Six diverse picks of Fintech shovels & Fintech stacks

https://dailyfintech.com/2019/08/20/six-diverse-picks-of-fintech-shovels-fintech-stacks/

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The transformation of Financial services continues and re-bundling is one of the trends that is at work. Fintechs are collaborating and creating fuller stacks by bundling several services and growing their businesses.

Six picks give you a picture of the diversity of this trend.

Mambu is a leader in the Saas core banking sector. It powers up Oak North bank, which is the No.1 UK challenger bank. It is the heart and brain of the ABN Amro`s digital banking spinoff, New10, that focuses on SME lending. It became the banking cloud platform that powered N26. The leading mobile banking app N26, transitioned to Mambu in 2016. This gave N26 full ownership of customer data and facilitated scalability from about 500,000 customers to now more than 2.3m.

Solaris Bank is a leader in Baas, by offering banking services without owning a banking license. Solaris Bank powers Modifi, which offers international trade finance to SMEs. CrossLend, is an online marketplace for European loans which is powered by Solaris Bank in order to offer instant securitization of loans.

Plaid is a US B2B Fintech that offers a diverse and growing set of tools to connect user accounts. It is enabling Prosper and SoloFunds (lending Fintechs) to quickly onboard new users and connect their bank accounts. It powers up Gusto (renamed from ZenPayroll) that offers a complete cloud-based payroll, benefits and HR management software for US companies.

Fidor Solutions, the German tech company powers Fidor Bank in Germany and the UK. It is also powering the o2 Telefónica Deutschland the mobile banking app of the German telecom provider.

Moven Entperprise is a US based technology company powering Fintechs like TD MySpend and WestPac CashNav – from Canada to New Zealansd. Both are free mobile PFM apps that allow users to track and manage real time their spending.

Habito is a UK online free mortgage provider that powers Starling Bank`s mortgage offering. WealthSimple is the Canadian robo-advisor on the Starling marketplace for investment services and PensionBee for pension services.

Saas offerings, re-bundling and the pot of gold

No Mambu jambo — the power behind N26

German start-up Modifi powers up for digital trade finance

SolarisBank and CrossLend start strategic partnership for fully automated loan securitization

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

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 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/2019/08/20/six-diverse-picks-of-fintech-shovels-fintech-stacks/

The Future of Finance book review

https://dailyfintech.com/2019/08/19/the-future-of-finance-book-review/

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This book review is written by Sheldon Freedman, a fintech and funds lawyer at Hassans in Gibraltar and  an expert in Security Tokens. We asked Sheldon to write a 3 part post on Security Tokens in November 2018 (use the Security Token tag on Daily Fintech to see these and other posts on this critical subject). As Fintech goes mainstream, there are more books and educational courseware on the subject. The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services looks like one of the better ones. As Daily Fintech Editor, I like to find experts to review these books.  You can buy The Future of Finance book on Amazon or direct from the publisher.

Out this month is The Future of Finance: The Impact of FinTech, AI and Crypto on Financial Services (Palgrave Macmillan, 312 pages).  Canadian lawyer-turned-financial-services-consultant-turned-entrepreneur-turned-Big-Four-Hong-Kong-Cypto-Digital-Assets-guru, Henri Arslanian, together with co-author French engineer-turned-financial-officer-turned-entrepreneur-turned-Hong-Kong-AI-guru, Fabrice Fischer, have contributed a useful volume for layman and professional alike. The book is written in stodgy text-book-ese, a primer in financial services transforming in the age of technological disruption, detailing with remarkable clarity where financial services is today and how it got here. 

Understanding the development of financial services as impacted by dramatic advances in computation, data science and connectivity is essential to grasping today’s industry; the authors do not disappoint in fulfilling their task of explaining.  Beyond the machines, the authors describe how sustained low interest rate environments led to intensive high-risk investment in technology, and how regulators encouraging competition spawned vigorous innovation and disruption. 

Even though the book is titled, The Future of Finance, there is little prognostication in its pages.  This is because multi-disciplinarian pro’s like Arslanian and Fischer know the innate unpredictability of technology and finance mixed with the innate unpredictability of human beings makes prognostication impossible.  Rather, these two top-drawer consultants accomplish what good consultants do:  they arm clients (and us readers) with the understanding of the forces in play that will shape tomorrow so that we can think and try to understand together as Unpredictable Future reveals itself.  Wise to the perils of prediction, the authors cite “Amara’s Law” that “we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”  (This is a variation on the “Gartner hype cycle”, where observers initially expecting rapid, disruptive change, dismiss the technology in disillusionment when its adoption is not immediate – only to find the disruptive technology a ubiquitous part of their lives a short few years later.)

Fintech companies have come to threaten incumbent financial services organizations in recent years. The most dramatic aspect of industry development currently, however, is rather the rise of Techfin. The difference between Fintech and Techfin is in the differing natures of the underlying organizations. Fintech usually refers to niche innovation delivering improved services using digital technologies to reduce costs, increase revenue and remove friction.  Techfin is big technology companies (think Alibaba, Facebook, Tencent, Google, Apple, Baidu) delivering superior financial products as part of broader service offerings. Both Fintech and Techfin collect and analyze massive data sets, learn from the insights to improve personalization and digital engagement in real-time, and expand offerings in response to consumer needs.  The authors describe recent domination in Asia by Alibaba and Tencent on a breathlessly astounding scale.  Tenchfin behemoths, built on digital platforms, challenging competitors’ entire legacy systems, are the reigning industrial experts at reducing operational costs and monetizing their businesses. Techfin players often already command brand loyalty and trust by virtue of their serving millions of customers over many years – and they possess their customers’ data as well.

We know that the future of finance will be centered on the raw, unstructured big data being interpreted by machines working in a cloud-based environment.  The authors explain well how the vast proliferation of data, connectivity and storage capacity make the interpretation and management of data the King of capabilities.  The book devotes considerable space explaining AI’s crucial significance.  The future of finance is platformisation, the shifting market dynamics created thereby and the renovation of the back office – all wrapped up to deliver spectacular customer experience.  Who will own the platforms?  Who will deliver the services?  Who will win the contest for the customer?  Who will set standards?  No one knows, but Messrs. Arslansian and Fischer have given us a playbook.   

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

Subscribe by email to join 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/2019/08/19/the-future-of-finance-book-review/

Every Bank wants to be a Bitcoiner. Do we need Central Bank Digital Currencies?

https://dailyfintech.com/2019/08/19/every-bank-wants-to-be-a-bitcoiner-do-we-need-digital-currencies-by-central-banks/

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TLDR. Bitcoin’s price rebound and the advent of Libra so far this year, has caused many to reconsider and some even to change sides. Debates about Central Bank Digital Currencies (CBDC) are now gathering great attention worldwide. Central banks may have to issue their own digital currencies sooner than expected. A number of central banks, including the People Bank of China (PBoC), Bank of Canada (Project Jasper), the ECB, the Bank of Japan (Project Stella) and the Monetary Authority of Singapore (Project Ubin), have already run experiments operating DLT-based CBDC.

A few days ago, Arunkumar posted here on Dailyfintech.com “China’s digital currency could be a response to Libra” and Anthony Pompliano tweeted: “Every banker secretly wants to be a Bitcoiner!!

Central banks have been very dismissive of cryptocurrencies. While many central banks do not have immediate plans to issue digital currencies, some are making announcements and others are seriously considering whether they should issue their own digital currencies.

Cash is being used less and less, and has nearly disappeared in countries such as Sweden and China. At the same time, digital payment systems like PayPal, Alipay, WeChat and now Libra, offer attractive alternatives to services once provided by traditional commercial banks.

Central banks can no longer dismiss Bitcoin, Libra and other cryptocurrencies. In most countries the thinking seems to be geared towards creating a new cryptocurrency, that is controlled by the central bank, instead of accepting Bitcoin as an official form of payment.

Since 2014, China’s digital currency has been in the research and development stage. Ten days ago, the People Bank of China (PBoC) is said it’s almost ready to launch its own CBDC.

China is not the only country around the world that is planning their own CBDC. According to a report from the Bank of International Settlements (BIS), 70% of central banks (based on 63 central banks that participated in the survey) are researching the issuance of a CBDC.

CBDC initiatives around the World
In 2016, Singapore, the Monetary Authority of Singapore (MAS) conceived Project Ubin as an opportunity for Singapore to take a leading role in the research on central bank currency on a distributed ledger and Central Bank Digital Currencies (CBDCs). In May this year, the central banks of Canada and Singapore concluded a successful trial of cross-border payments using blockchain technology and central bank digital currencies.

