FinTech Summary #49 – #Bots #Crowdfunding #Blockchain #Startups

FinTech Summary #49 - All The FinTech News You Need

Seth Godin, a famous marketing guru, said: “it’s far easier to sell someone on a new kind of fruit than it is to get them to eat crickets, regardless of the data you bring to the table.” FinTech is facing a similar issue – new challengers need to find a way to break the pattern. For that, they need to create new beliefs. For example, a belief that wiring your money with TransferWise is better than with your bank. It is easier to form these beliefs for companies that can directly prove the benefit to the customer (lower fees, more transparent). It is much harder to achieve for companies that are unique or provide indirect benefit – like blockchain startups where you need to do the ‘leap of faith’ integration first and hope the benefit is worth it. We, as a customer, play a crucial part in the disruptive innovation cycle by either forming these beliefs or rejecting the product. And this product could be the next Google Search.

Thanks for reading – you’re awesome!

Have a wonderful week,
Alex

 

This week’s summary

 

Equity Crowdfunding 3.0 – The ‘Killer’ Feature
By Alex Nech

What will Equity Crowdfunding 3.0 look like? A real ‘killer’ feature will be added – a secondary market that will enable investors to ‘cash out’ early. This feature will be particularly powerful with the equity crowdfunding model, where there is not fixed time frame for an exit and investors are unable to cash out if their circumstances change. Such mechanism has the potential to open up markets that were out of reach for most platforms. People will be more willing to ‘give it a try’ and potentially become big investors in the future. There are a number of challenges that both platforms and the companies will have to address around liquidity, valuations, funding and future of the employees.

 

On Tokens and Crowdsales: How Startups Are Using Blockchain to Raise Capital
By Demian Brener

We are in the early stages of a new chapter in the nature of work. The blockchain will enable us to do our jobs and be compensated inside new circular economies that have their own currency units and their own work units. Most work today is compensated via bilateral agreements between a worker and an employer according to a simple contract: you work in X job, and we will compensate you in Y currency. With more control, we would then be able to perform new types of tasks that may or may not resemble what is traditionally considered labor, and earn cryptocurrency instead of fiat currency. Already, a number of blockchain based businesses are compensating users for their ‘work’ via digital tokens. At the heart of making this possible, is the relationship between actual work done, the value created, and value received. These type of mechanics and operations will benefit and enable their users also to partake in their success via the sharing of network equity. What is happening here is the creation of mini circular economies that are self-contained.

 

Can A Bot Help Your Bank Speak Millennial?
By Eran Livneh

Millennials communicate differently than previous generations. They prefer texting over talking, emojis over words, and talking to Siri or Alexa over talking to a real human. Strange? Depending on who you are. These new communication etiquettes are second nature to those that have grown up with instant online chatting and texting. This is where a bot comes handy. Something about removing the human element, yet being able to communicate on a human-like level, makes certain processes and tasks more attractive and effective for millennials. Integrating guidance and service into chat and personal assistant bots provide a two-way advantage for millennials and banks.

 

Code is Law? Not Quite Yet
By Lukas Abegg

After The DAO experiment failed, a heated policy debate ensued about how to go forward with the development of ethereum’s blockchain. The positions ranged from holding on to the immutability paradigm with “code is law” as the most important rule to follow, to a more human approach of asking ethereum’s miners and developers what measures should be taken. Only little time, however, was spent on the question what a smart contract is actually capable of performing. But this very question, I believe, should be at the core of the debate and the respective answer is the only sensible foundation on which a sound policy for blockchain and smart contract development can be built.

 

5 things that made me smarter this week

The hidden economics behind deceptive on-demand pricing. Seems like Uber for anything business model may just not work for anyone but Uber.
The 2020 Tokyo Olympic medals could be made of discarded electronics. Gold and silver recovered from small consumer electronics in Japan has been estimated as equivalent to 16% and 22% of the world’s total reserves, respectively.
Eleven Reasons To Be Excited About The Future of Technology. There are many exciting new technologies that will continue to transform the world and improve human welfare. Here are eleven of them.
Do You Really, Truly Hate Your Office Printer? (Paywall) There’s a Bat for That. Workers destroy balky machines in a ritual act of catharsis; ‘glass fireworks’. A new form of team-building exercise.
Top 10 Happiest Countries in the World. Strong correlation with GDP per person… And they say money can’t buy you happiness.

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Equity Crowdfunding 3.0 – The ‘Killer’ Feature

Equity Crowdfunding 2.0

Equity Crowdfunding 3.0

According to WordSpy.com, the word “crowdfunding” was first used in August 2006, by Michael Sullivan, who launched Fundavlog, a failed attempt at a videoblog content incubator to what now is a $34.4bn industry as reported by the Crowdfund Insider.

