Pondering the cool discussion of InsurTech carrier Lemonade- is it as sweet as presented?

https://dailyfintech.com/2019/05/23/pondering-the-cool-discussion-of-insurtech-carrier-lemonade-is-it-as-sweet-as-presented/

TLDR As discussed in the prior post Lemonade is many things, per CEO and co-founder, Daniel Schreiber– revolutionary tech platform, charitable giver, P2P service provider (no, strike that), but at its core it is a property insurance company.  The hows and whys matter not when the application for license goes before the respective jurisdiction’s regulators.  The company must be organized and operated in a manner that is recognized as secure for its policyholders and adequately financed as such, must comply with the same accounting standards as other insurance carriers, and must be ready and able to comply with the agreements, provisions, and conditions its policies include.

Why belabor these points?  Because the company leads with its innovation chin, its behavioral economics, and its promises to act as a totally different insurance company than what those crabby octogenarians (who) think we are making too much noise companies do.

One of the foundational points the firm makes at its outset is that there is a recognition by Lemonade’s founders that, “There’s an inherent conflict of interest in the very structure of the insurance industry.”  (Chief Behavioral Officer, Prof. Dan Ariely, see around 0:54 of the video).  He continues, “Every dollar your insurer pays you is a dollar less for their profits.  So when something bad happens to you, their interests are directly conflicted with yours.”  

Of course there is conflict between payment of premiums and indemnification- absent the ‘tension’ insurance would not exist, or perhaps would be free! It might be said that Professor Ariely’s perspective has an inherent flaw in not acknowledging that an insurance policy is a contract for risk sharing between an insured and carrier, that a respective policy premium and deductible are the insured’s agreed cost of sharing the risk covered by the policy, and that the carrier promises to indemnify the insured for damages due to causes of loss the policy covers.  It’s not a pure quid pro quo financial agreement because the cost of underwriting, selling and administering the policy falls upon the carrier, and the deductible and premium cost falls upon the insured.  The use or equality of the costs are only considered upon inception of a claim.  In addition, the insured is not involved in devising the terms of the policy, as a contract of adhesion a prospective insured’s sole power is accepting the contract in its entirety or not.  Absent optional inclusion of additional contract scope or details (endorsements and/or coverage limits), the insured is powerless in respect to a contract that ostensibly is in equilibrium between the parties- premium on one side, equivalent policy benefits afforded by the other side.

The price of the risk is determined by the carrier and approved by regulators based on volumes of data, actuarial smarts and with an eye to profitability balanced with service.  The frequency of CWPs (closed without payment) and paid claims is part of the actuarial machinations (regulators are comforted by carriers whose data are in concert with the industry at large), as such denials of coverage are, if absent, a concern for regulators. Is there an undue conflict of interest for incumbent carriers where policy provisions apply, or is Lemonade leveraging a message based on clever marketing?

Consider the typical property insurance claim pool:

Not every policyholder has a claim each premium period; in fact less than 20% of a typical insurance carrier’s homeowner’s customers experience a claim during a policy year.  Of that pool of claims the  frequency of denial is on average less than 30% of the total claims closed.  Extending the thought process, a carrier with 500,000 policyholders experiences on average 100,000 claims during a year, and of those 100K customers 30,000 may be denied coverage, so one can say approximately 6% of the subject carrier’s customers’ insurance services end in coverage disappointment.  Compare that with the carrier’s YOY customer retention rate and it may be clear that denials of coverage are not the only factor in customers’ renewal algorithms.  Is that the basis upon which differentiation can reside?

There may be a stronger position for the firm to take that the inherent issue may be in pricing losses, confirming losses at FNOL, or sorting out the spurious (read as fraudulent) claims.  Per the firm 90% of FNOL reports are through Maya or similar service bots, and since that service entry is tied to the entire suite of AI it can be said that FNOL may be the best vehicle to mitigate the effect of any ‘inherent conflict.’ 

Why that?  The firm (through marketing and per discussion) relies on the position that a ‘Ulysses Contract’ is in place for the firm- a figurative ‘tying of hands’  for Lemonade in focusing on denials of claims since any excess of earned premium over the firm’s flat fee is donated to the policyholders’ charities of choice.  No path to the bottom line, no incentive for capricious denials.  Is there legitimacy to this position?  Insurance is a contract, 90% of Lemonade’s claims are being handled by bots, pricing is established by regulated filings, and claim denial ‘touches’ affect only a small percentage of customers.  It’s probable that most denials of coverage are due to contractual reasons, i.e., policy provision reasons including the cause of loss not being a named peril.  At this juncture the carrier has primarily renters’ policies as its portfolio, and claims are comprised of unscheduled personal property that has relatively concrete pricing.  In addition, claim customers have limited knowledge of what comprises effective claim handling- other than prompt receipt of proceeds into one’s account.  If there’s a Nash Equilibrium in place, customers seem to be unaware, and can a bot be adversely subject to the vagaries of Game Theory?   

Lemonade must be respected for its InsurTech effect on the property insurance industry- everyone knows of the Lemonade entry and journey.  The growth of the firm (while overall PIF is small) continues to engage the attention of all.  As Daniel Schreiber said in our discussion and in his recent blog entry Two Years of Lemonade: A Super Transparency Chronicle, “ the fact that our reinsurance agreements protect us from too many claims can’t hide the fact that, since launch, we’ve paid out more in claims than we’ve collected in premiums. Clearly, that can’t continue indefinitely.”

As the carrier evolves into a multi line policy organization (renters’, condos, homeowners) the bot approach to claim handling will be tested.  Renters’ claims are personal property tasks- named peril, concrete loss description, concrete valuations.  A house claim may involve multiple parties- the insured, emergency services vendors, public adjusters, field adjusters, third party administers, and so on.  The Nash Equilibrium will be complicated to affect in that multi-player game, and a Ulysses Contract will be toothless to address the covered damage, partial denials, additional living expense wranglings, and other unknown factors. 

Regardless of the company’s cover portfolio, the need to become viable within the framework of insurance accounting looms over the discussion of social good. To quote from a October, 2018, article posted by Coverager, “Lemonade’s Cards“,

“And while Lemonade ‘solved’ this conflict by only taking a flat fee and giving unclaimed money to charity, are they really a conflict-free company? Do they not have a strong desire to improve their loss ratio? Isn’t the loss ratio an important part of their business? Will they be able to attract investors or potential buyers with a high loss ratio?”

The firm will find its data aggregation, analysis, and predictive capabilities invaluable from underwriting to claim settlement, and may find the expected diversity of its claim portfolio meaningful in building its flow of ‘excess’ to charitable organizations. There’s a cadre of claim staff developing their service skills- in other words they are learning to be insurance pros.  And at a minimum Lemonade has been patient with the industry placing them under a magnifying glass, watching every step being made- that’s not a bad thing and has added to the collective knowledge of insurance innovation. However, at this juncture having a Ulysses Contract as a mainstay of its business model appears to serve Lemonade’s marketing more than it does its loss ratio.

image source

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

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/23/pondering-the-cool-discussion-of-insurtech-carrier-lemonade-is-it-as-sweet-as-presented/

The billion dollar opportunity for fintechs who serve global citizens

https://dailyfintech.com/2019/05/22/the-billion-dollar-opportunity-for-fintechs-who-serve-global-citizens/

Australia is sometimes colloquially labelled as the world’s biggest island. While some might view this from a geographical stand point, it can often be meant more in the intellectual sense. It’s no secret Australia is generally more interested in what’s going on in Australia, than what’s happening in the rest of the world.

The big news out of Australia, if you haven’t already heard, is that voters went to the polls last weekend. In true Trumpian and Brexit fashion, Australia was delivered its own ‘surprise’ political upset. The right leaning conservative government, led by Scott Morrison, was re-elected, much to the surprise of the pollsters and betting agencies.

I wasn’t terribly surprised, having had enough nous to place a bet on the coalition government as returning to power. The odds of 5 to 1 coalition to labour seemed out of whack with the actual closeness of the polling in marginal seats, and the impact of potential preference votes. They weren’t out of whack with the media commentary however, which from left to right leaning publications, was more or less backing, or accepting a labour win. Seems like the media these days, gets it wrong with alarming consistency.

You’re probably wondering what any of this has to do with fintech.

Well, governments can play a crucial role in driving the fintech ecosystem forward. Labour had already made murmurs it would deprioritise open banking, which is already overdue in Australia.

On the flipside, the coalition government hardly painted an exciting picture for fintech, with innovation absolutely not on the agenda. It’s anyone’s guess what will fill the policy void now, but for those interested in where it may land, Business Insider spoke to several leading voices on what they think will happen next. A good read for those of you who have investments downunder, or who are looking to invest.

As a Kiwi – who can’t vote in Australia, but who’s taxes are certainly welcomed by the powers that be – what I find is interesting, is how the voices of people like me, Australia’s immigrant community, can be impacted by government policy around money. While I am afforded many more protections and rights given the close nature of New Zealand and Australia countries, many others from the immigrant community are not. And this can result in a serious financial impact.

Working Holiday Super Tax

Australia has long been a number 1 destination for working holiday makers. It’s estimated that during their approximate 2 year stay, they contribute $1.3 billion to the economy, with $770M being spent in rural communities alone.

While these visa holders come from all over the world, one of the main working corridors is the UK, which only looks set to grow post Brexit, should the trade representatives get their way. Around 40K land each year as part of the working holiday visa program, with many going on to sponsored employment.

Working holiday makers are expected to abide by Australia’s laws, including contributing 9.5% of their earnings into Australia’s compulsory pension system, superannuation.

When they leave Australia, while they can freely take their take-home pay earnings, they cannot transfer the thousands of dollars of super they are likely to have accumulated to an equivalent pension plan in their country.

Instead a shocking 65% of their wealth is taken off them, with the remainder cashed out. Their Kiwi counterparts can take the full balance home, thanks to a Trans-Tasman portability scheme.

This is a tax rort, front left and centre. It also disproportionately affects young people, who need all the help they can get these days, building wealth.

But it is also an opportunity to reinvent what pensions mean, how we distribute and manage them, and how a fintech that thinks globally but locally can make all of this easier, simpler, and hassle free.

Look at Transferwise, which is now the most valuable European fintech. It is part of a growing group of global first fintechs that are willing to tackle cross border money frictions that have no reason to exist other than through archaic government policy.

Fintech’s that tackle these problems have a unique opportunity to represent the new global citizen. Despite the noise around protectionism, I believe it is fairly inevitable that the movement of workers and migration will continue, if not escalate. Which is why we need more companies willing to tackle some of these policy inequities head on.

We are doing this at my pension startup fintech, Zuper. After all, why does it matter where your pension is managed from, so long as you can easily contribute into it? If you have multiple pots here and elsewhere, there is no reason why this should be hard to manage.

We launched a petition today that calls on the UK and Australian government to allow for cross-border, full super payment transfers. There is no reason someone should lose 65% of their wealth in one hit. If you ever worked here and had to hand you cash over, this petition is for you.

