Crypto House Auction

Earlier this month, through my work with Brave New Coin, I was lucky enough to attend the first live property auction to be conducted in cryptocurrency. Although the property was passed in on the day, the event generated enough interest and PR value that it will surely be only a matter of time before more large ticket assets are transacted in this way.

Image sourced from LJ Hooker

Let’s not forget that it’s nearly 9 years since Laszlo Hanyecz paid 10,000 BTC for two pizzas (then valued at about US$41).

Although we may not yet be paying for our morning espresso with Bitcoin, a growing number of merchants are enabling customers to pay for goods and services with crypto, via payment platforms and intermediaries such as Living Room of Satoshi, and TravelbyBit. And services such as Coin Loft and CoinJar make it easier to buy and sell the most popular cryptocurrencies without having to set up accounts on multiple exchanges.

Meanwhile, the house in Casuarina, on the northern coast of New South Wales, was passed in at 457 BTC (A$3.4m). The property was listed by LJ Hooker, and the auction was facilitated by TrigonX and Nuyen, while Brave New Coin supplied real-time market data convert the crypto bids to Australian dollars.

Next week: Demo Day #1 – Startupbootcamp

 

The Future of Fintech

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

Startup Vic’s FinTech Pitch Night

This month’s Startup VIC pitch night on FinTech was a curtain raiser for the annual Intersekt conference. Sponsored by Square and FinTech Australia, it was hosted at the Victorian Innovation Hub, and MC’d by Finch’s Shahirah Gardner and Melissa Mack, Head of Community at MoneyPlace and a Director of FinTech Australia.

As usual, the startups are mentioned here in the order they pitched:

i=Change

i=Change allows retailers and brands to “give back” to the causes their customers care about. Offering a “plug’n’play” solution for their clients, i=Change claims to have 60 brands on board already. It’s fair to say the target audience is fashion-conscience women, with an emphasis on charities, campaigns and causes that are primarily supporting the lives of women and children. Which is all good. But would it be churlish to suggest that many of the brands and products (and their associated imagery) might not be accessible to women in many of the countries where these projects operate? So, there is a potential disconnect between products and causes….

Nevertheless, as well as the feel-good factor for consumers, i=Change also claims to be reducing the retailers’ problem of abandoned online shopping carts, as the prospect of being able to donate to one of the selected causes leads to greater sales conversion and completion.

i=Change applies a fixed transaction fee on top of the customer donation, with a 30% tax rebate available to participating brands. After 5 years, i=Change is generating $8k per month in transaction fees, and is currently seeking a capital raise of $1m.

The judges were keen to understand the level of transparency under which i=Change operates, and whether in-store options are available (not just on-line retail).

For me, I can’t help thinking that this is an attempt to salve the conscience of certain parts of the fashion industry. I would also be interested to understand how much screening there is of both retailers and causes, against CSR measures or other relevant criteria.

Lucidity

Under the product brands of tradeDOX and xpertDOX, Lucidity is digitizing trade finance operations, particularly for import/export commodities transactions.

Offering a pay-per-transaction model, a subscription service, or a custom solution, Lucidity is still pre-revenue, having raised $50k in seed funding. Claiming to be streamlining and automating much of the paper document and manual processes still in use in much of the trade finance industry, it was not clear what technology they are using, nor the average transaction size they are processing. I also couldn’t help thinking that Blockchain solutions for supply chain, logistics and export/import financing will likely render Lucidity redundant.

CoinBot

CoinBot is an algo trading solution for cryptocurrencies that tokenizes individual trading strategies designed by the platform users, and fuelled by native SIT coins (Strategy Instance Tokens). The coins are used to pay for “prospecting” (i.e., scanning for unique trading signals), strategy (devising trading models) and exchange fees (to cover the cost of execution).

Currently seeking to raise $3m for 14% equity (plus SIT tokens), CoinBot supports strategy back-testing written to the Blockchain, and essentially allows users to avoid things like slippage by spreading the timing of instances over a defined trading period.