I’m particularly excited about Equity Crowdfunding and how it will enable SMEs to obtain vital resource – money. The industry has built its presence to an astounding $2.5bn as of the end of 2015, expected to double in 2016. Everyone wants to find the new Facebook these days. If you do find one, let me know – I’ll chip in and in return, you can have your photo on my homepage 😉

Since the days of Michael Sullivan’s attempt at crowdfunding his video content incubator in 2006 (YouTube started in 2005) Crowdfunding has hardly changed. People started filming crazy videos to attract attention and get PR, but systemically the process stayed the same – here are 10 craziest campaigns. Grilled cheesus anyone? Or maybe you’re after fly-killing shotgun? Anyway, back to reality now. However, this is about to change with Equity Crowdfunding 3.0 approaching fast.

Crowdfunding 3.0 - FinTech

What will Equity Crowdfunding 3.0 look like?

A real ‘killer’ feature will be added – a secondary market that will enable investors to ‘cash out’ early. This feature will be particularly powerful with the equity crowdfunding model, where there is not fixed time frame for an exit and investors are unable to cash out if their circumstances change.

Such mechanism has the potential to open up markets that were out of reach for most platforms. People will be more willing to ‘give it a try’ and potentially become big investors in the future.

Challenges for the platform

Ensure sustainable liquidity at a fair price. This can be achieved by creating a steady flow of funds into the secondary market. Liquidity is a false friend, always there for the good times and never there for the bad ones. Like the neighbor next door always shows up for the parties but never offers to help you clean up.

Build a valuation mechanism. The share price of the company has to reflect the progress it has achieved against its targets. A company that failed to meet targets 3 times in a row can’t be worth the same as the initial purchase price because it will dry out any secondary investment into it.

Challenges for the company

How will crowdfunding affect further funding? If the share price has been dropping how will VCs react to this? How will the public react? Is this going to close the gates for obtaining money in the future? Arguably VCs will already have superior information to retail investors, but psychological factor may well come in play here.

How will this affect employees? Should they be able to cash out via secondary market? Would that make into a much more attractive option scheme? On the other hand, an employee without options will be less motivated. Or could jump the ship if the share price moved unfavourably. Right option structure plan would likely solve this issue.

The secondary market for crowdfunding platforms would be very exciting and open up a whole new level of startup and SME funding. I will be following the industry very carefully. What do you think?

FinTech Weekly Summary | Aug 08 – 15

Protocols are very important. However, they are not a sexy topic and often misunderstood. We rarely think of email as SMTP protocol, but it is. The application that we see is just a ‘nice-wrapper.’ The reason we can send email from @gmail account to @yahoo account is because of the underlying protocols. They ensure that applications use the same language and can communicate. The recent appearance of blockchain (a  protocol) has enabled a completely new business model to create a whole deal of other protocols (nothing related to blockchain itself). This is a tremendous opportunity for innovation, and it will change many things – the first two summaries go into more detail about this. Protocols are a technical (potentially dry) topic to understand but understand it we must. It is a tremendous step in tech evolution. It is like taking medicine – not pleasant to do but will make us better later 🙂

Have a wonderful week,
Alex

 

Fat Protocols
By Joel Monegro

The previous generation of shared protocols (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, but most of it got captured and re-aggregated on top at the applications layer, largely in the form of data (think Google, Facebook and so on). This relationship between protocols and applications is reversed in the blockchain application stack. Value concentrates at the shared protocol layer and only a fraction of that value is distributed along at the applications layer. There are two things about most blockchain-based protocols that cause this to happen: the first is the shared data layer, and the second is the introduction cryptographic “access” token with some speculative value. Increasing value at the protocol layer attracts and incentivises competition at the application layer. Together with a shared data layer, which dramatically lowers the barriers to entry, the end result is a vibrant and competitive ecosystem of applications and the bulk value distributed to a widespread pool of shareholders. This is a big shift. It will prevent “winner-takes-all” situations and creates an entirely new category of companies with fundamentally different business models at the protocol layer.

 

The Theory of a Blockchain Circular Economy
By William Mougayar

We are in the early stages of a new chapter in the nature of work. The blockchain will enable us to do our jobs and be compensated inside new circular economies that have their own currency units and their own work units. Most work today is compensated via bilateral agreements between a worker and an employer according to a simple contract: you work in X job, and we will compensate you in Y currency. With more control, we would then be able to perform new types of tasks that may or may not resemble what is traditionally considered labor, and earn cryptocurrency instead of fiat currency. Already, a number of blockchain based businesses are compensating users for their ‘work’ via digital tokens. At the heart of making this possible, is the relationship between actual work done, the value created, and value received. These type of mechanics and operations will benefit and enable their users also to partake in their success via the sharing of network equity. What is happening here is the creation of mini circular economies that are self-contained.