Last year, after the US trade sanctions on Iran, the country announced the Crypto-Rial. A month ago, the Central Bank of Iran (CBI) announced that its close to unveiling a national cryptocurrency backed by the country’s gold reserves, that it will be mined by the CBI and a consortium of Iranian private IT firms.

In February 2018, the Marshall Islands issued the Sovereign Currency Act of 2018 introducing a new blockchain based currency called the Sovereign (‘SOV’) as legal tender of the Marshall Islands for all debts, public charges, taxes and dues.

Earlier this year in January, the UAE Central Bank (UAECB) and the Saudi Arabian Monetary Authority (SAMA) announced Aber, a digital currency that will be used for financial settlements between the two countries.

Dubai, announced its own cryptocurrency in October 2017. Dubai’s very own CBDC, emCash, will be used as an official payment solution for government and non-government services in Dubai.

In Sweden Riksbank has been working on an e-Krona project as of early 2017, in response to many years of declining use of cash. Sweden is reportedly now ahead of its next stage, which is a pilot for a prepaid value, non-interest bearing and traceable e-Krona.

The Bank of Lithuania is planning to issue a Digital Collector Coin to test blockchain on a small scale, while also sponsoring a blockchain sandbox called LBChain.

The Eastern Caribbean Central Bank is looking at the long-term viability of a DLT-based Eastern Caribbean currency to support economic growth, payments system resilience and financial inclusion.

Another country that is testing a CBDC is the Bahamas. The International Monetary Fund (IMF) released details of its discussion with the Bahamas’ central bank in July, including work done on the country’s CBDC.

In Uruguay, the central bank completed a pilot program on a retail CBDC in April last year as part of a wider governmental financial inclusion program. The pilot began in November 2017 to issue, circulate and test an e-peso.

The Bank of Thailand (BOT) completed the second testing phase of its CBDC called Project Inthanon. Started in August last year, the first phase focused on developing a proof-of-concept decentralized Real-Time Gross Settlement system (RTGS) that uses a CBDC on a distributed ledger.

Why Central Banks Are Exploring CBDCs
A report released by the IMF in June, notes that central banks may issue CBDCs and the main reasons are: “lowering costs, increasing efficiency of monetary policy implementation, countering competition from cryptocurrencies, ensuring contestability of the payment market, and offering a risk-free payment instrument to the public.”

The International Monetary Fund’s (IMF) managing director, Christine Lagarde, commented on cryptocurrencies at the World Economic Forum’s Davos convention. The soon-to-be head of the European Central Bank told reporters that “cryptocurrencies are shaking the system.”

Do we actually need CBDC?
The demand for CBDC in any country will be greatly dependent by the use of cash.

Digital cash has two important benefits. One is a reduction in the cost of supplying cash to the public. Digital cash alleviates the expense of printing currency, maintaining its fitness, building vaults and storage depots, and distributing cash.

The other is user convenience. Certainly, there is not much improvement in convenience if a user has to travel to an ATM or bank branch weekly or biweekly to reload a digital cash card or a mobile phone. However, if central banks issue a digital cash card, POS terminals could be adjusted to accept it just like a bank debit card. Funds could be debited from a user’s bank deposit account for each transaction.

While using digital currency is more convenient than going to an ATM to get some money, CBDC still sounds like a debit card. The demand for CBDC will be weak in countries where the use of cash is already very low, because of existing alternatives (debit cards, electronic money, mobile phone payments).

What does the future hold?
A few weeks back, for the first time during his presidency, Donald Trump tweeted about Bitcoin and cryptocurrency, after Facebook launched Libra, its own form of money. We are seeing governments around the world react to the rise of cryptocurrency.

While introducing CBDC would have a huge and transformative effect on the banking industry, it’s  not clear if the demand for CBDC and is there yet. A CBDC provides people with an alternative and safer means of storing money. But this also means reducing deposits with commercial banks. Competition for deposits may lead to higher deposit rates and drive new innovation that encourage saving and borrowing.

We welcome CBDC, but that doesn’t mean they will kill Bitcoin or other cryptocurrencies. A CBDC is nothing like a Bitcoin or any other cryptocurrency. It’s not a cryptocurrency, but digital money. The world needs a digital form of fiat money like CBDC, but it also meeds a private form of money, like Bitcoin, that is not controlled by a central organization. People should be able transact with each other, without someone being able to impose restrictions on what they can and cannot do with their money. Money is a language and freedom of to transact, is just like freedom of speech.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

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

https://dailyfintech.com/2019/08/19/every-bank-wants-to-be-a-bitcoiner-do-we-need-digital-currencies-by-central-banks/

This week in Fintech

https://dailyfintech.com/2019/08/16/this-week-in-fintech-4/

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Every day we bring you fresh insights about Fintech from an elite group of Authors who are just like you – senior executives, entrepreneurs and investors working in the global Fintech revolution. Once a week our Editor summarises these posts for the time challenged and gives you a peek at what you will get by reading the whole article.

Monday Ilias Hatzis @iliashatzis our Greece-based crypto entrepreneur, wrote:

Could the next financial crises drive Bitcoin mainstream?

”Bitcoin has no intrinsic value, but neither does government-issued paper money. The market should determine its value, while government should focus on disclosure, education, fraud prevention, and curbing its use to support criminal activities.” – Sheila Bair, who headed the FDIC during the dark days of the 2008 financial crisis

Ed note: Ilias explains the bad macroeconomic numbers in the legacy Fiat economy and predicts that when the next financial crisis hit, there will be mass adoption of Bitcoin. 

Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser wrote:

Four of my Fintech posts connected to books

Summer reading for Fintech leaders includes books by Miguel R. Brandao, Duena Blomstrom, Costa Vayenas, Chris Skinner & Paolo Sironi.

Ed Note: These 4 books recommended by Efi have many conceptual breakthroughs such as the Dolphin Organization, People-Centered Economy,  CivicTech linked to Democracy in the Digital Age & Sustainable Banking Innovation

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur,  had a week off so we reposted from Jan 2015:

Creative economy, micropayments and Bitcoin 

Ed Note: this was one of Daily Fintech’s early posts that epitomizes what one of our regular readers noted – “before it is news, I get to read about it in Daily Fintech”.  This is what we have dubbed News Forecasting, which is the mental discipline of looking at trends and real unmet needs to figure out where the puck is headed.

Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert, wrote Contents Cover- the under-served aspect of property insurance innovation

Structure losses– estimated to the nearest square foot or square meter.  Plenty of automated tools and techniques, and plenty of auditing for consistency.

Contents losses– manual assessment and data entry.  Some automated tools for high value, niche cover or pre-inventory.  Little consistency in estimation as there is little consistency in what’s being assessed

Ed Note: Pat contrast the inefficiency of unscheduled personal property (UPP) insurance (aka contents aka FF&E) with the relative efficiency of structure/house insurance. Despite both being subject to the same event, affecting the same customer and drawing from the same insurance funds, the approach is fundamentally different. 

Friday Arunkumar Krishnakumar @karunk, our London based Fintech investor, wrote China’s digital currency could be a response to Libra

China announced their CBDC (Central Bank Digital Currency) after working on it for 5 years. This is likely a response to the US-China trade war and more controversially, a response to Facebook Libra.

Ed Note: it is a strange moment in history when the idea of a big country imitating a tech company in currency is even conceivable and debatable. Arun posits the idea that this move by China may make the US Government more friendly to Libra. 

——————————————-

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 (other than Daily Fintech of course). I am not receiving compensation for this post.

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

https://dailyfintech.com/2019/08/16/this-week-in-fintech-4/

China’s digital currency could be a response to Libra

https://dailyfintech.com/2019/08/16/chinas-digital-currency-could-be-a-response-to-libra/

Earlier this month, a senior official of the People Bank of China (PBoC) announced that the country was ready to launch its digital currency. The announcement was made at a China Finance 40 (CF40) group discussion and it was revealed that China has been working on this for the past five years.

China CBDC

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The obvious reason for this announcement would be the US-China trade war. The last year has seen the two mighty economies deal blows to each other. This has possibly triggered a global economic slowdown, as data from different countries across the world trickle in.

We know that China hasnot been fond of Cryptos. Before getting into the macro aspects of China’s CBDC (Central Bank Digital Currency), let us quickly go through some of the salient points of the digital currency.