Whether we get somewhere or we don’t, the challenge and opportunity is clear. Solve the problems that matter, and be a champion for your customers. Fintech, when done right, should address inequities, not further them. If you can prosecute that case well, then you’ve earned the right to build a billion dollar business.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have a commercial relationship with the companies or people mentioned as CEO and co-founder of Zuper. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

https://dailyfintech.com/2019/05/22/the-billion-dollar-opportunity-for-fintechs-who-serve-global-citizens/

7 Participatory Budgeting use cases: CivicTech is global

https://dailyfintech.com/2019/05/21/7-participatory-budgeting-use-cases-civictech-is-global/

DemocracyIt was only last week that I took my first deep dive into CivicTech, thanks to the Costa Vayenas, the director of the Procivis Think Tank and author of the book Democracy in the Digital Age.

As usual, there is no clear definition of what CivicTech is and there is a lot of debate which actually gets very political. We can start thinking of CivicTech as any technology that upgrades governments and community governance. So, you are allowed to think of it also as including technologies that reshape democracy. People even include any technology use case that is for common good.

I am only here to share a primer on CivicTech. It became very clear to me (through this first dive into CivitTech) that Social media, Smart Cities in platform economies with ever increasing Digital participation is the era that we live in.

In such a world, CivicTech will increasingly become important. Like it or not, Social media, Smart Cities in platform economies are shaping our identities and values whether we realize it or not. We – the end customers sort of speak – the individuals are demanding more and more rights and the lines of who does what and who is responsible for what, are blurring.

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Excerpt from the presentation of Prof. Sofia H. Ranchordás, Chair of European and Comparative Public Law & Rosalind Franklin Fellow, University of Groning

“This is Water” is a metaphor for the conscious awareness of others by David Foster Wallace’s commencement speech at Kenyon College.

`This is Digital` and we better become conscious of the ocean that we are swimming in:

Social media, Smart Cities in platform economies with ever increasing Digital participation.

digital human.jpgI focus mostly on Fintech, WealthTech, Regtech,….

CivicTech ties into all of these and much more. Chris Skinner presents to us the `Digital Human` in his recent book with the homonymous title. His subtitle `The fourth revolution of humanity includes everyone` ties into CivicTech that has clearly a role to bringing us all together.

Just a few specifics on how CivicTech is being piloted and used globally right now. Digital humans in participatory budgeting are being included in 3,000 municipalities around the world, according to Dr. Tiago Carneiro Peixoto, Senior Public Sector Specialist, World Bank’s Governance Global Practice.

Examples are live all around the globe. The father of Civictech is the UK project FixMyStreet and in the US, Change.org. These are using crowdsourcing community feedback, ideas and project requests to improve budgeting decisions.

Various technologies are being used in CivicTech, from text messages, to app like dashboards and online voting systems of all sorts. These are powered by chatbots, AI and even blockchain technology.

In Brazil in Porto Alegre, one of the most populated cities in South Brazil, the World Bank introduced participatory budgeting as early as 1989. Citizens present their demands and priorities for civic improvement. This use case is one of the longest standing CivicTech implementations. Because of the increased investment in sanitation and health, the processes have reduced infant mortality. In addition, the tax collection rate has improved by more than 30%. One of the learnings of CivicTech implementation in underdeveloped areas (where it is most needed) is that quantifiable results become evident typically after a 5yr period. So, these are not quick wins.

In Argentina the city of Rosario, has been the test ground for a gender-mixed participatory budgeting approach, aiming to involve more women in the participatory budgeting process, and to raise awareness around gender issues and the positive impact of female participation.

New York City has an interactive map – the Idea Collection Map – that any community member can submit an idea. Community volunteers, called Budget Delegates review the ideas and turn them into real proposals for a ballot, with input from city agencies. These proposals will be up for a community-wide vote. This Participatory Budgeting process is being used to directly decide how to spend at least $1,000,000 of the public budget in participating Council Districts.

In Belgium mini-publics are already being used to improve democratic processes and make them more transparent. Mini-publics are an assembly of citizens who are demographically representative of the community. The topics handled by mini-publics range from controversial science and technology issues to social issues like health and justice. Mini publics are now institutionalized in Madrid and in the German-speaking part of Belgium.

Paris has decided to allocate 5% of its investment budget to be handled through participatory budgeting. This started in 2014 and is planned for a 6yr period (until 2020) and encompasses a total of 0.5billion euros. The issues that have brought up by the community are urban agriculture, greening the city, and caring for refugees and homeless people.

In China, a unique participatory budgeting project started in Chengdu in 2011. This is a city of close to 15million people. Since the start of this process, there have been 50,000 small projects approved. Most them are for basic local services in infrastructure, such as village roads and water supply. The unique design of the implementation is that the citizens have the choice to either spend the participatory budgeting resources on immediate actions, or to use them as a down payment on a collective loan for much larger projects. If the latter is chosen, then the loan is repaid by a part of the participatory budget in the following years.

In the US, Vallejo a city in California’s San Francisco Bay Area, has been using technology for participatory budgeting courtesy of the Stanford Crowdsourced Democracy Team since 2012. There have been 5 voting cycles to allocate over $8million to fund 27 projects. Vallejo reports that 20,000 residents of Vallejo have participated. Unfortunately, during a recent vote (Cycle 6) there was a loss of all votes due to human errors and people are asked to revote.

Conclusion

`This is Digital` and we better become conscious of the ocean that we are swimming in: Social media, Smart Cities in platform economies with ever increasing Digital participation.

This is a #TwitterDemocracy[1] kind of world. Social media alone, are a digital participation form 24/7. We are shifting from one-off events like voting to a very interconnected world. With smart cities, we will provide real-time feedback which swiftly makes the loop into all platforms and into our life. Technology can help us become more efficient and arrive at a consensus at local levels much faster and better than we are able today.

For this however to happen, we need to improve literacy at all levels. Digital literacy is paramount to include everyone in this new future world.

[1] I am using #TwitterDemocracy as a generic term.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/21/7-participatory-budgeting-use-cases-civictech-is-global/

Top 7 Crypto Exchanges for IEOs

https://dailyfintech.com/2019/05/20/top-7-crypto-exchanges-for-ieos/

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Last week our theme was “Bitcoin going parabolic. ALT Season is Almost Here!“ Our theme for this week is “Top 10 Crypto Exchanges for IEOs”

TLDR. Initial Exchange Offerings (IEOs) are picking up steam, capturing the interest of investors, project teams, and exchanges. IEOs have been breathing new life into the dying ICO model. While the first IEOs took place back in 2017 (Bread, Gifto),  the trend didn’t really take off until early 2019. The demand for IEOs has been considerable, and can be attributed to several factors. IEOs represent a radical shift in the ICO model, in terms of trust. Top cryptocurrency exchanges around the world are launching their IEO launchpads and are scrambling to attract interesting new projects that want to raise funds, by selling tokens directly to exchange’s user base. This article will walk you through the rise of IEOs, their unique nature, advantages and limitations and evaluate the IEO offering by some of the top Exchanges.

Since the Coinmaster token sale in 2013, ICOs have been the most popular way to fundraise. The ICO idea is simple. The project creates a digital token, based on the ERC20 protocol, and then offers it for sale in an initial offering. While ICOs have raised billions and the ICO model became the most popular way to raise money, there have been plenty of problems and the model has been slowly dying.

One of the issues most investors face, is how to predict if the project will work after launch and if it will be successful. But the biggest problem has been scam.

The total funding of coins and tokens in 2017 reached o $11.9 billion, with 11% ($1.34 billion) going to scams. A research study by Statis Group, revealed that more than 80% of ICOs in 2017 were scams. I am sure you all remember Bitconnect and their $2.6 billion Ponzi scheme (BTW, I just heard that Bitconnect is coming back and will go live in 42 days).

The trend has been changing and IEOs represent a safer way to invest in tokens. The most important advantage of IEOs is trust.

An IEO is just like an ICO, with the difference the tokens are sold only to the users of the exchange, that is conducting the token sale. IEOs offer plenty of advantages, over ICOs. An exchange can tap into its user base. The standards for due diligence are higher. The project gets an immediate listing on an exchange.

While, IEOs look very similar to ICOs, they offer more security and trust.

The exchange screens every project that wants to launch an IEO on its website. It analyzes the project’s whitepaper and tokenomics, marketing, product status and a few other things, to determine if the project is promising enough. If the project has legs, then a date is set for the IEO and exchange’s users can purchase the token. After the IEO completes, the token is listed on the exchange and is available for trading.

Binance kicked off IEOs early this year. In January, Binance’s Launchpad hosted a public sale of BitTorrent tokens, raising $7.4 million for the file-sharing service owned by Tron.

But major trading platforms like OKEx, Huobi, Bitrrex, Bitmax, Coineal, Exmarkets, KuCoin and others are joining the IEO bandwagon. The majority of the IEO platforms are currently held by Asian exchanges, however, European platforms are also getting ready to join the party.

Choosing the right platform to host an IEO is very important. Its give a project the best chance to achieve its fundraising goal. Some of the things to consider when selecting an IEO platform are: easy of use, safety and security, high liquidity, multi-coin support and strong technology.

  1. Binance Launchpad: Superior technology, partnerships and a seamless user experience, are the reasons for its high liquidity. Currently the exchange has the highest number of users in the world giving it a broader reach, supporting all devices and multiple languages.
  2. OKEx Jumpstart: The Malta based exchange, is one of the leading exchanges by tradING volume. To provide uniqueness to its platform, OKEx Jumpstart uses a subscription, plus allotment approach. The subscription opens for 30 minutes and it will close early if the oversubscription limit is reached. Once the subscription is over, allotment then follows.
  3. Huobi Prime: Huobi positions its launchpad as a Direct Premium Offering (DPO) platform. All coins purchased through Huobi Prime are immediately deposited into user’s accounts and are tradable on Huobi Global against Huobi Token (HT).
  4. Bittrex: Bittrex’s first attempt at an IEO didn’t go as planned. RAID, its first IEO had stop, due to some controversy with the project being funded.Unlike most other exchanges, Bittrex does not have its own token.
  5. Kucoin Spotlight: At start the only requirement to participate, was to have a verified account and the principle was “first-come, first-served”. Now the exchange plans to use a lottery model. The exchange’s native coins are used as an instrument in the IEO model.
  6. Coineal: A big exchange with almost $700M daily trading volume and a stronghold in the southeast Asian markets with investors in China, Japan, Korea, Vietnam.
  7. Exmarkets Launchpad: One of the newer aggressive exchanges in the race. The platform lists 9 completed IEO’s 4 ongoing and 3 upcoming.

To launch an IEO, most exchanges ask for an upfront flat fee and a percentage of tokens or the funds raised. In most cases, terms are determined through private discussions rather than standardized procedures. Several exchanges are making IEOs a priority and are no longer considering new or niche assets for general listings. When I was speaking with a new exchange a couple of days ago, they told me their strategy is for IEOs to be their main source of revenue.

With 260 exchanges listed on Coinmarketcap, the exchange business is profitable, however the market has become vert saturated and competitive. Exchanges are looking for new ways to earn and IEOs can boost their revenues and through listing fees.