 

Disruptive Mentality in Banking
By Vicente Quesada

The disruptive mentality for the digital transformation requires innovating, ideally without ‘muscle and money.’ What would disruptive mentally look like in banking? Charge at a 90% discount rate credit card services; link advertising performance with product demand; use voice robot financial advising; issue personalised financial products with 50 times less face value; be at least 10 times smarter with big data usage for product development and promotion, that will enable Amazon-like recommendations to increase product consumption; use machine-learning models for consumer credit risk management, etc. Disruptive mentality innovation can create a true competitive advantage for banks that embrace it.

 

Risks in the Crowdfunding Industry
By Vaishali Naroola

The UK’s financial watchdog is probing the crowdfunding sector for the second time in two years. The rationale behind this is that this sector is displaying signs similar to those that were displayed by market players in the lead-up to the financial crisis. Putting this in perspective, the global crowdfunding market is expected to reach between $90-96bn by 2025, which is approximately 1.8 times the size of the global venture capital industry today. Crowdfunding and its offshoot, peer-to-peer lending, come with inherent risks as any other financial product. These risks have to be uniformly communicated and understood by market participants before a market floor can be established. If the goal is to become better investors, let’s start by understanding these risks for what they are: pooling of credit risk, asymmetric information and limited liability and the role of the platform provider.

 

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FinTech Weekly Summary | July 10 – 17

We should always be aware of fads. The most recent one is Pokemon Go game that has been all over news. The shares of the parent company – Nintendo – have skyrocketed. I have, personally, heard people, who have never invested in stocks in their lifetime, asking how can they buy nintendo shares. This reminds me of DAO hack (the biggest crowd fund ever that only weeks later go hacked). I’m not saying Pokemon Go, or any other ‘overnight success’ will fade away or fail but sometimes it is worth to sleep on it when we making important or new decisions on topics we don’t understand.

Have a wonderful week,
Alex

 

The Rise of FinTech in Supply Chains
By Dale Rogers, Rudolf Leuschner, Thomas Y. Choi

A new type of services company could transform global supply chains: Financial technology companies that act as intermediaries in facilitating transactions between a company and its suppliers. They enable both the buyer and supplier to improve their working capital by making it possible for the former to extend its payables and at the same time accelerate payment to the latter. This provides both sides with benefits, including greater liquidity and less variability in the timing of payments.

 

Lessons Pokémon Go Can Teach the Banking Industry
By Jim Marous

Pokémon GO is a phenomenon that is capturing the attention of Millennial gamers and digital baby boomers alike. There are many lessons about technology adoption, gamification, data analytics and engagement that banking can learn from this mobile app.

 

Here’s How UK FinTech’s Rallying Action in a Post-Brexit No-man’s Land
By Lynsey Barber

London’s fintech industry is rallying to action after the vote for Brexit in a bid to alleviate the fears of startups, along with their investors and supporters, over issues such as capital, market access and talent. The industry is already formulating a plan in the face of overwhelming uncertainty and a lack of clarification from political leaders on the next steps after Brexit in an attempt to get on the front foot.

 

After PPI, Could Crowdfunding Be The Next Big Investment Scandal?
By David Prosser

The UK’s crowdfunding industry is one of the great success stories of the so-called FinTech (financial technology) sector. But while the launch of almost 100 internet-based crowdfunding platforms – each one bringing together people with money to lend or invest with consumers and businesses looking for funds – is a story of explosive growth, there has been increasing concern that a scandal could be brewing. Now the Financial Conduct Authority, the chief City regulator, is stepping in for the second time in two years.

 

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FinTech Weekly Summary | Apr 24 – 01

FinTech has started the disruption of traditional finance. It started using tools and practices from the tech world such as beautiful user interface (UI) and better user experience (UX) or mobile first development. However, one big shift that will have in the next technology evolution will be artificial intelligence (AI). A move to AI first design. This is particularly powerful in fintech or any financial matters because an algorithm can make better decisions than we can. People are emotional about money. When you are in an emotional state you tend to act irrationally. We see that with direct debits – automatically pay my bills so I don’t forget it, monthly savings deductions – take my money before I spent it, roboadvisors – invest longterm and ignore news headlines. AI to make more day to day decisions about what we do with our money and where we spend it is the way forward. We will all be better of because of it.

Have a lovely week,
Alex

 

The Unique Value of Crowdfunding Is Not Money — It’s Community
By Ethan Mollick

Crowdfunding has been growing explosively, with over $2 billion raised via equity and reward crowdfunding in the United States in 2015 alone. However, crowdfunding is more than another way of raising funds. In connecting creators and entrepreneurs directly with customers and funders, it transforms the opaque and oligarchical market for early-stage fundraising into a more democratic, open one. Rather than relying on venture capitalists and marketers to try to project nascent demand for new innovations, creators can directly reach out to customers and communities to refine ideas and gauge interest. Crowdfunding acts as a platform, matching innovators with those who need innovation, and thus is reshaping which ideas come to market.