  • The currency would have two tiers. The PBoC will be at the top tier with commercial banks forming Tier 2. This is to ensure effective management of the entire market.
  • The CBDC will have a Blockchain element, however, is not entirely built on it. This is to ensure throughput required by the China market is achieved.
  • The usage pattern targeted for use of the currency is “small scale high frequency” businesses.
  • PBoC have filed about 52 patents for the digital currency.

Many countries are looking at a CBDC. Singapore has even conducted pilot transactions with Canada with their digital currency. However, I feel, there are a few macro reasons at play with the China announcement.

In my view, the US-China trade war is undoubtedly behind this announcement. Earlier this month, China’s Yuan fell below the $7 mark for the first time since 2008. The Trump administration have been complaining that China has been manipulating its currency. The currency has fallen in value by over 2.5% since the end of July.

Analysts following the Yuan in the context of the trade war feel that the battle between the two economies is now moving into the FX market. In that context, and in post-Libra announcement times, China’s CBDC is extra important. The expectation is that the digital currency could help increase the global circulation of the Yuan.

Also, China has always wanted to find a way to keep its currency unaffected by foreign technology firms. The former governor of PBoC, Zhou Xiaochuan, last month mentioned that Libra could pose a serious risk to national currencies. Also, Libra’s reserves are largely going to be in the USD. So it could be an tool for the US to gain a monetary foothold in China.

The strength of a state is greater than that of an Internet company

Ren Zhengfei, CEO of Huawei

Another voice that has come out to support China’s CBDC is Ren Zhengfei, the CEO of Huawei. He commented last month that China has the might to respond to Libra with a digital currency. With the trade war taking new proportions, it is no surprise that China are responding to inputs from local experts.

With such reactions from China, I would be surprised if the US created too many hurdles for the Libra launch.

We are yet to see how the landscape of digital currencies is going to pan out over the next few years. But it is interesting to see that the concept is being considered as a potential weapon in a trade war. Satoshi may not have wanted such a centralised version of a digital currency, but this is a sure shot way to get it (Blockchain) main stream.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion 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 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/2019/08/16/chinas-digital-currency-could-be-a-response-to-libra/

Contents Cover- the under-served aspect of property insurance innovation

https://dailyfintech.com/2019/08/15/contents-cover-the-under-served-aspect-of-property-insurance-innovation/

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TLDR  Consider:

Structure losses– estimated to the nearest square foot or square meter.  Plenty of automated tools and techniques, and plenty of auditing for consistency.

Contents lossesmanual assessment and data entry.  Some automated tools for high value, niche cover or pre-inventory.  Little consistency in estimation as there is little consistency in what’s being assessed

One would wonder how this dichotomy can exist within property insurance – it’s the same pot of funds used to indemnify an insured, whether it’s for structure or contents/FF&E.  The. Same. Funds.  Wrestle every penny for structure, not so much for unscheduled personal property (UPP).

While it’s difficult to pin down an exact number (even the statisticians treat contents as a stepchild number), clearly Contents/FF&E losses comprise paid severity in the tens of billions of dollars annually in the U.S. alone.  Why is it, then, that in great part the efforts to innovate property insurance claim assessment have been focused on structure loss capture and estimation?

Some thoughts:

  • Contents losses, in contrast with structure, have little uniformity claim to claim. Structures are built differently but by using uniform methods; the same applies to estimating the damage.  Not so much for UPP.
  • Contents reflect fashion as well as function; this affects valuation in a significant way.
  • It is difficult to apply assessment/valuation tools such as structure square foot calculators to total losses of contents.
  • Inventory of contents losses is labor intensive. The damaged décor of a damaged room can be assessed in minutes where it will take much more time to itemize the damaged contents.
  • Customers may assign emotional connection with contents; this is less likely with structure.
  • Contents cover limits are often an offshoot calculation of structure limits- no practical method to value a household of contents in a manner like the area of a structure times a multiplier provides a good estimation of a dwelling cover limit.
  • There is little intellectual capital effort dedicated by carriers to keeping a contents or FF&E adjusting skill set. Not many executive general adjusters place expertise in contents adjusting on their CV.

In summary, contents claim adjusting is disuniform.  Disuniformity resists innovation.

Are there insurance entrants that have taken small bites of contents innovation?  Sure, there are, but in general the contents innovators are niche insurers (narrow scope of covered categories) or renters/condo insurers where the contents cover comprises the primary cover for the insured.

Much of the innovation in contents insurance focuses on access, or policy acquisition, e.g., on-demand such as what Snap-it (South Africa based), or Trov, champion.  Take images with a smart device, perhaps send an image as needed, and you are covered.  Switch on, switch off.  And for valuations for claims- these firms focus on discrete, higher value contents, items with a specific, verifiable, AI- processed claim presence.  The concepts haven’t gained universal success (in fact some contraction of markets covered) but the efforts are encouraging.

Another avenue for innovation is the niche play, e.g., Laka, a UK entrant that is building a community of bike owners and an associated cover for bicycles and gear, all addressed through a clever application.

Lemonade has extended the innovation beyond policy acquisition and claim handling, and associates a public benefit with its cover that encourages customers to have more awareness of how claims affect the insureds as a whole, and provides charitable contributions when surplus earned premiums are considered.  Claim less = contribute more.  The innovation includes the principle of public good.  Oh, and if you haven’t heard- Lemonade settles claims in seconds through application of claim verification algos.  At least a few have been.  😎

And Lemonade has a colleague in utilizing a psychological and/or game theory approach to UPP claims- Slice On-Demand Insurance.  Founder Tim Attia has the firm dabbling in app-based psychology of claims, where the app ‘talk path’ is psych PhD vetted, encourages customer buy-in to legitimacy in the claim report with inclusion of video support.  Innovation in leveraging behavior, not unlike Lemonade’s approach.  And, Slice is experimenting with straight through claim processing utilizing binding arbitration- that’s game theory that’s old but an application that is innovative.

But what of more ‘traditional’ contents/FF&E claims?  Not much change, that is clear.  Yes there are tools that have been introduced that make the claim scope easier to capture, e.g.,  field capture of inventory details that are transcribed remotely into an estimate, or home inventory apps that help a homeowner maintain a detailed list of personal effects in case of a loss.  But those ‘efficiencies‘ have not changed how contents losses are handled.  If it’s agreed that structure cycle time (claim inception to settled) is say, 18 days, then UPP (unscheduled personal property) cycle time can easily be double or triple that.

And for heavy losses?  No real change- still need that exhaustive inventory of anything being claimed, and analog/digital pricing schemes.

If dwelling losses can be calculated on an aggregate cost per measured unit, what prevents some clever data analytics and AI from estimating a household’s UPP loss based on data indicators and predictive analysis of some decades of UPP loss histories?

Commercial FF&E claim handling is not much better, but there are hints of innovation that have a foundation in serving the customers’ needs.  EquiX has an inventory-to- pricing- to- sourcing application that in one fell swoop assesses the loss and hands the insurance customer a practical and actionable accounting of a loss.  Per the firm’s founder, James O’Brien, a recent claim with a total loss at a car dealership was dealt with using the firm’s intuitive valuation and sourcing software (and vendor network) in a few weeks where traditionally the assessment would have consumed months.  The combination of the pricing/sourcing engine and ‘boots on the ground’ provided by Commercial-Ease bridged the analog on-site information collection with straight-through processing, resulting in cycle time efficiency in combination with carrier and customer satisfaction.  It’s a recognition that these claims are unique, but handling can be uniform and innovative.  I’d enjoy sharing more innovation success anecdotes with the reader, there simply aren’t that many.  Perhaps the industry is waiting for UPP severity to reach a meaningful, more than tens of billions of dollars level.

The good news?  There are UPP adjusting jobs available- just saw a Sedgwick Co. advertisement looking for contents specialists.

Bring pencil and paper, please.

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 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/2019/08/15/contents-cover-the-under-served-aspect-of-property-insurance-innovation/

Creative economy, micropayments and Bitcoin

https://dailyfintech.com/2019/08/14/creative-economy-micropayments-and-bitcoin-2/

Note; originally published January 2016, republished August 2019 (as this is becoming true about 4 years later).

About 40% of the labor force in America will be self employed by 2020. Globally, including the developing world, well over 50% is self-employed.

Whatever you call it – the free agent economy or the on demand economy or the capital crushes labor economy – it is a reality that banks are ignoring and entrepreneurs are serving.

When half of your customer base is deemed irrelevant, it is not your customer that has a problem. That is when you have a problem.

