitates the right conversations and insightful learnings, leaving you inspired and equipped to reach your goals. The Money20/20 stage sports an unparalleled speaker roster and an expansive set of cutting-edge topics. As the industry’s most esteemed platform for thought leadership, you’ll walk away with unique perspectives and insights on the ways the US market is revolutionising the future of money. us.money2020.com

22-24 October Crypto Invest Summit, Los Angeles Crypto Invest Summit is coming back to the Los Angeles Convention Center on October 22nd 24th. The summit will feature a robust agenda spanning a variety of cryptocurrency related themes, including investment analysis, marketing strategies, trends and insights from industry experts. cryptoinvestsummit.io


5-6 November Web Summit, Lisbon In seven short years, Web Summit has grown from 400 attendees to over 70,000 attendees from more than 170 countries. No technology conference has ever grown so large so fast. Web Summit has become “Europe’s largest and most important technology marketplace”. An unrivalled global meeting place for the world’s most disruptive technology companies and those interested in how that disruption can transform their businesses and their lives. websummit.com

14-16 November Money20/20 China 2018, Hangzhou This market-leading event showcases domestic and international companies from across the entire payments, fintech and financial services industry, from financial giants to the rising stars of fintech. With over 400 of the most influential speakers from across the global payments and financial services ecosystem, you’ll hear the most valuable insights on what’s next for FinTech in China. money2020-china.com

19-20 November LendIt Fintech Europe, London The financial services industry is going through a major change, where updating knowledge is a “must”. LendIt Fintech is the best industry event if someone wants to understand the key drivers on the market, impacting not only the new players in marketplace lending, peer to peer platforms, but the entire financial services industry. LendIt Fintech attracts thousand of fintech decision makers from Europe’s most influential companies. lendit.com/europe/2018

5-6 December Fintech Connect, London Fintech Connect is the UK’s biggest fintech trade show. Taking place 5 – 6 December at ExCeL London, FinTech Connect is on its way to delivering over 5000 attendees with 175+ exhibitors and 250+ speakers. What’s more there will be 6 dedicated conferences:

October 29 - November 2 Hong Kong FinTech Week 2018, Hong Kong

• Accelerating Digital Transformation

FinTech Week is the world’s first cross-border financial technology event, taking place in Hong Kong, Asia’s financial capital, and in Shenzhen, China’s Silicon Valley. It’s one of the largest conferences on the calendar, attracting more than 8000 senior executives and featuring over 200 of the world’s top FinTech founders, investors, regulators, and academics, who are shaping the future of financial services by driving a technological revolution in the industry across Asia and globally. #hkfintechweek

• RegTech & Security Insights


• Reimagining IT Infrastructure

Five Book’s To Get Ahead: Artificial Intelligence By Jake Courage, co-founder of the edtech company 42courses.com and avid reader, author & car fanatic How concerned should we be about Artificial Intelligence? Regardless of whether you believe in a doomsday scenario or a more positive vision of putting your feet up whilst obedient robots attend to your every wish, the fact is AI is here to stay. And the pace of its development is accelerating. Whilst there is no consensus amongst the world’s experts as to how far away we

are from AI surpassing human intelligence, it is clear that almost every industry is going to be affected in the near term by increasing reliance on AI technologies. If you’re interested in knowing how the different scenarios might pan out and what you can do to prepare yourself for them, then these five books are a great place to start.

Our Final Invention by James Barrat It’s pretty clear to whom the prize for the most alarmist title for a book about AI should go. Barrat’s agenda is clear from the start: we should all be very concerned about the speed of development of AI and its potential impact on humanity. The author admits that he started off with a more accepting view of the potential benefits but, as he probed deeper, soon realised the importance of having a healthy skepticism about the future. This is a shared concern for many of the world’s top AI scientists, as well as Elon Musk, who named Our Final Invention as one of five books everyone should read about the future. As a counter balance to the techno-utopian view of ‘friendly’ AI, this book is worth your time. Even if it is a little frightening.

Superintelligence: Paths, Dangers, Strategies by Nick Bostrom The focus of this illuminating read is whether or not we can solve the ‘superintelligence control problem’ before it’s too late. I.e. can we design AI in such a way that when it does overtake us, it’ll do so in a manner that’s benign? As the author puts it, ‘...as the fate of the gorillas now depends more on us humans than on the gorillas themselves, so the fate of our species would depend on the actions of the machine superintelligence.’ As a New York Times bestseller, this book was key in fuelling the public debate about AI.

Life 3.0: Being Human in the Age of Artificial Intelligence by Max Tegmark Tegmark is a professor of physics at MIT and a key AI influencer. His book examines both the near-future impacts of AI on topics as diverse as jobs, law and weaponry, as well as looking at how things might look once machines overtake human intelligence. Whilst some of these scenarios like ‘1984’ and ‘Zookeeper’ don’t sound particularly appetising, Tegmark argues that without our involvement early on we will have little power to shape things in a more positive direction. Given he’s a brainy physicist, it is a bit heavy going in places, but the final two chapters about goal setting and consciousness make for a riveting read.

Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins by Garry Kasparov What makes this book so different from the rest is the level of insight Garry draws upon, having participated first-hand in the evolution of computer intelligence. At the start of his career, no computer programme could touch him. In his twilight years, the roles were reversed and his defeat by IBM’s Deep Blue in 1997 is considered a watershed moment in the development of AI. It’s full of touching anecdotes and, as a reader, you’re left feeling that Kasparov remains in the optimistic camp despite the humbling personal defeat.

• InsurTech Evolution • Powering Merchant PayTech • Fast Growth Founders Forum finance.knect365.com/finovatefall

To see the full list of upcoming events in London and around the world, visit thefintechtimes.com/fintech-events/

Artificial Intelligence: A Modern Approach by Peter Norvig Peter Norvig’s bestseller is used in more than 1,000 universities around the world to teach undergraduate and graduate students about AI. Fortunately, it’s also an accessible book for the layman and offers a comprehensive account of AI theory and practice. It is probably the best book for those interested in starting at the very beginning and coming away with a strong grounding in this fast changing and century defining subject. Can’t wait for the books to arrive? Then try an online master class in Fintech, Behavioural Economics, Problem Solving, Happiness and many more. Head to the website and click on a course title. The Fintech Times readers get 25% off with the code ‘FintechTimes25’. Have you enjoyed other books on AI? Please get in touch via jake@42courses.com October 2018 I 27


28 I October 2018

Profile for The Fintech Times

The Fintech Times - Edition 23  

The most optimistic and prophesying minds in the industry are envisaging a future ‘tokenised world.’ A world where anything from traditional...

The Fintech Times - Edition 23  

The most optimistic and prophesying minds in the industry are envisaging a future ‘tokenised world.’ A world where anything from traditional...

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