During the ICO boom in 2017, many projects hit the market and a lot of money was invested. But because of high scam rates, several countries in order to protect investors, banned ICOs or placed strict rules to reduce potential fraud. IEOs solve many problems that existed in the ICO model. High levels of trust make the IEO crowdfunding process much more efficient. However the possibility of the project failing after raising funds from an IEO still exists.

Initial Exchange Offerings mark the end of a long crypto winter, bring more security to the blockchain fundraising, change the fortunes for most of these exchanges and ultimately protect investors from scammers and fake projects.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

https://dailyfintech.com/2019/05/20/top-7-crypto-exchanges-for-ieos/

The PewDiePie deal with Dlive is a big move forward for decentralized Blockchain media

https://dailyfintech.com/2019/05/18/the-pewdiepie-deal-with-dlive-is-a-big-move-forward-for-decentralized-blockchain-media/

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TLDR. Centralized media (Facebook, Twitter, Google/You Tube etc) is in a perfect storm of privacy concerns/regulation, censorship/deplatforming and the resistance to advertising due to adblockers and runaway bots. The idea of decentralized media via immutable permissionless Blockchain networks is appealing as a solution. Yet the status quo seems to prevail and radical decentralzsed alternatives such as Diaspora have failed dismally in the past. It is possible that a hugely popular gamer, PewDiePie, and his deal with Dlive could be an imperfect bridge to that decentralized world.

This update to The Blockchain Economy digital book covers:

  • What is DLive?
  • My censorship is good, your censorship is bad
  • The PewDiePie deals shows that DLive understands the real world
  • When will Fortnite use BTC for in-game purchases?
  • Context & References

What is DLive?

DLive calls itself a “disruptive live streaming platform”. It was built using Lino, a decentralized blockchain that was founded in 2017, funded with $20 million and launched in September 2018. It has about 30 employees.

DLive reports 3 million monthly active users and 35,000 active streamers. This is not a science experiment.

Dlive uses Lino Points to pay content creators. Each Lino Point is worth $0.012, and can be acquired through using PayPal, Xsolla, or cryptocurrencies. Content creators receive up to 90% of the Lino Points they earn (ie Dlive takes 10%, which is a lot more transparent than YouTube).

My censorship is good, your censorship is bad

What speech should the media owners censor in a polarised world?

Social media is now so mainstream that media owners have to face the awful choice of which extreme views they should censor in our totally polarized world. It is a lose/lose proposition; they will alienate one side and then to compensate for bias will alienate the other side.

Your vile content is my free expression and vice versa.

But who cannot love PewDiePie?  Not being of the gaming generation I sought an opinion on PewDiePie from that generation and got two thumbs up.

Payment in BTC not BAT or Steem Or LINO

An early attempt at decentralized media via immutable permissionless Blockchain networks is Steem. While I love the mission, I am a sceptic/bear on Steem for reasons I outlined in this post. The TLDR summary, the flaw is funding via a SpeculationCoin (aka Tokenomics). Another Tokenomics approach is Brave (with their BAT token) and they are hitting issues as Gab is forking Brave.

Dlive may suffer from the same problem. Creators get paid in LINO points. If this is an ERC 20 Token that is easily convertible to BTC or whatever cryptocurrency you think has value, then cool. In short, fungibility matters.

The PewDiePie deals shows that DLive understands the real world

Here is the news about PewDiePie and DLive,

PewDiePie, the Swedish gamer  whose real name is Felix Kjellberg, has nearly 94 million YouTube subscribers. He is a star, perched atop the digital power law. PewDiePie has been critical of YouTube. So it was a smart move for DLive to do a deal to bring PewDiePie to this decentralized Blockchain based competitor to YouTube.

This is not the sort of move that Diaspora made and that is one reason why Diaspora never made it outside the techie visionaries/early adopters.

When will Fortnite use BTC for in-game purchases?

Fortnite is getting massive traction in the gaming world. If you love PewDiePie you probably love Fortnite.

If Fortnite use BTC for in-game purchases (rather than a proprietary token), then decentralized  media will go mainstream. Dlive could be an imperfect bridge to that world.

Context & References

Blocks of disruption hit the media business as privacy finally hits the front page

Image Source

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

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I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/18/the-pewdiepie-deal-with-dlive-is-a-big-move-forward-for-decentralized-blockchain-media/

Silicon Valley Stock Exchange and the Saints of Wall Street

https://dailyfintech.com/2019/05/17/silicon-valley-stock-exchange-and-the-saints-of-wall-street/

A week ago, the news of the Long Term Stock Exchange (LTSE) backed by some of the biggest names in Silicon Valley emerged. The Elites in the valley, including
Marc Andreessen, Reid Hoffman and Peter Thiel have joined hands to set up a stock exchange where firms do not have to worry about “Short Termism”. It is seen as the tech world’s open war against Wall Street’s modus operandi.

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Some hail the move as a masterstroke. The features of the LTSE make it more attractive for investors who stick around longer with a firm. Voting rights are directly proportional to how long an investor held a firm’s stocks. But this is also a double edged sword as it makes founding teams too powerful. It could make bubbles bigger, and wave riders could get a smoother ride to exit.

Many questions come to mind when I think about where this could take us. Let us explore each one of them.

  1. Recent disasters of Uber and Lyfts – is Wall street better at identifying good business models?
  2. How long can patient capital be, errrr, patient?
  3. Does Wall Street need to be more tolerant of Visionary Founders?
  4. Growth vs Profitability conundrum – Won’t LTSE make profitability and a good business model rarer?
  5. Creation of monopoly – Good way to make money for businesses and investors? But what about the consumer?

Uber’s IPO earlier this month is arguably the worst opening ever as investors lost $650 Million on the first day. This also happened with Lyft and the stock hasn’t recovered yet. Analysts claim that the ride hailing business model is broken. Softbank’s stocks has taken a beating since then. Would LTSE have minimised the losses that Softbank made since the Uber IPO?

However, with investments (of ~25 Billion) in Ola in India, and Grab in South East Asia, SoftBank’s fund controls 90% of the ride hailing market in the world. One of them (Wall street or Softbank) is definitely wrong about the market and the business models in this space. Is LTSE needed to bridge this gap in perception of business models?

The question that immediately followed was, how long can Patient capital be patient? Early stage investors go largely with gut instincts, where as later stage and public market investors are generally more data driven. If all data points to continued losses (Uber’s Q4 2018 EBITDA loss was at $842 Million), should analysts still give the firm a thumbs up based on the market potential of the firm?

LTSE in this scenario could make Wall Street look good, if the intention was to stay long despite continued losses.

The other side of the argument is also valid. Markets have misjudged visionary founders. Michael Dell took his firm private at ~$25 Billion in 2013 and led the transformation of his firm. The firm has re-positioned itself, and it’s estimated valuation today is ~$70 Billion. When Tesla had pressure from the markets, Elon Musk, took to twitter and spoke about taking the firm private – and of course got into trouble with the regulators for doing so.

If LTSE went live, founders like Dell and Musk could operate in the public market more comfortably.

If LTSE went live, firms like UBER could keep growing and take more of the market, without having to demonstrate a sound business model underneath.

One of the approaches that private investors like to see is “Going for Growth”

If your growth plan doesn’t scare me, I do not want to invest in you” – That’s another famous VC one liner.

This approach has given rise to centralised tech monopoly over the years. Google, Facebook, Amazon, Uber are all leaders in their market segment. If LTSE backed them with public money, they have to worry less about profitability, if at all. They can continue with growth and their market conquest.

As an investor who is just looking for an exit, I would love this approach. But as a consumer, who cares about accountability and healthy competition, this is definitely not the way forward. The “Winner takes all” approach has made tech look like the new banking.

LTSE can be a boon to some visionary founders. If it had been announced during times of low liquidity in the market, it would have come across as a genuine attempt by proven Silicon Valley elites. It is coming at a time when market is rich with cash, and it feels like LTSE will make the bubble bigger, and the fall harder.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on “Sustainable Deeptech Investments” and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/17/silicon-valley-stock-exchange-and-the-saints-of-wall-street/

Enjoying a cool discussion of InsurTech carrier Lemonade, not too sweet, not too sour

https://dailyfintech.com/2019/05/16/enjoying-a-cool-discussion-of-insurtech-carrier-lemonade-not-too-sweet-not-too-sour/
Lemonade- it’s not just a drink anymore

TLDR How can an interview with an insurance startup founder go from discussing InsurTech and innovation, and end up focusing on the concept of a Ulysses Contract, Game Theory, Prisoners’ Dilemma, and the Nash Equilibrium?  Simple- find some time to talk with Daniel Schreiber, serial entrepreneur and now CEO of Lemonade Insurance.  It’s certain that additional perspective would have been added by Daniel’s co-founder, Shai Wininger, but we’ll focus on Daniel’s views for this article.

Lemonade has been under intense scrutiny since its entry into the insurance world in 2016, and Mr. Schreiber has been the guest of many interviews since then.  As is expected for any figure that resides in a legacy industry, finances and insurance ‘stuff’ have in general been the main topics of those discussions.  It seems all the questions related to insurance accounting and finance had been asked, and those at Lemonade have been rather public in getting out their ideas of what the industry should know about the company, so I was not interested in simply conducting another ping pong contest of convention versus innovation.  In planning for this Daily Fintech interview I thought I’d take a different approach- ask others what they would want answered by the CEO of this very public startup- so I crowd-sourced the questions.  More questions came than there would be time to ask, but the questions were shared with Daniel ahead of time so we figured we could sort out some key points.

Spring boarding off a recent optimistic posting by the firm’s Chief Insurance Officer,  John Peters  (read that here ), Daniel was asked of his impression of Lemonade in the insurance market- customer impressions, marketing, industry reaction, any factor that was meaningful.

The primary response- gratification that the insurance incumbency is tolerant but somewhat unimpressed based on ‘backhanded’ compliments, e.g., “they are good at PR,” “have a delightful APP,”, “they don’t ‘get’ insurance,” “Lemonade is not serious,” and the like.  Not ‘getting’ insurance is due to the app that is at the core of change in insurance, with invisible to the eye analytics, transformed user experience (UX), and predictive risk tools that are unavailable to traditional broker systems.  Not getting it means the firm’s approach is truly different/innovative.  And as time passed, the firm’s growth prompted comments such as, “if it grows like a weed it probably is one.”

The discussion led to a general touch on the first of the crowdsourced questions (answers quoted but paraphrased from Daniel’s remarks):

At the very beginning of Lemonade’s creation, what was the vision, who was the target customer, what value could you add to them?”

DS:         This, of course, touched on a primary reason for the firm’s existence- how could insurance be made available to customers in a way that was entirely different than the legacy system that was by some estimation, “A business that involves selling people promises to pay later that are never fulfilled?” (Urban Dictionary) .  Early on, per Daniel (and recounted by co-founder Ty Sagalow in his recently published book, “The Making of Lemonade”) , the founders of Lemonade worked to form an insurance company that aligned the interests of the carrier and the customers, in a fashion that was economically viable, applied cutting edge technology, and contributed to a common good.  Insurance is a need for most and is not a product that people yearn for, it is as is said, ‘sold, not bought’.  The vision was to be a 24/7 insurance company that delighted customers, and not one that irritated them.