Marketers, particularly marketers at Banks, love nicely defined categories. They want to know if you are a Consumer or a Business. This is the same tidiness that bureaucrats seek. Is that kitchen for cooking or for that business you are working on? Are you self employed or starting a new business? No, you are not allowed to answer “all of the above”.

Entrepreneurs just service a need no matter what the label. Many companies are profiting from serving the “really really small business” by helping them to either get to ramen profitability or supplementing ramen profitability with some “income on the side”:

  • eBay who pioneered this by turning the local yard sale into a global business.
  • Paypal and Stripe and Paystand and any other payment enabler for e-commerce.
  • Amazon serves entrepreneurs in so many ways – with AWS as well as a distribution partner as well as a way to sell your creative works.
  • Uber, AirBnB and all the other ways to make some extra cash with spare resources.
  • Etsy because they figured out that consumers are also producers and that many of us find mass-produced stuff boring.
  • Alibaba which does all of the above and is more valuable than…

That last one – Alibaba – is a reminder that there are two big waves of change happening at the same time – digitization and globalization. They are related because:

“bits don’t stop at borders”.

That is why this is about Micro Multinationals.

The creative economy is full of micro multinationals. If you create something, you want to sell it to whoever wants it wherever they are and let them pay in whatever currency they want and you want to keep as much as possible of the sale price.

https://dailyfintech.com/2019/08/14/creative-economy-micropayments-and-bitcoin-2/

Four of my Fintech posts connected to books

https://dailyfintech.com/2019/08/13/four-of-my-fintech-posts-connected-to-books/

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Traditionally we intend to read more in the summer.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

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 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/2019/08/13/four-of-my-fintech-posts-connected-to-books/

Could the next financial crisis drive Bitcoin to mainstream?

https://dailyfintech.com/2019/08/12/41379/

btc_usd_warhol copy“Bitcoin has no intrinsic value, but neither does government-issued paper money. The market should determine its value, while government should focus on disclosure, education, fraud prevention, and curbing its use to support criminal activities.” – Sheila Bair, who headed the FDIC during the dark days of the 2008 financial crisis

Ten years ago, Bitcoin was a research paper about a new type of digital money. Five years ago, most people outside tech hadn’t heard about Bitcoin. Today, things have changed. Unless you are marooned on a desert island, you’ve heard about Bitcoin.

Just about every financial, tech and mainstream media you read, will have some story about Bitcoin and cryptocurrencies. In the last thirty days:

This week Bitcoin flew past $11,000, for the first time in 3 weeks. Since December 2017, Bitcoin’s dominance again is almost at three quarters of the market. At $205 billion, Bitcoin’s market capitalization is 69% percent of the total cryptocurrency market.

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The global economy is not all sunshine and rainbows. Throughout the world, there are alarming warning signs that consumers are being overburdened with debt. Consumer debt in the United States in the last quarter of 2018, hit $4.1 trillion. During 2017, U.K. household debt surged to levels not seen since the 1980s.

The Fed’s rate cut, the trade between the US and China, capital controls in China, economic sanctions on Iran and Turkey, as well as hyperinflation in Zimbabwe and Venezuela are some factors that are prompting investors to consider Bitcoin.

The devaluation of China’s currency is rattling global financial markets. With Trump officially declaring China a currency manipulator, investors are moving their money into Bitcoin and gold.

With the currency wars flaring and global crisis on the horizon, it’s becoming apparent that investors are considering Bitcoin as a hedge.

But these are not the only reasons for Bitcoin’s price drive. Indexica points to some other reasons A study by the company showed three main drivers: a more complex conversation surrounding Bitcoin, fewer concerns about fraud and a shift in the tense of how Bitcoin is talked about from the past to the future.

In a recent series of tweets, Josh Rager, a well known crypto trader, made a bold prediction saying, once the BTC price breaks the $11,700 resistance, it will find minor resistance and reach new highs that we have never seen before. He concluded that the next upwards cycle could lead the price to surge as high as $80,000 over the next three years.

When the next financial crisis hits, one thing will be different. This time we have Bitcoin and other cryptocurrencies. In the financial crisis of 2008, the available alternative assets were gold, silver, and real estate. This time around, there’s a whole slew of alternative digital assets.

In 2019, we have several legitimate and reputable digital options, that are  widely-used with high market caps: Bitcoin, Ethereum, LiteCoin, Bitcoin Cash, Ripple, Stellar and Dash.

In recent months, the rising prices of cryptocurrencies indicate that more and more investors, small and big, see cryptocurrencies as an opportunity to hedge against the upcoming fiat crash. Given Bitcoin’s high demand and limited supply, it’s a far better hedge than gold.

Bitcoin was born out of the financial crisis. In 2008, nations bailed out financial institutions. The next crisis, given consumer and national debt, will be about whole nations being bailed out. While the US can print more dollars to bail itself out, at the cost of destroying the purchasing power of its citizens and any USD holders, the citizens of other countries like Venezuela, Argentina, and Turkey will turn to alternative means of exchange, like Bitcoin and other cryptocurrencies.

Bitcoin offers an alternative to fiat currency. Yes, it is volatile right now. But with fiat currencies, governments can print more money, cause inflation and greatly reduce consumer power. Bitcoin is not controlled by any government, capital controls cannot be imposed, and it can be freely used across borders. Bitcoin is a decentralized network with fixed supply of 21 million coins that cannot be hyperinflated.

When the next global economic crisis comes, Bitcoin will play an integral role. The crisis will probably tigger Bitcoin going mainstream, if not becoming the world’s single reliable currency.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

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

https://dailyfintech.com/2019/08/12/41379/

This week in FinTech

https://dailyfintech.com/2019/08/09/this-week-in-fintech-3/

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Every day we bring you fresh insights about Fintech from an elite group of Authors who are just like you – senior executives, entrepreneurs and investors on the frontlines of the global Fintech revolution. Once a week Daily Fintech’s Editor summarises these posts for the time challenged to give you a peek at what you will get by reading the whole article.

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

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Monday, Ilias Hatzis @iliashatzis, our Greece-based crypto entrepreneur, wrote Big Investors, Big Confidence for Bitcoin

While Bitcoin is a volatile and nascent asset class, Bitcoin has consistently outperformed the Dow, S&P 500, and gold in the last decade. With more regulatory clarity, as well as more transparency from crypto exchanges, the risk of owning Bitcoin diminishes every day, bringing more institutional investors to the market.

Editor Note: Ilias surveys the moves by major institutional firms, both buy and sell side into Bitcoin. These services reduce risk for institutional investors and that will bring in more capital which will drive up the price. That is good news for those retail investors who have front run the institutions.

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Tuesday, Efi Pylarinou @efipm our Swiss-based Fintech Adviser wrote Where are the missing Homo Economicus in investing?

All economic theories assume a Homo economicus; which in plain English means a totally rational investor. We forget this basic assumption which makes all models ill-fit to our emotional and unstable behavioral profiles. This point cannot be ignored anymore, as we seek to deploy technology to offer customized financial advice and goal-based services.

Editor Note: the job of persuasion (sales & marketing) requires connecting at an emotional as we as a rational level. The wealth management persuaders don’t restrict their appeals to the theoretical rational investor; they win business by also appealing to the emotional reasons behind our decision-making. Efi shows how as investors we need to avoid basing our decisions on these emotional triggers. Yet we cannot always do this when faced the reality of uncertainty and our emotional human biases. Efi shows us a Fintech called Oxford Risk, a Fintech offering software to help guide investors through this complex reality.


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Wednesday, Jessica Ellerm @jessicaellerm our Australia-based Fintech entrepreneur,  wrote Australia’s largest bank to spend $5B on technology

As a fintech, how do you compete with an incumbent’s AUD $5B (US$3.4b) war chest, specifically set aside for technology innovation. 

Editor Note: Jessica looks at how one bank, CBA, is using innovation at scale with a banking license to give Fintech scaleups a run for their money, when so many other big banks are conceding defeat on innovation.


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Thursday, Patrick Kelahan @insuranceeleph1 our US-based Insurtech expert, wrote InsurTech Topics and Cascading Consequences

The firehose of news is tough to keep up with in a market as dynamic as InsurTech. It gets more complex as you try to understand the interdependencies between different news stories. 

Editor Note: news on its own is mostly noise on the line. It is raw data. We need people with lots of domain knowledge to be your guide by turning data into insight. Less noise, more signal. In Insurtech Pat Kelahan is that guide. 

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Friday, Arunkumar Krishnakumar @karunk our UK-based Fintech investor, wrote Klarna’s $460 Million raise and US ambitions – is an IPO coming?

