Category Archives: crowdfunding

Australia’s Blockchain Roadmap

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The Australian Government recently published its National Blockchain Roadmap – less than 12 months after announcing this initiative. While it’s an admirable development (and generally, to be encouraged), it feels largely aspirational and tends towards the more theoretical rather than the practical or concrete.

First, it references the US Department of Homeland Security, to define the use case for Blockchain. According to these criteria, if a project or application displays three of the four following requirements, then Blockchain technology may offer a suitable solution:

  • data redundancy
  • information transparency
  • data immutability
  • a consensus mechanism

In a recent podcast for The Crypto Conversation, Bram Cohen, the inventor of the BitTorrent peer-to-peer file sharing protocol, defined the primary use case for Blockchain as a “secure decentralized/distributed database”. On the one hand, he describes this as a “total oxymoron; on the other, he acknowledges that Blockchain provides a solution to the twin problems of having to have trusted third parties to verify transactions, and preventing double-spend on the network. This solution lies in having to have consensus on the state of the database.

Second, the Roadmap speaks of adopting a “principles based but technology-neutral” approach when it comes to policy, regulation and standards. Experience tells us that striking a balance between encouraging innovation and regulating a new technology is never easy. Take the example of VOIP: at the time, this new technology (itself built on the newish technology of the internet) was threatened by incumbent telephone companies and existing communications legislation. If the monopolistic telcos had managed to get their way, maybe the Post Office would then have wanted to start charging us for sending e-mails?

With social media (another internet-enabled technology), we continue to see considerable tension as to how such platforms should be regulated in relation to news, broadcasting, publishing, political advertising, copyright, financial services and privacy. In the music and film industries, content owners have attempted to own and control the means of production, manufacture and distribution, not just the content – hence the format wars of the past in videotape, compact discs and digital file protocols. (A recurring theme within  Blockchain commentary is the need for cross-chain interoperability.)

Third, the Roadmap mentions the Government support for Standards Australia in leading the ISO’s Technical Committee 307 on Blockchain and DLT Standards. While such support is to be welcomed, the technology is outpacing both regulation and standards. TC 307 only published its First Technical Report on Smart Contracts in September 2019 – three years after its creation. In other areas, regulation is still trying to catch up with the technology that enables Initial Coin Offerings, Security Token Offerings and Decentralized Autonomous Organizations.

If the ICO phenomenon of 2016-18 demonstrated anything, it revealed that within traditional corporate and market structures, companies no longer have a monopoly on financial capital (issuance was largely subscribed via crowdfunding and informal syndication); human capital (ICO teams were largely self-forming, self-sufficient and self-directed); or networks and markets (decentralized, peer-to-peer and trustless became catch words of the ICO movement). Extend this to DAOs, and the very existence of, and need for traditional boards and shareholders gets called into question.

Fourth, the Roadmap makes reference to some existing government-related projects and initiatives in the area of Blockchain and cryptocurrencies. One is the Digital Transformation Agency’s “Trusted Digital Identity Framework”; another is AUSTRAC’s “Digital Currency Exchange” regulation and registration framework. With the former, a more universal commercial and government solution lies in self-sovereign identity – for example, if I have achieved a 100 point identity check with Bank A, then surely I should be able to “passport” that same ID verification to Bank B, without having to go through a whole new 100 point process? And with the latter, as far as I have been able to ascertain, AUSTRAC does not publish a list of those digital currency exchanges that have registered, and exchanges are not required to publish their registration number on their websites.

Fifth, the need for relevant training is evident from the Roadmap. However, as we know from computer coding and software engineering courses, students often end up learning “yesterday’s language”, rather than acquiring flexible and adaptable coding skills and core building blocks in software development. It’s equally evident that many of today’s developers are increasingly self-taught, especially in Blockchain and related technologies – largely because it is a new and rapidly-evolving landscape.

Finally, the Roadmap has identified three “showcase” examples of where Blockchain can deliver significant outcomes. One is in agricultural supply chains (to track the provenance of wine exports), one is in education and training (to enable trusted credentialing), and one is in financial services (to streamline KYC checks). I think that while each of these is of interest, they are probably just scratching the surface of what is possible.

Next week: Brexit Blues (Part II)

 

The Finnies

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The third annual FinTech Australia awards were celebrated in Melbourne last week, following the organisation’s relocation from Sydney during the past 12 months. Any concerns the organisers and sponsors may have harboured (given the switch in geography) were easily allayed, as the event was sold out, with over 300 guests in attendance.