“What early action do you regret was handled in the manner in which it was?”

DS:         At the initial launch of the company we announced Lemonade as being the ‘world’s first P2P insurance company’, a designation that posed immediate issues.  First off, the phrase only made sense within the insurance industry, insurance customers didn’t know what P2P was and didn’t really care.  In addition, those within the industry questioned the definition and if Lemonade was truly peer-to-peer.  Rather than wrestle with semantics and the distraction we backed off from that marketing.

An important aspect of the firm’s make-up is the charitable contribution (up to 40% of premiums.)  Shouldn’t contribution levels be detached from an arbitrary loss ratio result?

DS:         We are very proud of the amount of premiums that Lemonade has shared with charitable organizations on behalf of our policyholders.   2018 found the contribution to be approximately 2% of premiums.  It’s understood that Lemonade is not the only company to make charitable contributions, but compared with other companies Lemonade’s efforts represent not a bilateral, traditional approach where a portion of a company’s revenues are donated to a charity, Lemonade expresses a trilateral approach- the policyholder, the company, and the designated charity.  As discussed, Lemonade’s financial operating model allows for a set percentage of earned premiums to be set aside for operations, a portion for reinsurance backing, and the balance for payment of claims.  When claim/loss payments have a favorable performance versus the set aside, the balance is apportioned by group to the respective policyholders’ choice(s) of non-profit.  As a B Corporation, or Public Benefit Corporation, Lemonade is proud of its efforts to be a social good that is also an insurance company.  

“When it’s said in Lemonade’s press and marketing that traditional insurance companies make money by denying claims, which claims do incumbents deny that Lemonade would pay?”

DS:         Lemonade clearly understands that an insurance policy is a contract between the carrier and the policyholder, and the intention is not to say that in handling claims from customers Lemonade will pay claims outside of the policy provisions.  What is being said is that for both parties to the contract incentives matter, and alignment of interests matter, and actions follow the incentive structure.  If there is a reduced temptation for the carrier to deny claims because the outcome is to do good, and there is a reduced temptation for the insured to embellish claims for the same reason, then the dynamic of denied claims, or incentive structure affecting both sides is reduced and in fact there becomes an even closer alignment of interest to do good.  In actuality the principle is a foundation of Lemonade- the Ulysses Contract and Game Theory (author’s note- these concepts will be addressed in more depth in a future article).  Just as Ulysses ‘tied his own hands’ to the mast due to his knowing that the sound of the Sirens would tempt even him, Lemonade ties its financial hands by setting a designated amount for operations, reinsurance, and claims, and the remainder is contributed to good.  There is not a unilateral financial benefit to denying claims (or arbitrarily not paying claims) because any excess is not the company’s.  And, customer knowing that if they embellish claims they are in essence reducing that which goes for the common good.  So it’s not that Lemonade is paying or not paying claims, it’s that the company has its own Ulysses Contract to guide its behavior.

“There are fans of the firm’s Instagram vids- How did you come up with the idea, and what else is the company doing like that to propagate your overall message of transparency and social good?”

DS:         Those videos with the pink goo and others are from a variety of sources, primarily from Lemonaders within the company.  The goo was an idea from a product designer, for example.  If you recall the publicity driven by the Banksy art piece that shredded itself in front of an auction audience not long after that a Lemonade quality assurance staffer came up with a quick homage here .  We are unafraid to encourage these types of contributions.

“A recent Forbes article and LinkedIn article by Chief Insurance Officer John Peters mentioned Lemonade’s loss ratio tracking in the high 80% range, a significant improvement/trend from the prior year’s results.  Is the reported ratio result being ‘subsidized’ by ceding premium and loss cost amounts to the firm’s reinsurers?

DS:         Lemonade are the guardians of the insurance ecosystem as established by the company, and operations are to the benefit of all stakeholders.  there is no financial ‘game playing’ to meet an arbitrary result.  The firm’s reinsurance agreement sets excess limits where the reinsurer accepts responsibility for claim costs above the set threshold.  There is recognition that traditional measures are what the market sees and holds as comparatives but we figure if the original business model is followed the results will speak for themselves.

“You’ve done great stuff, is there one thing of which you are most proud?”

DS:         The ability to create an insurance system that delights customers, allows growth, and generates data sets where the system begins to feed off the customer and claim experience.  Seeing the loop succeed gives us great pride.  90% of FNOL processed by Bot, and 100% of sales?  Validates our founding thesis.

So many questions, and not enough time for them all.

As I reviewed our conversation, recent results/articles, and Mr. Sagalow’s book several things were apparent:

  • null
  • The company is ‘all in’ on allowing the data analysis approach to continue its development,
  • Growth within markets is driven as much by external forces, e.g., requests from European countries, as it is by internal plans.
  • The firm’s start and development benefitted greatly from the founders’ past experience in startups and connections developed therein,
  • Lemonade is impatient- that in itself is innovative in the insurance industry.
  • The firm remains too new to have financial trends that aren’t subject to variance from reporting period to reporting period.  86% loss ratio can be celebrated today but the vagaries of growth in a new carrier and claim volume can produce unexpected results, and some interesting ceding to reinsurers.  (keeping things grounded with ongoing analysis by Adrian Jones and Matteo Carboneinteresting summary here )
  • Customers who have provided service surveys like the insurance products and service they receive from Lemonade, see Clearsurance’s survey summaries here
  • There’s pride in how charitable contributions have been an important piece of the firm’s entry into the market
  • The entry into the industry is not a sprint- a carefully run marathon is what the firm needs.  The P&C business is a trillion-dollar (US) business and Lemonade holds a very small part of that; its operating premise is still fragile
  • There is strength and opportunity in the firm’s digital approach to operations

The original intention was to interview a CEO and produce a summary of the firm through crowd-sourced questions.  The interview came off well, the questions were presented in volume, where the problem arose was in the expansiveness of the firm’s concepts, the great interest in the entry and growth of the firm, and the author’s inability to distill the available information into one column.  The discussion with Daniel Schreiber did not change my status of being a pragmatic optimist where Lemonade is concerned, but many questions were answered.

I look forward to further examination of the Game Theory concepts as applied by Lemonade in a future column/posting. 

My thanks to those who provided questions in addition to my own (and apologies that not all could be addressed in this article):

Ben Baker Billy Van Jura Anand R (Lucep) Nick Lamperelli Pat West

image source

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

I have no positions or commercial relationships with the companies or people
mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our
research daily to stay ahead of the curve. Check out our advisory
services
 (how we pay for this free original research).

https://dailyfintech.com/2019/05/16/enjoying-a-cool-discussion-of-insurtech-carrier-lemonade-not-too-sweet-not-too-sour/

Royalty, supply chain finance and Hollywood-esque mystique

https://dailyfintech.com/2019/05/15/royalty-supply-chain-finance-and-hollywood-esque-mystique/

With a name that sounds like it was lifted from the screenplay of Casino Royale, Lex Greensill, the London based, Australian entrepreneur betting big on supply chain finance, has scored a strong indication his bet might play out, with news this week his company Greensill had cashed in a $800 million equity injection from Softbank.

The unassuming boy from Bundaberg (a town more famous for rum than financing) was appointed a Commander of the Order of the British Empire in 2017, rubbing shoulders with king-in-waiting Prince Charles, and is still involved with the family farm back in Queensland, Australia.

So how exactly does Greensill work, and what is the opportunity Softbank are especially keen to get in on?

Launched in 2011, the business has experienced phenomenal growth, helping over 1.3 million small businesses get paid sooner. It uses the credit-worthiness of their big-name customers as part of the risk assessment model, freeing capital up to those who are most under pressure, and thus ensuring the survival of businesses in places as remote as Bundaberg itself.

The Greensill model relies on the purchase of invoices or trade receivables from small companies seeking early repayment. It packages these into short-term bonds and sells them on to investors. Approximately 47 bonds are issued per business day, supported by the banking arm in Germany and other fund managers.

Greensill estimates approximately $55 trillion of cash is locked up through inefficient payment terms and structures.  Servicing this, and making a tidy profit in the process, is no doubt part of the attraction for Softbank. That and the fact that according to Greensill’s white paper, no investment-grade corporate has defaulted on its payment obligations in the past 20 years. High demand, low risk and few alternatives makes for an attractive ‘Golidlocks’ asset class

Competitors in the space include Taulia, Citi, Orbian (Citi backed) and PrimeRevenue, with more eyeing off the space each year. It is certainly a fascinating space to watch, and an emerging asset class to consider, so long as the big boys keep paying their bills.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

https://dailyfintech.com/2019/05/15/royalty-supply-chain-finance-and-hollywood-esque-mystique/

Telecom Fintech innovation is spreading

https://dailyfintech.com/2019/05/14/telecom-fintech-innovation-is-spreading/

Africa-Mobile-Money-Market

MPesa`s early success in Kenya, will remain the mobile money business case study of payment innovation in Emerging markets[1]. It was 12 years ago; in 2007 when Vodafone launched the service.

Africa continues to be the continent where `Necessity is the mother of invention`.

Africa brings to market further efficiencies, improving the MPesa business model and pushing innovation in financial inclusion (be it remittances, micro-payments, or microinsurance). However, it is not as easy as it may seem. As Chris Skinner notes:

Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries.[2]

Today, EcoCash, is a success story in Zimbabwe. It is a rich mobile payment platform hosted by local telco, Econet. Despite recent tech glitches on the Ecocash platform[3], Econet the parent telco continues an expansive digital strategy. It spun off Cassava Smartech, an entity that offers more financial services than just mobile money. From remittances, digital banking and all kinds of insurance.

Orange Money, started in 2008 in Côte d’Ivoire and has currently 40million customers in Africa in 17 countries (francophone and anglophone). Late last year MTN Money[4] and Orange Money, teamed up to create a JV, called Mowali[5]. They are targeting the 300 million mobile money users in Africa. MTN and Orange alone operate in 22 African countries. Mowali is built on the open-source software payment platform Mojaloop, of the Bill & Melinda Gates Foundation. The aim is Interoperability at a pan-african level.

South African startup, Wala, has launched its own mobile money solution, with the Dala utility token, using blockchain technology. Wala provides no-fee banking services and is creating a decentralized financial platform (Defi) functioning with the Dala coin. Listen to my interview with founder Tricia Fernandez on the unique approach of the Wala foundation.

Dala is one example of the opportunity that Telecoms can grasp by using tokens, be it stablecoins or some such, in order to offer their existing customers ways to manage their digital lives. Alex Mifsud, Co-founder and CEO, Open Payments Cloud emphasizes this point[6] and uses the example of Dala in South Africa and another approach used in Mongolia. The Mongolian telecom company, Mobicom, has received approval to issue a stablecoin (pegged to the national currency), called “Candy”.  Every Mongolian citizen will be able with a mobile phone to pay bills, shop online, transfer funds, and take out microloans. The pilot will start in the capital, Ulaanbaatar[7].