Late stage venture capital deals and funding have been growing rapidly over the last three years. The most recent European Fintech to hit the headlines with yet another multi-Billion dollar valuation is Klarna. The “Buy now Pay later” payments company raised $460 Million at a massive $5.5 Billion

valuation.

Editor Note: DailyFintech first wrote about Klarna in 2014, when we identified the primary innovation of “Buy now Pay later” and how it could disrupt the consumer lending business. This big round shows Fintech scaleups challenging the core markets of banks. 

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

https://dailyfintech.com/2019/08/09/this-week-in-fintech-3/

Klarna’s $460 Million raise and US ambitions – is an IPO coming?

https://dailyfintech.com/2019/08/09/klarnas-460-million-raise-and-us-ambitions-is-the-growth-sustainable/

Late stage venture capital deals and funding have been growing rapidly over the last three years. The most recent European Fintech to hit the headlines with yet another multi-Billion dollar valuation is Klarna. The “Buy now Pay later” payments company raised $460 Million at a massive $5.5 Billion valuation.

My immediate reaction to the numbers were, “This bubble needs to pop”. However, that is not the point of this post.

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This funding round makes Klarna the largest Private Fintech firm in Europe. In total they have raised about $1.2 Billion so far. The Scandinavian firm raised $100 Million earlier this year. However this round comes with serious international investors and growth plans.

The most recent round (of $460 Million) was led by Dragoneer Investment group and was joined by big names like Blackrock. The Commonwealth Bank of Australia came in with a $100 Million cheque to support expansion plans into Australia. However, the focus is clearly expanding into the US.

So what have they achieved so far to justify so much capital at this mammoth valuation? And why the US? Let’s first look at some Klarna Statistics from their annual report 2018.

  • 130,000 merchants across verticals,
  • Over 25,000 added in 2018
  • Average daily transactions – 1 million
  • ~26 million new consumers last year,
  • 70% of consumers make repeat transactions.
  • 47% growth YoY in the DACH region
  • Revenues over $600 Million last year, and expected to be ~$1 Billion in 2019

The numbers should show that they don’t have any major inroads in China or India. Therefore, they are going for the next best thing – the US. They are no strangers to the US market with over 3000 merchants in the US signed up. US is also their largest consumer base with 3.4 Million coming onboard last year.

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This comparison is from an analysis on Alibaba’s potential multiple of revenues at the time of its IPO. With 279 million active consumers, 8.5 million merchants onboard and 43% operating profits, they were expected to receive a valuation of 18X revenue multiple. They managed $68 Billion (~8X) valuation and raised $22 Billion through their IPO.

How is this relevant for Klarna? with a $1 Billion revenue, the US market yet to be tapped, 70% returning customers, Klarna’s valuation at $5.5 Billion sounds reasonable. This is by no means the result of an investment analysis of a zillion spreadsheets – just a back of the envelope calculation.

Most firms that have made decent inroads in the US market often command better valuation at the time of an IPO. I wouldn’t be surprised if we started hearing about Klarna’s IPO in 12 months or so.

However, if they had IPO ambitions, Klarna would need to accelerate their merchant and customer acquisition from where they are today. With half a Billion in the bank, that is exactly what they should be working on.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion 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 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/2019/08/09/klarnas-460-million-raise-and-us-ambitions-is-the-growth-sustainable/

InsurTech Topics and Cascading Consequences

https://dailyfintech.com/2019/08/08/insurtech-topics-and-cascading-consequences/

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TLDR   “If you wait by the river long enough, the body of your next article will float by.”

(apologies, Sun Tzu)

My colleague and friend, Thomas Verduzco-Weisel asked me recently about articles I write, “Do you keep a topic list or inspirational thought list?”

I wish I was that organized and purposeful.  My source of what I write about?  What I see and read, output from all of you, from periodicals, from the news.  InsurTech news is seemingly omnipresent (self-fulfilling outcome from subscribed sources), and unfailingly topically fascinating as a publishing deadline looms.

Just for perspective I monitored the topics found within insurance sources that I subscribe to (not an exhaustive list):

*Inside P&C * Best Day * PropertyCasualty360 * Business Insurance * Claims Journal *

*Insurance Journal * InsurTech News * ITL Insurance Thought Leaders *

There are many other sources, some free, some paid subscriptions, all useful in their own way (do you have favorites?)  And the topics covered daily are diverse in nature, but keeping with the principle of the Insurance Elephant, all work to comprise what is insurance/InsurTech.

Within a three-day period I logged the following subject matter topics:

Fourteen self-described topics, and multiple mentions of each, with multiple interconnections among the topics.  A fire hose delivering the information that any participant needs to fully understand the InsurTech goings on.  Plenty of subject matter out there for publication fodder.  Problem is, there’s so much out there to keep track of!

Why is this significant for this column?  Education to the reader- you can’t read it all, but you can follow your connections/peers/competitors/adherents for direction and to pick up on opportunity/education or challenge.  There’s cascading consequences among the news pieces that are suitable for discussion.

Take this example:

ILS capacity drops in second quarter”, an article posted in Business Insurance.  Insurance linked security (ILS) capacity drops in the second quarter.  Hmmm.  A recent fair-haired child, ILS capacity (that had been growing as investors looked for better than market returns) reduction causes one to ponder.  Is it an effect of the bond market in general (beginning of the flight of capital to less risky long-term debt vehicles) and having financial fingers ‘burned’ during the past eighteen months of global cats?  And what of reinsurance costs- surely not to avoid rates based on demand?  Continuing, are climate change effects going to lessen because traditional reinsurance backing is returning to a bigger role?  Is Lloyd’s leveraging the opportunities?

Or this:

Latin American premium volume dropped in 2018,  guidance from Mapfre highlighted in PropertyCasualty360, the drop ostensibly due to currency depreciation in two major LatAm economies- Brazil and Argentina.   But didn’t the Softbank Vision Fund announce a multi-billion $US fund for LatAm tech startups, and aren’t InsurTech entrants considered tech?  Is SB missing something or are there factors other than relative premium dollars to consider?  Asking LatAm insurance observer and veteran insurance executive, Hilario Itriago, on the subject one gets an ideal example of how ‘putting pieces together’ is meaningful:

“in my view it shows the magnitude of the opportunity for the insurance ecosystem to diversify and grow the products and services base to new areas, when the base stays the same it is susceptible to changes like FX which is what the MAPFRE report attributes the change to.”

And from @Digital Insurance LatAm CEO, Hugues Bertin,

“in spite of new technology, C2/C3 people are underserved. Ciberinsurance (sic) remains immature. Distribution is only focus on traditional brokers (under pressure) or in Bancassurance (but nobody wants to go to the bank 😞) but 1/3 of economy will be soon in digital platform, so… connecting with digital ecosystem and understand new customer needs are a must. See Accenture article about living business opportunity Latin America is a huge opportunity to capture insurance growth.”

(I love those guys- such staunch advocates for the market, and rightfully so)

Opportunity in the industry prompted by macro monetary effects.  Monetary policy is fleeting whereas insurance industry growth in an active, well-funded market is the future.

Also consider this:

A simple recent recounting by the estimable insurance authority, Adrian Jones, of finding renter’s insurance cover in NYC prompted a lengthy social media discussion regarding insurance availability, pricing, variability, risk factors, purchase channels, etc.  No better example of a mature renter’s insurance market than NYC, yet what was observed in the discussion was not necessarily the epitome of InsurTech, nor agency market knowledge, ease of access, nor industry customer knowledge, etc.   Mature western insurance markets are more resistant to creation of ecosystems such as found in China, Honk Kong, or SEA due to those being built from ‘ground up’, but what stops an apartment/condo/co-op ecosystem from being developed in NYC?  Renter’s policies are not money makers for carriers but are entrée to other products- why not also to value addition complementary product/services as might be found within an ecosystem?  Condo bylaws and proprietary lease terms are public record; what prevents creation of a clearinghouse of same to help memorialize what constitutes insurable interest for unit owners and management companies?

And finally:

There are rumblings of an economic downturn in 2020- what might that portend for P&C insurers?  Fewer construction-oriented policies, loss of use and business interruption premium reductions, employee benefit schemes contract, moral hazard prevalence increases, self-insurance lessens and claim frequency rises, severity creep due to tendencies to inflate losses, reduction in auto sales and associated reduction in need for cover, protracted maintenance schedules resulting in higher frequency of equipment claims, and so on.  No sky is falling position here but there are considerations for the effects economic activity may have on insurance.  (and let’s not even say the ‘B’ word- Brexit.)