The overall winners were definitely B2C brands – challenger banks, consumer lenders, payment providers – with Airwallex, Afterpay (which despite some recent negative press was named the FinTech of the year for the third time) and Up Bank taking out more than a third of the awards between them.

Despite the 30 per cent increase in the number of entries (over 230 in all), it did feel like the Fintech community is still something of a village, as several award presenters were themselves presented with awards. Maybe something for the organisers to think about for next time, as it’s not always a good look when winners end up presenting to each other.

On the other hand, the organisers are to be commended for the running order – unlike some industry events, the awards were all presented in a single session, and not dragged out from soup to nuts. It was also a great decision to use the Victorian Innovation Hub as the venue, as well as have grazing-style catering instead of a sit-down dinner. And the choice of live band was excellent, as past, current and future bankers cut a rug.

Next week: Brexit Blues

 

The Future of Fintech

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Predicting (or at least hypothesising upon) the Future of FinTech in 2019 at NextMoney last week were three brave souls from the Melbourne FinTech community: Alan Tsen, GM of Stone & Chalk and Chair of FinTech Australia; Christina Hobbs, CEO of Verve Super; and Paul Naphtali, Managing Partner at Rampersand. Referencing the latest CB Insights report on VC funding for Fintech, various regulatory developments in Australia (especially Open Banking), as well as the outcomes of the recent Royal Commission on Financial Services, the panel offered some useful insights on the local state of FinTech.For all the positive developments in the past 2-3 years (Open Banking, New Payments Platform, Comprehensive Credit Reporting, Equity Crowdfunding, ASIC’s Regulatory Sandbox, Restricted ADIs etc.) the fact is that innovation by Australian FinTechs is hampered by:

1) fallout from the Royal Commission (although this should actually present an opportunity for FinTech);

2) the proposed extensions to the Sandbox provisions (which are stuck at the Federal level); and

3) lack of regularity clarity on the new class of digital assets made possible by Blockchain and cryptocurrencies (cf Treasury Consultation on ICOs).

Overall, the panel agreed that the channels of distribution have been locked up in an oligopolistic market and economic structure, especially among B2B services. But things are changing in B2C, with the rise of P2P payment platforms, market places, mobile and digital solutions, and challenger brands (e.g., neo-banks).

However, there are under-serviced segments especially among the SME sector, and products and services for part-time employees, contractors and freelancers. For example, meeting the superannuation and insurance needs of the “gig economy”? (Maybe something will come out of the recent Productivity Commission review on Superannuation.)

A number of areas have already benefited from FinTech innovation and disruption – lending (origination, funding, distribution), robo-advice (at scale but not yet offering truly tailored solutions), and P2P payments (and which largely happened outside of the NPP).

When it comes to disrupting and innovating wealth management and financial advice, there is still a distribution challenge. Whatever your views are on the Royal Commission findings and recommendations, there is clearly a problem with the status quo. But is the appropriate response to “smash the banks” or to enable them?

One view is that we are going through a period of un-bundling of financial services. Personally, I think customers want ease of use and interoperability, not only standalone products that are best in breed. For example, if I have established sufficient identification to open and maintain a bank account with one ADI, shouldn’t I be able to use that same status to open a deposit, savings or transaction account with another ADI, without having to resubmit 100 points of ID? And even use that same ID status with an equivalent ADI overseas?

There is often a tension between incumbents and startups. Whether it’s procurement processes, long-term sales cycles, stringent payment policies (notwithstanding the BCA’s Supplier Payment Code) or simple risk aversion, it is very difficult for new FinTech companies to secure commercial supply contracts with enterprise clients. Even though a Blockchain platform like Ripples is working with major financial institutions, most times the latter don’t readily engage with FinTech startups.

Then there is the problem with “tech for tech’s sake”. For example, don’t offer “smart” solutions that actually make it harder or more complex. And don’t build great tech products that offer lousy UX/UI.

A key issue is defining “trust” – whether at the sector level (on the back of the Royal Commission); or at the individual level (the current environment of personal privacy, data protection, identity theft): or at the product level (e.g., decentralised and “trustless” platforms). As one panelist commented, despite the news, “headlines don’t change behaviours”. We love to bash our banks, but we rarely switch providers (mainly because it is far more difficult than it actually needs to be…) And the backlash against social media companies has not resulted in any major movement to unfriend them (witness the response to campaigns like QuitFacebookDay…).

So what are some of the predictions for the next few years (if not the next few months)?