Now back to the West – US and Europe. The recent T-Mobile announcement of a bank account offering did create some talk. For me, it is a move from a Telecom to extend services to non-T-Mobile customers. But the business innovation is lacking, as it is backed by a conventional bank  – Customer Bank is behind the Baas service of T-Mobile Money. This is actually very different to Orange Money, that has also a bank of its own that was launched in 2017. Orange bank is built from the start with a customer relationship model based on AI technology. It has signed up 200,000 customers as of the start of Q1 2019. It has set a target of reaching 4 million customers and €500 million of net income from banking within five years.

Telecoms and banking

`My conclusion was that banks would merge with telecommunications firms and become hybrid institutions. Twenty years later, it hasn’t happened.` excerpt from Chris Skinner`s vision Banks and Telcos? Two become one!  

Will this blurring become true soon?

Will Orange become the business case or some African entity?

Who will customers trust for their financial digital business?

Will blockchain be the enabler or will AI banking be enough?

[1] Why is M-Pesa the foster child for Financial inclusion? Faisal Khan

[2] Getting the Infrastructure Right for Financial Inclusion, Chris Skinner 2018

[3] A two-day crash in Zimbabwe’s mobile money system shows the vulnerabilities of going cashless

[4] MTN is Africa’s largest telecoms operator

[5] Unlocking mobile money interoperability and merchant payments across Africa through Mowali

[6] Telecoms need not sideline cryprocurrencies, by Arti Mehta, TMForum

[7] Mongolia Starts Off 2019 With Its Eyes On Crypto Payment Adoption

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/14/telecom-fintech-innovation-is-spreading/

Bitcoin going parabolic. ALT Season is Almost Here!

https://dailyfintech.com/2019/05/13/bitcoin-going-parabolic-alt-season-is-here/

bitcoin-all-seeing-eye.png

Last week our theme was “Initial Exchange Offerings: 2019 is the year of the IEO.“ Our theme for this week is “Bitcoin going parabolic. ALT Season Here”

TLDR. Its been an extraordinary week. Binance was hacked for $40 million worth of cryptocurrency. Warren Buffett bashed Bitcoin and cryptocurrency. Bitcoin broke $7500. The negative news didn’t seem to affect the bull run. You can expected that this rally won’t be stopping any time soon. In the first quarter of the year, several altcoins doubled in value. While the performance of altcoins have been very positive, alt season is not here yet, its almost here.

The past couple of days have been exceptional. Bitcoin broke all expectations, with its price going vertical. It jumped from $5,700 to $7,500, rising by 30% since last week.

As Bitcoin continues to rise, the top 10 altcoins also turned green with Ethereum up 18%, Bitcoin Cash 22%, Litecoin 16%, EOS 10% and Stellar 3.7%.

Screen Shot 2019-05-12 at 4.32.21 PM.png

Bitcoin was the first cryptocurrency, and it’s still the leading cryptocurrency in every aspect. In the past, I’ve read and heard crypto enthusiasts say, that eventually an altcoin will overtake Bitcoin, as the leading digital currency. While different crypto assets have risen and then fallen, none have come ever close to overthrowing Bitcoin from the top spot.

But who cares… does it really matter to overtake Bitcoin?

Bitcoin had a rough time in 2018 and in early 2019, but there have been positive things taking place, both on a market and technical level. One is the influx of Bitcoin whales buying Bitcoin, the other is growing popularity of Initial Exchange Offerings (IEOs). Others think that it has nothing to do with the developments in the crypto market, instead Bitcoin’s sharp price rise is because of the trade war between US and China. Investors are moving their capital from falling stock markets into cryptocurrencies.

The price surge we’ve seen is great, but it’s only setting the stage for something bigger, much bigger. IEOs are the center piece piece of the puzzle for this year and next, until Bitcoin’s halving, next May.

IEOs hosted on Binance and others exchanges, show signs that a mania is coming, similar to what happened with ICOs. Already, Huobi, KuCoin, Bittrex, and Bitmax are hosting token sales similar to Binance.

Almost, two years after the 2017 ICO mania, most financial regulators around the world haven’t really addressed important issues, except for the US SEC hunting down and fining companies for hosting ICOs. In an effort to self regulate and adhere to compliance, exchanges have instituted KYC and AML procedures, Unfortunately, we are still far from universal framework for crypto startups.

Top exchanges have circumvented the regulatory rigmarole and IEOs have proven to be the new way for startups to fundraise. Potentially IEOs could be at least as successful, as the ICOs in the past.

IEOs could be just a re-branding ploy for ICOs. I think it was needed. Yet, I am more excited about IEOs than STOs, which have become vehicles for VCs. IEOs offer a fresh take on token sales.

With positive sentiment buildup for crypto, we’ll see more coverage from non crypto websites and media, driving more newcomers to the market, just like in 2017. Newcomers usually hunt for bigger profits and altcoins can offer huge potential profits. Prices can increase much more than BTC, with smaller investments..

When you look back at 2017, Bitcoin went up and a few months later the altcoins run started, yet altcoins outperformed BTC.

Usually, when Bitcoin rises, other coins fall because people are selling their altcoins to get  Bitcoin. When Bitcoin falls, altcoins also fall because people are selling everything. When Bitcoin rises, and then stabilizes, people diversify into altcoins. This is where the real potential lies.

Will history repeat itself?

Everyone is saying  that altcoins are dead. That’s not the case, especially when you look at the numbers. In fact Litecoin, is up +300% since December, Tezos +250%, Ethereum +100%, BNB +400% etc.

On the US dollar, the Eye of Providence shows the all seeing eye “that favors our endeavors”. After Bitcoin finishes it’s big run and somewhat stabilizes, the all seeing Bitcoin will favor crypto endeavors again, altcoin season will start and IEOs will explode.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/13/bitcoin-going-parabolic-alt-season-is-here/

How the Venture Studio model, borrowed from Hollywood, may finance the Blockchain Economy, replacing the current Fund centric model that drives Silicon Valley.

https://dailyfintech.com/2019/05/11/how-the-venture-studio-model-borrowed-from-hollywood-may-finance-the-blockchain-economy-replacing-the-current-fund-centric-model-that-drives-silicon-valley/

Hollywood.001

TLDR Hollywood & Silicon Valley both have proven models for harnessing ideas & talent to big profits. As we move from rock stars to film stars to code stars, the model from down south in LA is moving north to Silicon Valley and all places where tech ventures are created. This paradigm shift reduces the primacy of Finance in the Silicon Valley model, a trend accentuated by tokenized early stage equity. Two leaders in this paradigm shift are Consensys and Andreessen Horowitz. The emerging name is Venture Studio, replacing the names Incubator, Accelerator and Skunkworks from earlier waves of innovation

This update to The Blockchain Economy digital book covers:

  • How the Hollywood Film Producer model could apply to Venture Production
  • Venture creation is both a creative and a repeatable process
  • How Venture Studios reduce the primacy of passive capital
  • The role of talent in both models
  • From Incubator to Accelerator and Skunkworks to Studio
  • How Consensys created an early version of the Venture Studio
  • How Andreessen Horowitz is creating their version of the Venture Studio
  • Other Famous Venture Producers
  • Tokenised early stage equity is the game-changer that enable the Venture Studio
  • Why The Blockchain Economy requires creative non-conformists
  • Context & References

How the Hollywood Film Producer model could apply to Venture Production

The Hollywood Producer works from start to finish (aka full lifecycle in tech speak):

  • develops an idea (aka script). The Producer often own the rights to a book or story idea. Translation to Venture = develops a concept for a new venture. This period is often lengthy, with many ideas/concepts dormant for a long time until conditions are right – timing is everything. The idea that there is a tradeoff between concept/idea and execution is silly. You must have both and a Producer oversees both. 
  • Once a script is completed, the producer will lead a pitch to secure the financial backing usually about 25% of the budget; this is the “green light”that allows production to begin. Translation to Venture = find lead investor.
  • secures the necessary rights (for script, music etc). Translation to Venture = patents, trademarks or existing code (being careful that the open source is not restrictive).
  • hires the director. Producers rarely have creative or technical involvement. Translation to Venture = hires the CEO. The closest parallel to Producer in Tech Ventures is Chairman, in the sense that Chairman can hire/fire CEOs, but independent Chairman is unusual in early stage tech ventures. 
  • supervises casting. Translation to Venture = involved in talent hunting.
  • assembles a crew. Translation to Venture = involved in talent hunting.
  • oversees the budget. Translation to Venture = formal Board role.
  • coordinates the post production work (e.g editing, commissioning music, encouraging the film’s stars to plug the movie on talk shows). Translation to Venture = informal Board role (leveraging board director’s network).
  • The Producer often multi-tasks across several projects at once. Translation to Venture = those people listed as Co-Founder on multiple ventures.

In Hollywood, Producer is such a critical role that the credits often show many variants such as:

co-executive producers: executives or distributors who have a limited financial stake in the project.

  co-producer: works under the executive producer on casting, financing, or postproduction

line producer:  on the set at all times to supervise the budget but has little or no creative input.

Venture creation is both a creative and a repeatable process

That statement defies conventional wisdom in two ways:

– building a business is a creative act. We think of building a business as something requiring hard work, grit and lots of boring tasks – totally unlike the creative arts. I am indebted for the insight that this conventional wisdom is wrong to a post from the great VC, Fred Wilson of Union Square Ventures. As he recorded on his wonderful blog (AVC), he was on holiday in Paris, standing in front of an iconic painting and realized that venture founders are like painters, standing in front of a blank canvas and envisioning what should be there.

– the creative process is repeatable. Creative work require hard work, grit and lots of boring tasks  – and is a repeatable process. Let one of the most consistently creative (and funny) people on the planet tells us how in this video. John Cleese is unusual – a scientist  turned comedian and educational content entrepreneur who is obsessed with figuring out where creativity comes from. Watch the video to learn the difference between open mode and closed mode creativity. Open mode creativity is that flash of inspiration. Closed mode creativity is the hard work we call execution. Entrepreneurs and artists  know that creativity is also needed in closed mode. The plot or character idea may come in a flash of open mode creativity, but realising that idea requires further creativity and hard work in closed mode. It is the same in venture creation, where an execution step, such as improving funnel metrics, requires creativity as well.  The Hollywood Producer ensures that both open and closed mode creativity are done right.

How Venture Studios reduce the primacy of passive capital

Look at the credits at the end of the next film/movie you watch. You will see credits to all kinds of people, some with mysterious titles such as key grip, but you will be hard pressed to see or remember who financed the film/movie.

Now look at the tech venture success stories; they will often start with something along the lines of “XYZ BrilliantUnicorn, the HotABC Funded venture….” In the tech venture role, the VC Funds (“HotABC Fund”) have the starring role.

The role of Talent in both models

Talent is a word that made the leap from Hollywood to Silicon Valley, but the roles of talent are different:

  • in Hollywood, talent includes actors but also behind the camera folks such as director, writers, camera crew, set designers etc. Talent are free agents who contract for a specific film/movie. Talent employ agents to help them with this.
  • In Silicon Valley, talent  includes engineers but also marketing, sales, design, HR, finance, etc. The difference is that talent in the Silicon Valley model have to sign on for long periods as employees to get their equity upside. While increasingly free agent in reality, talent in tech ventures have to pretend that it is a 1950s  jobs for life world.