Personifi

Personifi is a data-driven marketplace for personal loans. It matches consumers with the most suitable lenders (across 30 brands on their platform).

What is supposed to make Personifi different to traditional brokers, lenders and comparison sites is the level of personalised advice, and its credit decision criteria.

With accreditation for the new open banking data regime and the new comprehensive credit reporting system. Personifi can offer improved interest rate options. It has to be noted that some of the loan providers on their platform may once have been considered “lenders of last resort” – not pay-day lenders, but certainly providers who service borrowers who have been turned down by banks and other primary lenders. So, the quality of the loan origination and the standards for lending will no doubt be critical to success.

Previously known as compeer.com.au, Personifi continues to test the broker market, and is bringing more transparency on its fees and loan T&C’s. Current revenue model is based on a 2% commission for referrals. Having pivoted from P2P lending, Personifi is targeting millennials who lack either a long or a strong credit history.

On the night, i=Change took out both the Judges’ prize, and the People’s choice.

A few observations about these pitch nights. First, I miss the audience Q&A that used to be an integral part of proceedings – if part of Startup VIC’s remit (and I am a long-standing, paid-up member) is to foster better founders, there is a missed learning opportunity for prospective and current founders if there are no questions from the audience. Second, I wish they could fix the PA problems – I had thought this had been sorted by using this new(ish), state of the art venue? Finally, it seems the pitch rules have changed, as one of tonight’s teams managed to sneak in a live product demo during their pitch – I just hope that every contestant was afforded the same opportunity, and if this is going to become a regular feature, then the organisers need to be more observant of the time limits…

Next week: Intersekt Festival 2018

 

Wholesale Investor’s Crypto Convention

Another day, another blockchain and crypto event. This time, the latest Wholesale Investor pitch fest in Sydney featuring companies that are looking to raise funding from accredited investors – either to invest in other crypto businesses, or as equity in their blockchain projects, or via a token sale.

Fran Strajnar, CEO and Co-Founder of Techemy delivering the opening Keynote Presentation

The pitches were punctuated by a number of keynote presentations, and panel discussions, to provide some context on what is going on in crypto, from a market, technology and regulatory perspective.

The presenting companies ranged from Xplora Capital, a specialist fund investing in blockchain technology, to Enosi, a platform for retail energy distribution. There were a few projects linked to the entertainment and event industry (Zimrii, FairAccess and Hunter Corp Records), and a couple operating in precious metals (MetaliCoin and Kinesis Monetary System). Ethereal Capital is focused on crypto mining, while Horizon State is bringing blockchain technology to voting systems. Systema is using AI on the blockchain to personalise e-commerce, Amber is like Acorns for crypto, Sendy* is an e-mail engagement platform, and Tatau* is building a distributed computation platform for GPU-based machines.

There was no doubting the level of interest in blockchain and crypto among the audience, but whether they are ready to invest is still open to debate. With the markets sending mixed signals (despite the generally positive industry news in recent weeks), institutional money continues to sit on the sidelines awaiting buying opportunities. My guess is they probably won’t want to wait too long, especially if we see the adoption of new security token standards, crypto-backed ETFs, and other asset diversification.

Meanwhile, over at Chartered Accountants ANZ, there was a very interesting seminar on the taxation of crypto assets. While there have been some positive developments (such as dropping GST on crypto transactions), the ATO is still being somewhat ambiguous about the treatment of crypto for CGT and income tax purposes. In particular, whether crypto assets will be recognised on the revenue account, or on the capital account, has implications for crystallising capital gains (or losses), and for carrying forward certain revenue gains (or losses). The inference being, there is a desire to extract as much as possible from accrued capital gains, while minimising the ability to rollover losses (especially given that many investors are probably sitting on unrealised losses if they bought in to the market during the late 2017 bull run). Essentially, crypto is not recognised as currency (whereas in Japan, for example, crypto is recognised as a legal form of payment), but as an asset that at a minimum, represents a bundle of rights. But the same could be said of a software license…

Next week: Tales from Tasmania

* Declaration of interest: Sendy and Tatau are both clients of Techemy, a company I consult to.