 

The 9 Mistakes I Made When Bringing Blockchain to My Startup
By John Rampton

As a relatively new concept, blockchain is still evolving, so it’s easy to understand how mistakes can be made in terms of how it can actually be used. Many processes are still being tested to see if private blockchain applications will work for various business functions. By sharing the mistakes I’ve made, hopefully others can learn and avoid the same pitfalls. At the time, I recognized the potential that blockchain technology had to help us quickly advance our technology and the solution we offered customers, thereby creating a competitive advantage.

 

Banks and Fintech in 2025: An Unlikely Alliance
By Eyal Lifshitz

The fintech industry has orchestrated in just a few short years a sweeping change in customer preferences and expectations for the modern “bank” experience. The next decade will demonstrate the impact of this disruption as customers choose financial services based on the product experience, not on the breadth of offerings. In 10 years, most banks will still be public-facing brands. Their role as a safe deposit box for our cash will continue, but consumers’ rising standards will force them to rise to the occasion, ensuring a best-in-class experience is a core component of their offering. This unlikely alliance is just over the horizon. Both the old and new worlds will have no choice but to find a way to join forces, looking like startups while working like banks.

 

Open Sourcing Finance: You Cannot Delegate This Project
By Chris Skinner

Leading incumbent banks from their traditional command and control structures to open sourced operations that are shared, cooperative and inclusive. Open sourcing finance is the shared economy business model of partnering, white labelling and integrating components to create a new business model of aggregated components of product and service. Any bank resisting such change will not survive and, to understand such change, truly requires a leadership with technological prowess, not just banking knowledge. Many banks will fail to meet this challenge, not because their bank is weak or unable to adapt, but more because their leadership is weak and unable to adapt.

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FinTech Weekly Summary | Mar 13 – 20

The finance landscape may change rather drastically in the next five years. For decades banks were collecting customer data and using it as competitive advantage to better their risk models or simply cross-sell customers different products. However, a big paradigm shift is happening with regulators pushing banks to open up their data treasures to the wider public via APIs (an easy access to connect to banks systems). This will empower challenger banks and other fintechs and may eat into banks profits, further. As customers we will benefit from a bigger choice of providers and better use of our data to provide us with better experience. I, for one, am very excited to see how this will be implemented.

Have an amazing week,
Alex

Data Wars: The Banks Awaken
By James Eyers

Access to digital banking data is the fintech battleground. Distribution and analysis of big data is set to redefine competitive advantage across the new economy. Data policy could become the biggest driver of banking competition over the first half of this century. While fintechs reckon data belongs to the customer, some banks insist the data is theirs. They want to prevent fintechs accessing transaction account data because they realise it could erode fat profit margins by stirring competitive forces.

Why Equity Crowdfunding is About More Than Just Money
By Sarah Tierney

The largest equity crowdfunding platforms facilitated funding of more than £140m last year alone. But it’s not just about the money. The answer lies in the value of the crowd. You need to prioritise value-add investors that bringing deep expertise of scaling global tech businesses or bringing key marketing, data or customer loyalty expertise. And we see the crowd as nothing less: this fundraising model enables businesses to harness an active fan-base and engage them as investors. It gives fans and users a chance to directly become part of the company’s journey, and have a vested interest in its success – giving them greater incentive to promote the company to their network and further our user base.

Challenger Banks Must Strike The Right Balance Between Mobile and Card
By Paul Underwood

Much has already been said about the opportunity for challenger banks to disrupt the traditional banking system. These next-gen financial institutions have a very different view of the world and are, in the main, also quite different from one another. What unites them, however, is the belief that they can deliver a more convenient, value-oriented and better contextualized banking experience than their bigger, traditional counterparts. For that, they need data and see Mobile payments via NFC as a key tool to acquire data. 

The key point here is that contactless cards can provide this data right now, in real-time, and regardless of which handset the customer uses. This means challenger banks hell-bent on positioning themselves at the heart of the customer’s spending experience can, via a contactless card, deliver the exact same tap-and-go, value-added, service-enabled, location-optimized experience as mobile NFC payment services, only they can deliver it to everyone right away, not just those with a premium NFC-enabled handset.

Blockchain: The Good, The Bad, and The Business Case
By John Bertrand

Blockchain is a new technology and banks are cautious by nature. Nobody wants to be last, but not many want to be first. The reality is you may not need to be either. Given the trajectory of big data, it may well be the case that blockchain follows a similar adoption path. Rather than thinking of blockchain as a replacement, consider the context within the current environment. It can be absorbed and sit alongside general ledgers, without distorting the books or giving away private information. Banks can simultaneously run their own ledgers, and balance the distributed ledger. Standards and interoperability will emerge, and blockchain could become an underlying protocol sitting on top of the internet.

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