The other big difference for talent is that upside participation in Silicon Valley means equity which means exit via either trade sale or IPO. This makes talent vulnerable to financial engineering by Funds that are harmful to the interests of talent. In Hollywood, upside participation is primarily revenue share. That revenue share is variable and tied to the success of the venture/movie, which makes the upside a bit like equity, but it is not dependent on exit – only on value creation.

Big powerful interests in both models can give a raw deal to talent, but Hollywood has a longer tradition of talent being able to negotiate good deals.

From Incubator to Accelerator and Skunkworks to Studio

Incubator was the venture creation model popular during the Dot Com era.

Accelerator is the current model, as investors of all types ran away from the early stage risk of incubators, with hundreds of accelerators attempting to copy the Y Combinator success.

Skunkworks is a proven model of innovation within big companies aka intrapreneurship. This model pre-dates incubators and accelerators. Skunkworks usually operate with a small elite team removed from the normal working environment and given freedom from management constraints. The term originated during World War II by Lockheed Martin, but the most famous skunkworks was how Steve Jobs developed the Macintosh computer; other examples include Google X Lab and Microsoft Research.

The model for both incubators and accelerators have a graduation event, when the incubator and accelerator role is finished.

Hollywood Studios operate more like the skunkworks, taking responsibility until the product has delivered its value.

How Consensys created an early version of the Venture Studio

When Joseph Lubin made a fortune from Ethereum, he could have done anything. He chose to put a lot of his capital and energy into Consensys. I had the great pleasure of meeting him and his early team very early in the history of Consensys.  My impressions at the time (recorded here on Daily Fintech) were that I was seeing something radically new that I did not really understand:

“Last week I left the smart Manhattan offices to head to northern Brooklyn to visit Consensys. This was not a colorful developer pampering office. Yes, we sat around a conference table that doubled as a ping-pong table; but this was clearly a bootstrapped operation full of bright people fired up by changing the world not by the trappings of success. I had trouble finding the office because there was no logo on the door; I went through a coffee shop to get to their offices. This neighborhood was still in the early stages of gentrification.

Around the ping-pong table (ahem, conference table), developers were as comfortable talking about the finer points of derivatives clearing and compliance as they were discussing developer tools. Big Wall Street firms could feel comfortable here despite the decor.

Yet they were also developing consumer-facing applications.

It is hard to put a label on Consensys. All of these fit:

Consumer app developers

Enterprise IT developers

Core Ethereum developers.

Venture production studio.

Custom solution vendor.

Consultants.”

That same “how do we label you” issue hit the early Hollywood Production Studios, as they moved from a few creative people to a big business with lots of employees. It is easy to write off Consensys; after the fall in ETH price that meant some reassessing of the business model many headlines talk about the rise and fall of Consensys. Pioneers get arrows in their back.  I suspect that future headlines will talk about the rise and fall and rise again of Consensys. Even if not, Joe Lubin will have changed the course of history by creating a new model and a new type of company at the heart of a new protocol based ecosystem.

How Andreessen Horowitz (A16V) is creating their version of the Venture Studio

Andreessen Horowitz (A16Z) is massive force in the global Silicon Valley ecosystem. They are one of the few new Funds to break into the Top Tier in the last decade. Yet they still act like outsiders, making big bold moves that disrupt the game that they are already masters of. “Disrupt your own game before somebody else does” is easy to say, but very hard to do and A16Z is actually doing it.  A16Z has made two prescient moves that position them well for this new model that is emerging:

  • Full execution team means they are active not passive investors. They have the resources, not just cash, to help ensure that the ventures they invest in are a success. This is like the Hollywood Studio.
  • A16Z recently became an SEC registered RIA, giving them the ability to invest in cryptocurrency assets. This means A16V can win in the Blockchain Economy. A later section of this chapter describes why tokenised early stage equity is the game-changer that enables the Venture Studio. A16Z has signalled their determination to ride the next wave of innovation even if if disrupts the Fund model that makes them money today. 

Other Famous Venture Producers

  • Peter Thiel – co-founder of multiple huge ventures from PayPal to Palentir.
  • Richard Branson – using his insight, personality and brand to take on massive broken markets, with external financiers along for the ride. Branson is the closest to the Hollywood model.
  • Steve Jobs – most famous for Apple but also NeXT and Pixar.
  • Jack Dorsey – both Twitter and Square. 
  • Elon Musk – most famous for PayPal, Tesla & SpaceX, but also Neuralink, The Boring Company & OpenAI.

Some are CEOs of the ventures they help to create, others are content with a big % of equity and a corresponding Board role. What they all have in common is a brilliant entrepreneur who attracts capital like bears to a honey jar. Some may put in their own capital, but their signalling/brand value is far more important than their cash. Many have Hollywood connections, most notably Peter Thiel moving to LA and Steve Jobs with Pixar and now Elon Musk aiming to bring Silicon Valley and LA physically closer with The Boring Company.

The institutional stage is coming. This is like the early Hollywood history, when a few big swashbuckling  personalities created institutional studios.

The Silicon Valley model is already institutional with a few Top Tier VC Funds, most notably Sequoia Capital, managing the leadership succession across multiple generations. The Sequoia Capital WhatsApp deal, where they financed all the rounds themselves from an $8m investment in 2011 to a $19,000m exit in 2014, is like a Hollywood Studio that takes all the risk & reward. 

Tokenised early stage equity is the game-changer that enables the Venture Studio

Imagine a movie that took 10 years to get to the box office. Yes there are some outliers like this (Avatar took 10 years), but they are exceptions that prove the rule. This does not count what can be decades, when an idea lies dormant (ie not spending any money) because the timing is wrong or some key piece is missing. Yet, early stage venture investors typically have to wait over 10 years before getting a return. Tokenised early stage equity, whether IEO or STO, is the game-changer that enables the Venture Studio model to flourish. The time to liquidity is now much closer to the time to create a movie/film.

Why The Blockchain Economy requires creative non-conformists

The book called Originals: How Non-Conformists Move the World describes  how leaders champion new ideas and fight groupthink. The Blockchain Economy will be a bigger shift than even the disruptions that drove Hollywood and Silicon Valley. Every market is up for grabs in the Blockchain Economy. Entrepreneurs are restricted only by their imagination. Capital is far less of a constraint. There is plenty of capital in the world and Blockchain ventures require less capital for 3 reasons:

  • the crashing cost of building technology thanks to open source, APIs. offshoring etc. This well documented mega shift pre-dated Blockchain.
  • there is no need to invest in massive centralised data centers, because the users provide the servers in a decentralised network.
  • marketing costs are reduced because early users are motivated to evangelise because they bought Tokens (either Utility or Security or both).

Context & References

Why the Blockchain Economy won’t be financed by ye olde artisanal VC funds.

The 4 wrenching leadership pivot gates that entrepreneurs face.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/11/how-the-venture-studio-model-borrowed-from-hollywood-may-finance-the-blockchain-economy-replacing-the-current-fund-centric-model-that-drives-silicon-valley/

World’s first Central Bank Digital Currency payment successful- MAS lead the way

https://dailyfintech.com/2019/05/10/worlds-first-central-bank-digital-currency-payment-successful-mas-lead-the-way/

The Monetary Authority of Singapore (MAS) have been piloting several Blockchain use cases over the past few years. Central Bank Digital Currency (CBDC) was one of the key focus areas of Project Ubin – MAS’ Blockchain initiative. In September 2018, I had published my post on Singapore and their efforts around Blockchain.

With the five phased approach to Project Ubin, we may soon see a state issued digital currency. That would not only put Singapore ahead of its Asian peers, it may be a Global first.

We now have a global first. Just over a week ago, MAS and the Central Bank of Canada made an announcement that a transaction between digital currencies of the two central banks was executed successfully. The trial was performed with the help of Accenture and J.P.Morgan.

As the Blockchain narrative developed over the years, one of the key buzzword was decentralisation and disintermediation. However, in the last two years, we have seen permissioned Blockchains gain popularity.

The three dimensions of the Blockchain Trilemma proposed by Vitalik Buterin were, Scalability, Security and Decentralisation. Designers of Blockchain systems have to choose between these three dimensions. The rise of permissioned Blockchain indicates that Decentralisation would be the first to be compromised amongst the three dimensions.

There are several reasons why a central bank would launch a digital currency. In the case of the Petro, the rationale was largely to stay clear of sanctions and raise capital to pay back some of their debt.

Reserve Bank of India on the other hand is exploring CBDC as it would be a low hanging fruit after the mass (forced) adoption of the nation’s identity system – Aadhaar. A good model would be to link a CBDC to Aadhaar verified wallets to create accountability and traceability of cash in the economy.

RBI was also spending 7 Billion Rupees ($100 Million) per year in just creating and managing the Rupee. There would be huge savings if they launched a CBDC.

Getting back to the SGP digital currency. Some key points to note are the following,

  • The exchange transaction happened between SGD and CAD.
  • The MAS network was built on the Quorum Blockchain and the Canadian network was on Corda.
  • The principle of Hash Time Locked Contracts (HTLC) was used to ensure an all-or-nothing guarantee. If one leg of the transaction fails to complete, the entire transaction is rolled back.
  • Interledger protocols can be used if parties were on different Blockchain networks.
  • Off-Chain transfer of hash were performed to initiate and complete the transactions.
  • The asset swap was performed using an intermediary, and a multi-currency support option was modelled in using this infrastructure.

Image Source

The picture above explains the HTLC framework used by this model. A report was published at the back of this initiative, describing several models that cross border settling systems could use.

The next wave of central bank blockchain projects can make further progress by bringing technology exploration together with policy questions about the future of cross-border payments

Sopnendu Mohanty, Chief Fintech Officer, MAS

The report also goes into the depths of the challenges in using HTLC and the potential alternatives being worked on by the Blockchain community. Like in most other Financial Services use cases of Blockchain, this transaction was also executed in a controlled environment.

CBDC are still in their infancy. This pilot could be followed up by collaboration across several central banks at the policy, governance, process and infrastructure levels. This would benefit the global economy at a scale never seen before. Let’s take stocks in a year. Watch this space.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on “Sustainable Deeptech Investments” and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/10/worlds-first-central-bank-digital-currency-payment-successful-mas-lead-the-way/

The smartest investment for your innovative insurance play just might be in cultural awareness

https://dailyfintech.com/2019/05/09/the-smartest-investment-for-your-innovative-insurance-play-just-might-be-in-cultural-awareness/

It’s not just the tech concept…

TLDR Having the correct idea for underwriting, distributing, selling, adjusting, or scaling insurance may not be the right idea if the scheme is introduced or sold where the customer understands the plan but simply doesn’t accept it in cultural context.  How and where one sells an idea in the connected global insurance industry might just be more important that what is being sold.

I had a great discussion with a very clever InsurTech company this week, Uncharted, a digital insurance sales facilitation and distribution entrant focused on health benefits and business SME markets (check out their website in the link- I won’t do their concept the justice they can).  They are Singapore-based, building toward a global reach.  The firm’s Chief Commercial Officer, Mark Painter, held my attention regarding how the firm was building its sales and distribution tools with the intention of giving carriers and brokers options and efficiencies from point of sale right through home office underwriting, binding and admin of data.  Taking the teeth out of the unstructured data beast, so to say.  Mark (who’s a pretty savvy finance and insurance guy now working alongside Uncharted’s founder, Nick Macey) recounted a recent experience in introducing the Uncharted system into a southeast Asia market carrier’s system, excitedly advising that significant sales admin improvement for the thousands of field agents will or had been gained for the carrier.  That’s very cool.