  1. Within 5 years, the 5th pillar will be a challenger bank.
  2. A period of un-bundling followed by re-bundling
  3. A trend for “Financial Wellness” (especially financial education and literacy, not just wealth management and accumulation)
  4. A switch in personal asset allocation/accumulation from mortgages to superannuation – (i.e., new brands like Verve want to be your lifetime financial partner, so that “we invest together”)
  5. Superannuation funds will obtain banking licenses (or maybe one of the FAANGs will?)
  6. Personal Statements of Advice vs ASIC’s MoneySmart – who’s going to be paying for financial planning, advice, products and distributions?
  7. Capitalizing on the lack of trust among incumbents and centralised platforms
  8. More diversity and inclusivity in access to products and services
  9. Payments FinTechs that will disrupt lending (if they can solve the problem of
    going international)
  10. The growth of RegTech – a model of agile governance supported by great UX
  11. The equivalent of open banking for Personal Financial Management services
  12. Banks as data fiduciaries

Next week: An open letter to American Express

Intersekt Festival 2018

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This year’s Intersekt Festival, held in Melbourne last month, was put together in quite challenging circumstances, given some of the recent events within key industry body FinTech Australia, the primary event host. It was a credit to all involved.

Not surprisingly, given some of the regulatory and industry changes underway in Australia, the key themes included: Open Banking and access to data: Trust in the banking and financial services sector (thanks to the Royal Commission, and the APRA report on the CBA); Data Privacy; Payments and the NPP; Comprehensive Credit Reporting and predatory lending practices; and Equity Crowdfunding. And of course, a little bit about Blockchain, Cryptocurrencies and Security Tokens.

There was a lot of discussion on “Trust”, especially in the age of Uber and Airbnb – how have these marketplaces managed to earn so much public and consumer trust in such a relatively short time? Yet as consumers, we obsess about Open Banking vs Data Privacy,  while banks themselves appear to be more infatuated with their Net Promoter Score…. whereas “Trust” is clearly a huge issue. In the case of the banks and the fall out from the Royal Commission, there was a discussion about whether our key financial institutions have come close to losing their social license to operate.

Meanwhile, with the prospect of self-sovereign digital identity becoming a practical reality (fuelled by blockchain, decentralisation and trust-less protocols and standards), there is a demand for cross-functional  (and cross-border) solutions for KYC/AML processing and identity management. But a lack of mutual regulatory recognition or harmonization (as opposed to “mere” industry standards) plus a diversity of business models confounds regulatory harmony, often within a single jurisdiction, let alone across multiple markets.

When it comes to payments and the NPP, it’s clear that regulation lags technology. For example, despite the existence of a (complex and somewhat uncertain) licensing regime for purchased payment facilities, APRA has only licensed one such PPF – PayPal. As former ASIC Chairman, Greg Medcraft once observed, by the time the NPP is fully operational, Blockchain will have gotten there long beforehand. And given the preponderance of stored value cards, digital wallets, peer-to-peer crypto exchanges, and multiple overseas and cross-border mobile payment apps, the respective regulatory roles of RBA, APRA, AUSTRAC, ATO and ASIC need to be clearly defined and set out.

On the topic of data protection and “big data”, there was a lot of discussion about getting the balance right between privacy and innovation. One the one hand, industry incumbents should not be allowed to use their market dominance to resist open banking and stifle the emergence of neo-banks; but on the other, there is a need to shelter the forthcoming consumer data right (CDR) from potential abuse like predatory lending (e.g., not simply define the CDR standards by reference to existing banking products and services) – mainly because the CDR is designed to empower consumers (not embolden the industry), and it is designed to be sector neutral (i.e., equally applicable to utilities, ISPs, telcos, insurance firms).

Other topics included SME lending, where new, tech-driven providers are not only originating new loans, but also refinancing existing businesses as the big 4 banks are seen to withdraw from this market; home loans (where technology is driving new loan origination, funding and distribution models); social impact (“FinTech for good”); equity crowdfunding (and the role of STOs); insurance (creating a decentralised market place) and Superannuation (which prompted perhaps the most contentious panel discussion – more on that to come!).

If there were any criticisms of the conference, based on local and overseas delegates I spoke to, they related to the length (was there enough content to sustain nearly 3 days?); the need for clearer roles and participation by the major and regional banks; the absence of investors (despite a speed-dating matching event….); and a desire to see a broader range of speakers and panelists (too many of the “usual suspects”?).

Next week: The Future of Super