Plenty of topics to consider, plenty of interconnections to consider, and more available resources than available time.  And plenty of opportunities if you just step back and observe what is going on.

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 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/2019/08/08/insurtech-topics-and-cascading-consequences/

Australia’s largest bank to spend $5B on technology

https://dailyfintech.com/2019/08/07/australias-largest-bank-to-spend-5b-on-technology/

As a fintech, how do you compete with an incumbent’s AUD $5B war chest, specifically set aside for technology innovation?

It’s a question a number of Australian fintechs and neobanks will be grappling with this week, after CBA, Australia’s largest bank, announced it is doubling down with its billions, in order to cement and entrench its market leading position when it comes to digital.

According to reports in CIO, its banking app has been voted the best 3 years in a row. That’s impressive stuff for an incumbent, and has raised the bar significantly for neobanks entering the market.

The move is evidence that CBA truly understands the tsunami that is innovation, and they are determined not to be crushed. It is the polar opposite of competitor Suncorp, who this week announced they would ditch their brave financial marketplace strategy, and ‘get back’ to core banking.

Suncorp’s retreat has many contributing factors, but one notable comment was the failure of Suncorp investors to understand the strategy. While far from a full explanation for the pivot, it tells you something about the varying degrees of tech literacy within the investor groups that sit behind both CBA and Suncorp. One gets it, one doesn’t, quite yet it seems.

CBA’s investment in Sweedish fintech giant Klarna will also be causing headaches for listed buy now, pay later businesses After Pay and Zip Money. One defence is these two fintechs are now relatively mature, well recognised, loved and understood by consumers. The challenge for CBA will be implementation and being last to the dance. However pressure is mounting across the pay by instalment space, with Amex now offering instalment payments to some cardholders, and Visa also entering.

It’s early days for CBA, but they have a track record in delivering. If they can build a deeper tech moat with this cash injection, then along with their existing regulatory and capital one, it’s hard to see how any fintech can compete.

I’d love to be proven wrong though. After opening my CBA bank account over three weeks ago, I’m still waiting for my debit card, and there is no immediate digital card issuance. Maybe some of that $5B innovation budget can be put towards logistics. The devil is always in the details, is it not?

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 commercial relationship 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/2019/08/07/australias-largest-bank-to-spend-5b-on-technology/

Where are the missing Homo Economicus in investing?

https://dailyfintech.com/2019/08/06/where-are-the-missing-homo-economicus-in-investing/

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All economic theories assume a Homo economicus; which in plain English means a totally rational investor. We forget this basic assumption which makes all models ill-fit to our emotional and unstable behavioral profiles. This point cannot be ignored anymore, as we seek to deploy technology to offer customized financial advice and goal-based services.

Deep dive into the Theory of Financial Market Transparency in which Paolo Sironi re-thinks the shortcomings of neoclassical theory and behavioral economics. Listen to the importance of how we humans make financial decisions while facing fundamental uncertainty and limited & irreversible time.

Assuming rationality at all times in financial decision making, is no more a viable framework.  Listen to my interview with Paolo Sironi on Sustainable Banking innovation.

Victor Haghani, founder and CIO of Elm Partners, looks back to the 1900s in the US. During this time, there were 4,000 millionaires.  One hundred plus years later, there should be 30 times more families spun off from these millionaire roots. So, 120,000 families should have branched out from these millionaires. Assuming that they were able to just match the average stock market return during this centennial, they would all be billionaires.

Forbes magazine reports that there are only 400 billionaires with roots back into the 1900s. Where are these missing billionaires and why most investors fail to capture the returns offered by the market?

Deep dive into the Tedx Talk: Where are all the Billionaires? & Why should We Care?: Victor Haghani

And listen to my interview with Victor Hagahni and James White – James is Elm’s CEO: Active Index Investing

Greg Davies, head of Behavioral Science at Oxford Risk, highlights that investors are driven by emotions. In practice, we all trade too frequent, often buy-low and sell high, and choose short term gains and satisfactions over long term gains and uncertainly. These behavioral facts contradict the assumption of traditional finance theories and the totally rational investor.

This is the so called ‘Behaviour Gap‘  – the difference between what investors should get if they followed classical investment principles and what the actually get (because they don’t.)

Listen to my interview – Financial and emotional decision making – with Greg Davies about Oxford Risk, a Fintech offering software for financial decision making that takes into account uncertainty and the emotional human `biases`. Barclays and Nutmeg are two of several companies that use Oxford Risk.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.  

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 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/2019/08/06/where-are-the-missing-homo-economicus-in-investing/

Big Investors, Big Confidence for Bitcoin

https://dailyfintech.com/2019/08/05/41114/

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TLDR. While Bitcoin is a volatile and nascent asset class, Bitcoin has consistently outperformed the Dow, S&P 500, and gold in the last decade. With more regulatory clarity, as well as more transparency from crypto exchanges, the risk of owning Bitcoin diminishes every day, bringing more institutional investors to the market.

We are starting to see the market mature. Researchers from the Institute of Nuclear Physics at the Polish Academy of Sciences, analyzed Bitcoin data data from 2012 and found that the BTC market now shows features similar to other established financial markets like Forex. The report states: “that while the Forex market needed the support of central banks and governments to mature, Bitcoin’s market maturity has been on its own, solely due to its own characteristics.”

Institutional investment in cryptocurrencies has increased significant lately. With the current global economy in a bleak state and a possible recession, Institutional money is coming to cryptocurrency markets, Big investors are now considering other alternatives for investment.

The entrance of big tech companies and institutional funds has helped the the crypto market mature, making it more legitimate. Fidelity’s announcement of institutional grade Bitcoin custodial services, Facebook’s announcement of Libra, Bakkt readying to launch its Bitcoin platform in Q3 and crypto-fund manager Grayscale tripling assets under management, are just some of the things that have been going on.

Since the CME started to offer Bitcoin futures we’ve seen a growth of over 700 percent. In April the CME recorded all-time high trading volumes in its Bitcoin futures product. On April 4, Bitcoin futures hit a record 22,542 contracts traded, equivalent to 112,710 Bitcoin with a notional value of $546 million. This record was smashed in May, with average daily volume up 27 percent from April levels. At the end of June, the CME reported that it saw a record $1.7 billion in notional value in Bitcoin futures.

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Bakkt is planning to launch its Bitcoin futures trading platform in Q3 2019. The highly anticipated platform will attract new flows of institutional money into the industry. While the company is still waiting for approval of its custody solution, it is reportedly already able to provide the infrastructure needed for investors to receive and deliver Bitcoin for U.S. dollars in a regulated and compliant manner. If Bakkt receives regulatory approval to launch its futures trading platform in combination with its custody solution, we could see a substantial jump in the price of Bitcoin.

New York-based crypto-fund manager Grayscale, revealed that the GBTC’s (Bitcoin-related) assets under management hit $2.56 billion, as of June 28. Over the last three months, assets under management tripled from $900 million to almost $2.7 billion.

Data from institutional crypto lender Genesis Capital, reportedly reveals a significant increase in activity from institutional counter-parties, with volumes 200–300% higher than they were twelve months ago.

At the beginning of July, the FCA in the UK authorized the first cryptocurrency hedge fund, launched by Prime Factor Capital. Prime Factor Capital Ltd., a London-based hedge fund manager set up by former employees of BlackRock Inc. and RWE AG, became the first investment firm focused on cryptocurrencies to win the stamp of approval from U.K. regulators.

A new $100 million investment firm, Darma Capital is opening to investors who want to go long. Investors can bet that digital assets like Ethereum are poised for a 10-year bull run. While Ethereum saw one of the largest cycles in crypto, rising 17,775% in 2017 to losing 94% of its gains by the end of last year, Darma’s founders are counting on Ether’s long-term potential.

Recently, Mike Novogratz’s and Galaxy Digital expanded its trading business to offer cryptocurrency options contracts, because of rising demand from institutional investors.

We are at a point in time, when it seems more advisable for institutions to engage in cryptocurrency trading, rather than ignoring or dismissing it. Research by Fidelity Investments, shows that institutional investments in cryptocurrencies are likely to increase over the next five years, with 47% of the institutional investors surveyed seeing digital assets as part of their investment portfolios. We already seeing a shift in sentiment, from widespread skepticism to curiosity for cryptocurrencies

But it’s no secret that one of the impediments to institutional investors entering the crypto market is the need for a suitable regulatory framework. On the international stage, things are much better. Regulators in the Americas, Europe, the Middle East, Asia and the Pacific region have all published guidance on investing in Bitcoin, other cryptocurrencies and ICOs. Institutional investor appetite for the cryptocurrency market, also requires other things: custodial services and liquidity. While, Bitcoin and Ethereum are much more liquid than in the early days, a single large order still can move the entire market.