But my follow-up question was: If the carrier’s products are traditionally sold by agents say, working off of scooters, meeting with small shopkeepers over tea, or noodles, and with the bound policy traditionally taking a few weeks to present to the insured, will an ‘instant’ policy innovation resonate with the known culture of doing business in the neighborhood?  Will an app-based policy hold the same ‘worth’ to that analog customer? It might if the businessperson is comfortable with the growing use of digital ecosystems, it might not if the owner is not. 

How the customer expects to transact business is the key- are you practicing innovation from the customer backwards?

Well this prompted a comparison discussion of what the firm is working with in Zimbabwe, where most residents/customers transact business through smart devices using EcoCash, a mobile payment platform hosted by local telco, Econet.  In this instance EcoCash has an approximate 80% market use penetration, and as such adding services to the ecosystem is an accepted practice.  A company looking to make inroads into the market would be wise to joint venture with or leverage the Econet ecosystem rather than try to make inroads through traditional agencies.  However- once established in the market the firm would be better able to bridge to traditional insurance channels for more complex covers, riding the market awareness built through use of local, accepted practices.  Know what and how the customer expects to transact business and go with that flow.  It ofttimes does not matter how wonderful your product or service is if the customers simply are not accustomed to how you market.  The correct answer is not always the best answer.

There are plenty of examples of companies ‘growing’ their insurance products organically through other business relationships built through understanding local needs.  Take for example the relationship of ride sharing platform Go-Jek and one of its investor firms, Allianz X.  The ride sharing startup was a target of Allianz’s investment, but Allianz also recognized with Go-Jek that the drivers needed insurance, and the two firms collaborated within the bounds of the business model and driver culture to make insurance available within the local reach of drivers.  Don’t be surprised if a similar insurance partnership approach isn’t carried into east Africa’s burgeoning ride sharing environment as the pair of firms extends its reach with their investment into Uganda-based ride hailing entrant, SafeBoda  (a timely share by you, Robert Collins ).  Innovation and marketing developed from business and local culture needs.

There are many examples of firms developing insurance innovations, many successful and many not so much.  The takeaway for the reader from this posting- the firms noted above are working to apply clever innovation based on good ideas, but also on integrating the ideas into what fits a respective market’s expectations, and what businesses and customers are accustomed to.  Ground-breaking innovation might succeed by circumventing that of which a market is accustomed, but in most cases a firm’s best investment is understanding what the locals want and how they want it, and simply following their lead.  Is your approach just a correct answer, or the right answer?

Image source

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

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/09/the-smartest-investment-for-your-innovative-insurance-play-just-might-be-in-cultural-awareness/

Iwoca storms ahead in SME lending game

https://dailyfintech.com/2019/05/08/iwoca-storms-ahead-in-sme-lending-game/

They say the night is darkest before the dawn – which is certainly how it can feel in fintech startup land. You’re always $1 away from disaster, or $1 of leverage away from disaster if you’re a fintech lender. Small books can be painful beasts to manage.

Which is why it is all the more impressive to see Iwoca steam ahead of some big lenders with deep pockets in the UK market. The SME lender now has claim to 12% of all new business overdrafts, beating Santander at 9% and HSBC at 11% according to Forbes, who sourced the data from UK Finance. They aren’t far behind Barclays at 15% and Lloyds at 20%.

While overdrafts are falling out of favour with businesses in lieu of the more attractive benefits business credit cards offer, they still represent an ‘understood’ cash funding entry point into the SME lending space.

According to additional data from UK Finance, the average % acceptance rates for overdrafts is 82.6%, compared to 69.1% for business loans.

Being a funding type that is ‘understood’ is half the challenge for new SME lenders, especially given hardly any businesses understand the types of financing they can access now.

Not knowing what you don’t know is a problem in SME lending land, and could potentially be a large factor behind the estimated £3 billion to £9 billion funding gap SMEs face in the UK. SME owners rarely seek advice before seeking funding and UK Finance reports, ‘the time spent investigating options is woeful.’

With companies like Iwoca forming multi-million-dollar lending chests, along with other fintechs, the real opportunity isn’t necessarily in more Iwocas – most are probably nowhere near capacity – but in developing more pre-lending advisory services that can help SMEs navigate the plethora of choices.

In 2017 it was reported that less than 1 in 5 SMEs sought advice on lending options, despite 45% of SMEs planning growth. This is a huge disparity, and one that someone with a smart, simple and cost-effective solution could solve. Traditional business brokers are probably not the answer, especially given their advice often comes coloured with the commission they earn in the background.

It’s always tempting to solve the simple problem in front of your nose – market the product more – but the smart entrepreneurs in SME lending land need to be looking far-further up the funnel, for the marketing and sales arbitrage opportunities that exist in tangential digitised advice businesses. I’ve always considered a ‘get-finance-ready’ platform a great plug in to any SME, provided it could be done smartly and digitally.

If you come across any in your travels – let me know!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

https://dailyfintech.com/2019/05/08/iwoca-storms-ahead-in-sme-lending-game/

Robo-advisors have not reduced the Cash Pile

https://dailyfintech.com/2019/05/07/robo-advisors-have-not-reduced-the-cash-pile/

It was four years ago that Schwab and Vanguard stepped into the robo-advisory market and leapfrogged the standalone top US robo advisors, Betterment, Wealthfront, and Personal Capital. SigFig was also a big contender at the time but has pivoted since into a predominately B2B business.

Anyone interested in reviewing the baby steps in grabbing market share and luring those holding cash to invest, can review a series of past posts[1].  Fintech startups and incumbents with low-cost investment asset allocation services, great customer onboarding, and relatively simple investment choices; have been trying to serve Unadvised Assets.

Current market snapshot

The top five robo advisors by AUM are 3 Fintechs and two incumbents. They have accumulated over $187 billion in AUM.

robo-advisors-with-the-most-aum-2019-750x375

Source: Robo-advisors With the Most Assets Under Management -2019

The growth has been double-digit, the kind that VCs like. Despite the fact that robo-advisors have clearly not lowered the customer acquisition cost (CAC) and ironically, in most cases have been deploying the same old-fashioned channels to acquire customers[2]; VCs have been generous in funding them. Just for the top three Fintech robo-advisors, Betterment, Wealthfront, and Personal Capital VCs have invested ($275, $204, $265) nearly $745million.

The market share (as measured by AUM) amongst the top 5 US robos, is 20%-80% between Fintechs and incumbents.

One of the metrics that I had chosen to follow from the very beginning of the robo-advisory trend, was Unadvised Assets – cash in physical wallets and in checking & savings accounts. For me, Unadvised Assets are a measure of the market opportunity for robo businesses. Deloitte reported in 2014 that in the US there were close to 13 trillion of such, unadvised assets.

Looking at the Q3 2018 U.S. Federal Reserve report[3] and recent Money data, from grandmothers to hedge funds holding cash, in overnight money market funds, to checking accounts and currency; I realize that

Robo-advisors have had none or negligible impact on Unadvised assets.

In the US, Unadvised assets continue their solid growth. In 2016, I had reported $13.4trillion and now we are looking at $14.5trillion. An 8+% growth over the past 3yrs.

Unadvised assets in the Euro area, have grown from a total of 10.3 trillion EUR to 11.8 trillion EUR – a 14+% growth over the past 3yrs.

In the UK, from 1.56trillion GBP to 2.4 trillion GBP – a 5+% growth over the past 3yrs.

Cash continues to be up for grabs, for robo-advisors, for P2P lenders, for crowdfunding platforms, and tokenization platforms.

When will Unadvised Assets shrink? Will the digitization of capital markets (with the rich variety of technologies and business models) overtake the trends in fiat monetary policy, public markets, and human behavioral psychology?

[1]Nov. 2015 Salivating for Unadvised assets: a videographic

March 2016 Digital Wealth management: a videographic update

Nov. 2016 Oh, the things you could do with the enormous Cash pile!

[2] Advertising, mailing services, cheap initial offers….

[3]https://www.federalreserve.gov/releases/z1/20181206/z1.pdf

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

 I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/07/robo-advisors-have-not-reduced-the-cash-pile/

Bitcoin price is picking up steam; 2019 is the year of the IEO

https://dailyfintech.com/2019/05/06/2019-is-the-year-of-the-ieo/

308sb1

Last week our theme was “Will Bitcoin go from Crypto Winter to China Crisis?.“ Our theme for this week is “Initial Exchange Offerings: 2019 is the year of the IEO.”

TLDR. After a brutal 2018, it is becoming nearly impossible for investors to lose money this year. A couple of days ago Bitcoin market capitalization broke $100 billion. If it sounds too good to be true, it just might be, especially with IEO’s picking up steam.

It has been almost a year, since the Bitcoin market was at $100 billion. While Bitcoin’s price remains down by 70 percent from its 2017 all-time high, the market cap for the world’s most valuable digital asset exceeded $102 billion. It’s certainly time to cheer!

With cryptocurrencies on the move again, everyone is making predictions of what will follow. An online platform called Bitcoin Forest, attempts its own predictions using market data and an AI algorithm to produce forecasts for the prices of cryptocurrencies.

Screen Shot 2019-05-06 at 12.57.42 AM.png

We are out of the prolonged bear market and prices will start rising, but on much sounder ground.

Since the lows in January, the number of addresses on the Bitcoin network are by 20 percent. In early April, Bitcoin recorded its 400 millionth transaction, in just a year after it passed 300 million transactions, showing continued growth in popularity. Lightning Network’s capacity has increased to over 8000 nodes with a capacity of $5.6 million. This is a 7.8 percent over the last 30 days. Fidelity’s Bitcoin Custody was launched to reel in high profile investors.

A recent survey by Harris Poll for Blockchain Capital, showed that 43% of US Adults are familiar with cryptocurrencies with 20% between the ages 18-35 owning Bitcoin.

Bitcoin is gaining a lot of traction across the board. The report shows that 21% prefer BTC over government bonds, 17% over stocks, 14% over real estate and 12% would invest in BTC before investing in gold.

Along with the rising prices of cryptocurrencies we are also seeing a rising trend in Initial Exchange Offerings (IEOs). It’s becoming clear that will IEOs will be the theme for the cryptocurrency industry in 2019.

In 2017, 875 ICOs raised $6.2 billion. In 2018, 1258 ICOs raised about $7.8 billion USD. Already this year, 12 exchanges have announced IEO platforms and 39 projects have participated in an IEO.

In 2017, ICOs are raised using smart contracts with Ethereum. It was as simple as sending ETH to a smart contract to purchase your tokens in ICO, and immediately you will receive your tokens. In 2018, things changed. Most ICOs performed KYC before a participant could contribute, and the release of tokens usually is not immediate.