Institutional investors have always been considered a key ingredient in the recipe for Bitcoin’s mass adoption. Adoption is the main driver of success for Bitcoin and other cryptocurrencies. Institutional capital is important because interest from large investors instills a sense of confidence with smaller retail investors. The more people that use it, the higher price it has and the more valuable it becomes.

In the last three months, Bitcoin and cryptocurrencies have taken a bigger role in our lives. We’ve seen big tech companies launch their own digital coins and presidents tweet about Bitcoin cryptocurrencies. I expect this will only get bigger, as we will see further regulatory clarity, more fiat on ramps, greater ease of use, and more institutional investments.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

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

https://dailyfintech.com/2019/08/05/41114/

This week in Fintech

https://dailyfintech.com/2019/08/02/this-week-in-fintech-2/

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During a fairly quiet global news week, our Experts posted fresh Fintech insights each & every day.

Monday, Ilias Hatzis @iliashatzis, our Greece-based crypto entrepreneur, wrote Bitcoin is an Unstoppable Force.

TLDR. During the recent House Committee on Financial Services’ hearing about Facebook’s, Libra, Rep. Patrick McHenry described Bitcoin as an unstoppable force: “The world that Satoshi Nakamoto — author of the Bitcoin white paper — envisioned, and others are building, is an unstoppable force. We should not attempt to deter this innovation, and governments cannot stop this innovation, and those who have tried have already failed. So the question then becomes, what are American policymakers going to do to meet the challenges and the opportunities of this new world of innovation?”

Ed note:  Ilias outlines the data points, beyond price, that show real momentum for Bitcoin. Bulls will love this post and can use these data points in discussions. Bears will have some data points they will need to consider.

Tuesday, Efi Pylarinou @efipm our Swiss-based Fintech Adviser wrote Convergence as a trend in the re-bundling phase of financial services

TLDR: Amazon is using Machine Learning to do small business lending as part of an e-commerce plan that threatens Facebook & Google.  Meanwhile Telecom players like TMobile and Orange are moving into banking and new lifestyle finance brands such as Jumia and Mercado are emerging from Africa and Latin America.

Ed Note: Efi connects the dots that BigTech are making between media, telecoms,  e-commerce and finance. She shows how the big pot of gold that they are all chasing is the billions emerging into a global middle class from places like Africa & Latin America.

Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur,  wrote FinFit at the forefront of the financial literacy dilemma

TLDR: Poor financial knowledge leads to poor financial habits which leads to poor life decisions. This is affecting millions of the current generation. Better knowledge and habits should be taught at home and in school – but too often are not. An emerging group of fintech startups say that good financial habits start at work. This employee financial wellness space got a boost when FinFit announced it had closed a USD $7M Series B raise.

Ed Note: companies have a vested stake in the wellness of their employees, both physical and financial. So they will get involved when society fails to deliver that wellness – as long as some other company makes it easy for them to do so. Serving that need is a big opportunity and recent deals show that investors are understanding this.

Thursday, Patrick Kelahan @insuranceeleph1, our US based Insurtech expert, wrote InsurTech is growing up, and cyber crime is too

TLDR: Don’t look now but the self-declared insurance disruptive force called InsurTech is maturing.  There, I’ve said it. And cyber crime issues need to become mainstream discussions.  There, I’ve said that, too.

Ed Note: Pat describes the maturing of Insurtech and the growing issue of insuring cyber risk, suggesting that IaaS (Insurance as a Service) is part of the solution.

Friday, Arunkumar Krishnakumar @karunk, our London based Fintech investor, wrote India embrace “Data Empowerment Architecture” with Account Aggregator

TLDR. India, a more open version of the mobile Fintech leapfrogging market laboratory of China, is now about to show the way with the concept of Account Aggregators. Think 11 million farmers (aka small businesses) and 1,300 million consumers.

Ed Note: when Nandan Nilekani talks you should listen. As co-founder of Infosys he became fabulously wealthy. As the architect of Aadhaar, biometric identification database of 1.3 Billion Indians, he helped put India on the Fintech innovation map. So when he talks about Account Aggregators, pay attention. He has got financial inclusion, technology, market forces and regulators nicely aligned. Unlike China, India is a democracy, so privacy has to be protected.

https://dailyfintech.com/2019/08/02/this-week-in-fintech-2/

India embrace “Data Empowerment Architecture” with Account Aggregator

https://dailyfintech.com/2019/08/02/india-embrace-data-empowerment-architecture-with-account-aggregator/

Manghat

Image Source

He was the architect of Aadhaar – a biometric identification database of 1.3 Billion Indians that was put together in just over a couple of years. Nandan Nilekani, the co-founder of Infosys, is now back in the headlines discussing India’s “Account Aggregator”.

An open banking-isque concept, Account Aggregators (AA) would consolidate financial information on an individual or a business and share it with a third party.

For instance, data from a farmer topping up his mobile, could be used to offer him/her credit. Imagine the impact if transaction data on 1.3 Billion customers and 11 Million businesses could be brought together.

It was conceived by a panel of four regulators namely,

  • The Reserve Bank of India (RBI)
  • Securities and Exchanges Board of India (SEBI),
  • Insurance Regulatory and Development Agency (IRDA) and
  • Provident Fund Regulatory and Development Agency (PFRDA)

Nandan Nilekani hailed the initiative as he said it would drive financial inclusion at a large scale.

Capture

Image Source

The rise of Financial Inclusion in India is evident as per the picture above. From 63% in 2016 of the population to 81% in 2018 – that is 235 Million people in 2 years. If Aadhaar was the first step to offering basic banking services to the rural parts of India, AA could take it one step further.

AA could lead to several Fintech use cases including lending, wealth management and financial management, as data that was previously held in silos is now being brought together.

NO – this is not a China like model where government and private sector services providers can have a free ride over customer’s data. Users of AA can decide how their data should be used and for how long. From the point of consent their data will be shared based on programmed controls.

“This is about empowering individuals to have access to their own data – at scale. That’s really the power of the idea.” – Nandan Nilekani

Gone are the days where banks required borrowers to have assets before they lent to them. Today banks only need their data (for a brief period) to make credit decisions. Nandan calls it a “Data Empowerment Architecture”, which is positive way of approaching data privacy.

However, there are several challenges to getting it right. I see the consent process as a weak link. Most Indian consumers are still learning to use smart phones. Asking them to understand the T&Cs of data privacy is stretching it.

Data security is another challenge. That concern remains even for Aadhaar. Until there are serious measures taken to address data security, there is always a risk of data loss. The average Indian consumer, I think, may not pay too much attention to this issue. However, the regulators and the government should.

The other concern is of using existing data to make credit decisions. Existing data already has a lot of biases – and feeding this into credit decision engines equipped with machine learning is dangerous. The machine will also learn to make biased decisions.

Controls are required at every step of the process to ensure this data ecosystem is used in the right way for the right processes. Without that, data could be used towards the next “Great Hack”.

(If you haven’t watched the “The Great Hack” on Netflix – please do. It is pretty good).

Overall, another step in the right direction for India. One building block with Aadhaar, and another one with the Account Aggregator. The country is starting to become a case study for financial inclusion at scale!


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion 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 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/2019/08/02/india-embrace-data-empowerment-architecture-with-account-aggregator/

InsurTech is growing up, and cyber crime is too

https://dailyfintech.com/2019/08/01/insurtech-is-growing-up-and-cyber-crime-is-too/

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TLDR   Don’t look now but the self-declared insurance disruptive force called InsurTech is maturing.  There, I’ve said it.

And cyber crime issues need to become mainstream discussions.  There, I’ve said that, too.