IEOs are like ICOs, except that the fund raising takes place on a specific exchange. From exchange to exchange, IEOs may slightly differ, but the basic idea is the same. The exchange performs, marketing, fundraising, and distribution and is paid a fee in the given token. When the IEO completes, the token is listed on the exchange for trading.

Binance was one of the first to introduce IEOs in 2017, and in 2019 reintroduced its Launchpad platform with the success of the Bittorent token generating interest from the crypto community.

0_9ytJNkGpmhO5kLXp.png

IEOs also offer numerous benefits to the parties involved. Investors are theoretically better protected against fraud, because there is an exchange that approved and rejects projects. It’s expected that serious exchanges, will likely conduct better due diligence before offering to act as the counterparty for a project that want to raise money with an IEO.

Crypto is heading towards the same VC and private equity to IPO exclusivity game. The model isn’t all that different to a conventional IPO. Exchanges, like NASDAQ or the New York Stock Exchange, approve listings based on the quality of the offering and a whole host of regulatory compliant guidelines. An IEO merely replaces equity with a digital asset.

Will year 2019 be the year of IEO?

2019 is the year of the IEO. Exchanges will handle project vetting for retail investors and tokens will be tradable in weeks. Being vetted by an exchange and immediately tradable, IEOs address two of the key problems with ICOs. Tokens are immediately listed on the exchange, giving holders immediate access to a trading platform. An exchange that acts as a counterparty, providing an additional layer of assurance for investors.

The new race will be investing in companies that are guaranteed an IEO, which can be interpreted as a very positive signal for the industry, in general.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/06/2019-is-the-year-of-the-ieo/

Why #GetOffZero Gets Sensible Investors To Look Seriously At Improbable Bitcoin Based Solutions

https://dailyfintech.com/2019/05/04/why-getoffzero-gets-sensible-investors-to-look-seriously-at-improbable-bitcoin-based-solutions/

GetOffZero.002

TLDR We used to think of positive interest rates like the law of gravity or the law of supply and demand – immutable. Yet negative interest rates is a very real phenomenon/problem today. In this topsy turvy world, even sensible  investors look seriously at improbable bitcoin based solutions. (The hashtag should be #getoffnegative but that is not getting traction like #getoffzero).

This update to The Blockchain Economy digital book covers:

  • Why sensible people pay to lend their money
  • Gold and the hope you are wrong story
  • The improbable Bitcoin solution
  • Context & References

Why sensible people pay to lend their money

Paying money to lend money (aka Negative Interest Rates) is crazy. So why do sensible investors do this? The answer is simple. They aim to avoid a worse problem. 

With Negative Interest Rates you are guaranteed to lose a little. You do this to avoid the risk of losing a lot in some other asset.

The more secure the currency, the higher the interest rate that the Central Bank controlling that currency can charge. For example, the Swiss National Bank (SNB), caretakers of the famously stable Swiss Franc, can charge a premium for the right to lend them money. If you pay 1% a year, you will only lose 1% a year. if you earn 15% interest on a currency depreciating by 17% you do worse.

Gold and the hope you are wrong story

One investor suggests an allocation to Gold but in the hope that Gold price goes down. His logic is that if you allocate say 10% to Gold and it goes up 2x, that is probably because 90% of your assets have declined a lot. You can paint a scenario where Gold is valuable but Bitcoin is worthless (eg if there is no Internet or electricity) but that scenario is so awful that you hope it is wrong (even if you have some physical gold just in case).

Bitcoin has no obvious parallels as an asset class. Bitcoin is a bit like a currency and a bit like a commodity and a bit like a stock – yet different from all of them. If you want an analogy, Bitcoin is like gold but a) before gold had a long history of value and b) with a fixed hard limit to how much could ever be mined. Imagine somebody pitching gold before gold had an established monetary value and you come close to understanding Bitcoin by analogy.

Gold and Bitcoin are both anti-fragile bets. If the current macro story ends badly, both will do well. Gold is definitely a hope you are wrong story. Bitcoin is more nuanced.  A scenario where Bitcoin goes up 100x is likely to be scary and disruptive and bad for many assets, but there is also a hopeful scenario where Bitcoin gives people greater sovereignty over their data and other assets.

The other obvious solutions look jaded at the end of the “everything bubble”

The simplest way to avoid paying a bank to take your money on loan is to loan money to a Government or a Corporate. The more stable the Government or Corporate, the lower the interest rate. You also avoid bank counterparty risk. So risk-off capital floods into sovereign and corporate bonds. What happens when excess capital flows into an asset type – yes, you get bubbles and that means returns go down and risk goes up. So the bond workaround is not a good one.

Equities at the end of the everything bubble seem dangerous, valuations are high and highly dependent on central banks. 

Hard assets also suffer from the storage cost problem. For physical goods this is a very real issue; think of vintage cars, wine, art etc. There is the additional shelf life problem as any wine lover knows who has opened an old wine that got better as decades went by and then suddenly was “off” ie horrible to drink and worthless. 

So, looking at the alternatives to Bitcoin, none are looking that good at this stage of the cycle. One veteran investor was asked to come up with reasonably priced assets to buy. The best he could come up with was that labor is undervalued vs capital. 

That lack of obvious alternatives is pushing some investors to look at the improbable Bitcoin solution.

The improbable Bitcoin solution

Investors are like detectives, on the hunt for truth – preferably contrarian truth. The most famous fictional detective,  Sherlock Holmes says:

“When you have eliminated the impossible, whatever remains, however improbable, must be the truth”.

The improbable Bitcoin solution has 3 parts to it:

  • Safe low cost storage. This is a tough problem, but with such a big prize motivating so many upstarts and incumbents it will be fixed. It should be possible to deliver this at low cost as Bitcoin is a digital product; this is not like storing vintage cars/wine/paintings.
  • Allocation. You place an anti-fragile with maybe 1% of your capital into Bitcoin. If the everything bubble ends badly for other assets, Bitcoin will do well. If you lose 40% on 99% of your capital, you will need a 40x return on Bitcoin. That is feasible if there really is that level of disruption to legacy finance. As some wealthy people enjoy comparing themselves to other wealthy folks, that Bitcoin win will get them bragging rights on their yacht (as well as more yachts for sale at bargain prices). 
  • Use Bitcoin as collateral. Lombard loans have been a tool of the wealthy for a long time. A lombard loan (or lombard credit) is a type of secured loan, in which the entire loan amount is secured by a deposit at the bank that is providing the loan. Lombard loans can be secured by money held in bank accounts, life insurance policies, securities (like stocks or bonds) or other assets. For more go here. Today, Bitcoin would be considered far too risky for lombard loans and most legacy finance won’t offer Bitcoin deposits. This leaves the market open to upstarts. If it is an asset, it can be used as collateral. The only calculation is collateral to loan % and that is based on volatility; so Bitcoin as collateral is still an emerging story.

No investment is without risk. Bitcoin has risk. That is why 1% allocation is what some investors/advisers suggest. AIl risk is comparative. If other assets look risky, maybe that 1% allocations to Bitcoin starts to look a bit more sensible.

Context & References

Why Bitcoin Is Surprisingly Valuable And Stable As A Chair With Only One Leg

A Bitcoin Maximalist describes a real issue to worry about – it is not what the Bitcoin sceptics tell you.

The Path To Mainstream Adoption Of Bitcoin Is Not Through Legacy Finance Institutions, It Is Through The Excluded.

How Family Offices AKA Muppets On Steroids Are Writing The Future Of Fintech Blockchain And Wealth Management

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Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/04/why-getoffzero-gets-sensible-investors-to-look-seriously-at-improbable-bitcoin-based-solutions/

$100 Billion++ , is Softbank’s Vision fund blinding the market?

https://dailyfintech.com/2019/05/03/100-billion-is-softbanks-vision-fund-blinding-the-market/

The tech IPO market is having a bonanza year so far and NASDAQ hit an all time high in April. However, confidence in the tech giants and their ethics in dealing with consumer data is perhaps at rock bottom. Cheap money is causing ballooning valuations. With Zoom, Pinterest, Lyft, Slack, Uber, WeWork all going for the big day at the market, are we witnessing a repeat of the dot com boom and bust?

Image Source

The other question to ask is “Is Technology the new Banking?”. As they say, “Follow the money” to catch the bad guys in crime stories. The other way to look at it is, when people make good money, they are often portrayed as the bad guys. The world loves to see them fall. Behavioural and philosophical points aside, several market trends are shouting out for caution.

Analytics company Intensity’s April prediction puts the chances of a recession happening in the next 18 months at 98.9% and in the next 24 months at 99.9%. They are expecting a recession to happen in October 2019. Out of curiosity, I went through all their previous months’ predictions, to check for consistency. The confidence levels had increased steeply between Aug-Sep 2018, and have stayed high since.

Irrational exuberance in the markets is on display yet again. The Crypto bubble burst two years ago, but didn’t cause much of a pain as the market cap was not big enough. But with tech stocks driven by late stage VCs like Softbank, we have more to lose.

Global debt levels are at an all time high at $244 Trillion, and almost everyday economists are writing about a crisis triggered by debt markets.

One of the key trends over the last two years in the VC industry is the rise of late stage venture funds. Softbank led the boom, with Sequioa and others following up with relatively modest sized funds to catch “Unicorns” before their big day in the public markets. The strategy is to get in, pump the firms with steroids and fatten them up for the markets to consume. In the process, make some huge multiples.

Softbank’s investment timeline: Source, Crunchbase

Some stats around the Softbank fund

  • $100 Billion to invest
  • ~$70 Billion deployed so far in about two years,
  • $15 Billion more
  • $10 Billion in Uber and $5 Billion in WeWork
  • Improbable, NVidia, Grab, Kabbage, Flipkart, Oyo, Slack, PingAn, Alibaba and more recently OakNorth are some big names in the porftfolio
  • $45 Billion from Saudi’s Sovereign Wealth Fund represents the biggest investor in the Softbank Vision Fund.

However, both Uber and WeWork have struggled to demonstrate a sustainable business model inspite of their rise. The Growth vs Profitability conundrum remains, and these two might well be case studies on how not to spend VC money, if (when?) their “Going-Public” goes sour.

The Softbank Vision fund could also be a case study of “How not to do Venture Capital”. As a late stage Venture Capital investor, they have an opportunity to look for firms with robust business models and help them go public.

One bright spot is their investment into OakNorth, a UK based Fintech, who tripled their profits in 2018.

The strategy with firms like WeWork or Uber should have been to identify where the business model needed tweaking and pivoting. That could be achieved with $100 Billion in the bank. As a fund with so much capital, they have a responsibility to make healthy VC investment decisions. Not just for their investors, but also for the markets.

I am sure Softbank will make handsome multiples when some of these shaky businesses go public. However, the success these firms managed with private money, would be hard to replicate in the stock market. If a few of them fail, that would trigger pain.

There is enough negative PR about the tech industry’s lack of ethics, diversity and how they manage data monopoly. Creating a bubble, riding it and exiting it before a market crash might just make Tech the New Banking. Softbank might have accelerated that process.

Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on “Sustainable Deeptech Investments” and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

https://dailyfintech.com/2019/05/03/100-billion-is-softbanks-vision-fund-blinding-the-market/