Here are some compelling InsurTech maturity indicators seen in the media this week:

  1. Publication of articles discussing more mainstream concerns for InsurTech players, entrants, e.g., Amit Choudary’s (Capgemini) comprehensive look at insurance financials for entrants, “Building a Financially Sustainable InsurTech Firm- Part 1” (Part 1?).  When we start talking about accounting and not fancy tech innovation the grown ups have begun to have influence over those idealists.
  2. A mention of U.S. auto insurance giant, Geico, entering the usage based insurance (UBI) market, making, per Digital Insurance’s article Reversing Skepticism, Geico Launches User-base Insurance. Thanks to news blogger and watcher of insurance goings-on, Steven Applebaum. Geico and UBI- even if it’s a ‘keep up with the Joneses’ move it is a concession by Warren Buffet’s Berkshire Hathaway leadership that InsurTech and telematics has arrived.
  3. An excellent Linked In article by Adrian Jones commenting on why specializing in insurance is perhaps not the ideal path- Too Much Specialism: Why Insurance Innovation is Hard? When I first dived into the InsurTech environment the space was seemingly over-populated with specialists looking to innovate their respective niche of insurance.  It was a significant enough effect that it prompted the birth of the Insurance Elephant (based on the fable of the Elephant and the Six Blind Men).  Adrian’s well-supported contention is that general knowledge in insurance is not too bad.
  4. There are now multiple solid cadres of InsurTech/Fintech influencers such that their individual and collective industry outlooks can be solicited and published, as was well-curated by Digital Scouting and Robin Kiera this week here, clearly indicating that InsurTech has sufficient tenured folks to support a retrospective. And when you read the comments made by the twenty you will find many mainstream business observations.  Huh- InsurTech mainstream?
  5. Formation and ‘coming out’ of InsurTech ‘groups’- the InsurTech Mafia, a group of 36 or so founders who have with the efforts of Ed Leon Klinger, CEO of Flock and others built an informal CEO-support group over the last few years and are now soliciting new members. They have sufficient start-up ‘chops’ having ‘walked the walk’ that they are willing to be out in the public, so to say (not so sure about the reference in the name-maybe a little cultural insensitivity).  An additional and very early stages group of InsurTech advocates are the Engagement Network, as the LI site notes is comprised of persons who are “driven by a passion and commitment to help shaping the ongoing digital transformation.”  In full disclosure the author is one of the founding members.  When people have time enough to begin to discuss what they are doing then it seems they have been doing that doing long enough to call it a tenured doing.

Context Change- cyber

I must also comment this week on a topic that has effects for all who read the Daily Fintech- cyber security.  This week found the announcement of a substantial data breach at a company that has built its reputation on being a solid financial and data company, Capital One.  Exposure of records for one hundred million past and current customers over a several month period is without saying a terrible breach of trust to all of those involved, and a stark reminder to all who conduct business virtually and maintain virtual records- the largest, best financed companies can be victim to a least common denominator or poor extension of trust event.

As I composed the column I was advised of another cyber occurrence by my good colleague and smartest dang cyber guy I know, Mica Cooper, CEO of Aisus.com/InsurCrypt , that being a successful (unfortunately) phishing gambit targeting Ameritas Life .  The breach occurred through employee emails, the company has worked to contact affected customer during the past several weeks, but direct cost to the company has occurred, customers are affected, and TRUST is an unwitting victim.  As Mica recounted to me- it’s not an impossible problem to overcome; it’s motivation and culture:

“This is why IaaS (Insurance as a Service) is good, if properly set up. You have the quality/quantity review of multiple customers. Companies are much more stringent on buying this type of service than if they build it.  1 10 100 rule of building, build it once and the cost is 1x, build it 10x, and it is cheaper, build it 100x and you can add all kinds of bells and whistles because of the scale.- This is a common issue. Admins are like god. They can do anything, see anything. We want to change that. “

So two directions this week- InsurTech is maturing, and Cyber issues are too.  Both worth watching for very different reasons.

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 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/2019/08/01/insurtech-is-growing-up-and-cyber-crime-is-too/

FinFit at the forefront of the financial literacy dilemma

https://dailyfintech.com/2019/07/31/finfit-at-the-forefront-of-the-financial-literacy-dilemma/

The world is waking up to the fact a vast swathe of the generation coming through are in dire financial straits.

This has significant implications on society at large. Poor financial knowledge leads to poor financial habits, which ultimately leads to poor life decisions, at crucial junctures.

So how do we address this? While many good habits are said to start at home, it’s increasingly being argued, by an emerging group of fintech startups, that good financial habits start at work.

This makes sense when you consider employers are the most significant source of cashflow for the majority of the population. They, more than banks, have a vested interest in ensuring their employees are happy, healthy and functional, and free from money stress – primarily because it leads to increased productivity in the workplace.

This week fintech startup FinFit, an employee wellness platform, announced it had closed a USD $7M Series B raise. The fintech has teamed up with more than 125,000 American businesses, bringing financial educational resources alongside early-wage access and pre-paid Visa products to their employees.

The sector is booming globally. Just a few weeks ago, Australian based cloud HR platform, Employment Hero, closed a AUD $22 million Series C round. While it has a stronger focus on the HR component, financial services are a monetisation strategy the business is pursuing. Their automated pay advance product, InstaPay, allows employees to access a portion of their earned wages before payday.

We can’t afford to not address the financial literacy crisis that is engulfing the world. As our data continues to be increasingly captured, and weaponised ever more effectively to sell us products and modify our behaviour to part us with our money, we need tools that help us fight back. Companies like FinFit, and the growing financial wellness movement is a glimmer of hope on the horizon. Companies like FinFit must find ways to help us hone that willpower muscle. Whether they are enough, is the question.

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 commercial relationship 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/2019/07/31/finfit-at-the-forefront-of-the-financial-literacy-dilemma/

Convergence as a trend in the re-bundling phase of financial services

https://dailyfintech.com/2019/07/30/convergence-as-a-trend-in-the-re-bundling-phase-of-financial-services/

Power of 3_blog_images-01

There is ample evidence that 3 is a magic number. It dates back to the old times and is well captured in the Latin phrase[i]

Omne Trium Perfectum  – everything that comes in 3s is perfect.

I bring this up not only because I chose to provide three examples in my post today but also because the magic of number three is due to the pattern recognition process of our brain when processing language.

Payments, investment products and loans are bundled on e-commerce, telecom, and lifestyle platforms.

E-commerce & Lending

Amazon, the legendary e-commerce company of the West is into lending since 2011. It a business that is part of its ecosystem and supports its marketplace. Small and medium size digital entrepreneurs that use the Amazon marketplace to trade their goods, borrow from Amazon. Partly to fund their advertising budget on the Amazon marketplace and partly to grow their businesses generally. I have alluded to this `trick` in my article Advertising is the new high-priced tobacco and vendors are addicted to it. The significance of the growth in the Amazon advertising business has recently been emphasized by Business insider who put out a thorough report `In The Rise of Amazon Advertising: This is exactly what Amazon is doing to siphon billions of ad dollars from Google and Facebook and why brands love it`.

Amazon uses machine learning and all its proprietary data to offer small business loans to its customers. The program, however, is invitation only[ii]. The algorithm selects which small business could use a loan and proposes this. Amazon has been secretive about this part of their business (see details in this FT article). The latest numbers reported are a few years old  – 2016 are reported in the press – and they are around $1billion per annum in loans but declining.

Amazon may have to enrich the data it uses to train its ML algorithms with supplementary data from external sources. Basic credit history data seems to be necessary to manage properly a  loan book.

Telcos & Payments and Deposit accounts

 T-Modile announced in March an FDIC insured deposit account T-Mobile Money. It is interest earning with no overdraft or maintenance fees. No fees at Allpoint® ATMs. No minimum balance.

Orange Money, was launched in 2017 with a proper bank of its own, Orange Bank, which has been growing in Africa. It actually has eight million customers across 14 countries in Africa and the Middle East. They also teamed up in 2018 with MTN Money, Africa`s largest Telecom operator.

Lifestyle platforms & Payments or Money markets

Jumia is Africa`s Amazon[iii] with an outreach in 14 African countries and 450 Million internet users. They have their own payment system, JumiaPay.

Mercado Libre is the Latin American Alibaba. It not only has its own payment system, Mercato Pago but also a significant fund business. Mercado Pago Fondos[iv] was launched in September 2018 and in 8 months it accumulated 1.5 million accounts from Argentinian and Brazilian small savers. This is financial inclusion in practice. It has introduced a new investment option that was not available before to small savers.

With a return of 40.7% per annum, the fund can be launched from $ 2 that have the balance in Mercado Pago. Source

[i] Source of this and the image is here.

[ii]  Artificial Intelligence Applications for Lending and Loan Management

[iii] Jumia – Africa’s Alibaba and its IPO roller coaster

[iv] Mercado Libre shakes the board of common funds’ industry: companies can also invest

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

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 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/2019/07/30/convergence-as-a-trend-in-the-re-bundling-phase-of-financial-services/