FinTech Australia Road Show

This week I had hoped to blog about the latest FinTech Australia Road Show in Melbourne – unfortunately, COVID-19 intervened, and the event has been postponed.

So instead, here is my personal quick take on recent developments in the local FinTech scene:

A tale of 2 neobanks

Maybe Australia isn’t ready for challenger banks, despite the early interest and apparent market demand. Xinja* has decided to give back its banking license, having spent a ton of money on obtaining it in the first place. It couldn’t sustain savings and deposit accounts (even in a low-interest rate environment) without sufficient regulatory capital, the funding for which has failed to materialise; and without deposits, Xinja couldn’t offer loans. There is talk of launching a US share-trading app instead (à la Robinhood) but given the recent shenanigans with Wall Street Bets, Reddit, hedge funds and GameStop day traders I don’t suppose the regulatory path to market will be that easy. Xinja looks like it’s done.

Meanwhile, NAB has just announced that it is acquiring the shares in 86 400 that it does not already own, in order to merge it with NAB’s digital brand, Ubank. Which further suggests neobanks can’t survive on their own in the Australian market, with the dominant and regulatory protected cartel of the Big 4. (My good friend Alan Tsen has described this latest transaction as a turducken….)

Other challenger brands in Australia are having to take different approaches: Up is piggybacking off Bendigo and Adelaide Bank’s ADI license; Volt describes itself as a BaaS provider (“banking as a service”); Judo is focused on business banking; and the UK’s Revolut is bringing a mix of credit cards, payment solutions and forex services (including crypto), rather than transaction banking. Meanwhile, another BaaS from the UK, Railsbank is currently recruiting locally for a GM to leads its Australian roll-out.

Finally, despite some concerns about the BNPL sector (“buy now, pay later”), Afterpay is partnering with Westpac‘s BaaS platform to offer banking services to its customers.

Whither the Big 4?

Speaking of which, what are the Big 4 doing in the broader sphere of FinTech?

Despite (or because of?) buying a neobank, NAB has apparently closed down the Labs part of NAB Ventures, the often-mentioned, but largely silent startup incubator. CBA has created X15, a similar FinTech ventures platform with the ambitious goal of launching 25 businesses in 5 years (I seem to recall NAB Ventures once had a similar mandate?). Westpac‘s own FinTech fund, Reinventure is expected to do well out of the forthcoming Coinbase IPO; so much so that Reinventure is planning to decouple from Westpac, and launch a new fund focused on DeFi opportunities. ANZ has been putting out some commentary on its ANZi platform for FinTech innovation and partnerships – but its remit is limited to trade finance, home ownership and open data, and it is being very coy as to what specific bets they are making. Ho hum.

Did somebody mention crypto?

In case you hadn’t realised, we are experiencing something of a bull market in crypto.

Coinspot just announced they have 1,000,000 customers. Raiz Invest has launched its retail savings portfolio product with a 5% allocation to Bitcoin. Other funds like Every Capital are planning similar retail offerings. Luno is advertising on Melbourne’s tram shelters. And the Australian division of eToro is talking up DeFi. Game on!

Next week: Transition – post-pandemic career moves

* Declaration of interest – the author participated in the Xinja equity crowd-sale a few years ago

Blockchain and the Limits of Trust

Last week I was privileged to be a guest on This Is Imminent, a new form of Web TV hosted by Simon Waller. The given topic was Blockchain and the Limitations of Trust.

For a replay of the Web TV event go here

As regular readers will know, I have been immersed in the world of Blockchain, cryptocurrency and digital assets for over four years – and while I am not a technologist, I think know enough to understand some of the potential impact and implications of Blockchain on distributed networks, decentralization, governance, disintermediation, digital disruption, programmable money, tokenization, and for the purposes of last week’s discussion, human trust.

The point of the discussion was to explore how Blockchain might provide a solution to the absence of trust we currently experience in many areas of our daily lives. Even better, how Blockchain could enhance or expand our existing trusted relationships, especially across remote networks. The complete event can be viewed here, but be warned that it’s not a technical discussion (and wasn’t intended to be), although Simon did find a very amusing video that tries to explain Blockchain with the aid of Spam (the luncheon meat, not the unwanted e-mail).

At a time when our trust in public institutions is being tested all the time, it’s more important than ever to understand the nature of trust (especially trust placed in any new technology), and to navigate how we establish, build and maintain trust in increasingly peer-to-peer, fractured, fragmented, open and remote networks.

To frame the conversation, I think it’s important to lay down a few guiding principles.

First, a network is only as strong as its weakest point of connection.

Second, there are three main components to maintaining the integrity of a “trusted” network:

  • how are network participants verified?
  • how secure is the network against malicious actors?
  • what are the penalties or sanctions for breaking that trust?

Third, “trust” in the context of networks is a proxy for “risk” – how much or how far are we willing to trust a network, and everyone connected to it?

For example, if you and I know each other personally and I trust you as a friend, colleague or acquaintance, does that mean I should automatically trust everyone else you know? (Probably not.) Equally, should I trust you just because you know all the same people as me? (Again, probably not.) Each relationship (or connection) in that type of network has to be evaluated on its own merits. Although we can do a certain amount of due diligence and triangulation, as each network becomes larger, it’s increasingly difficult for us to “know” each and every connection.

Let’s suppose that the verification process is set appropriately high, that the network is maintained securely, and that there are adequate sanctions for abusing the network trust –  then it is possible for each connection to “know” each other, because the network has created the minimum degree of trust for the network to be viable. Consequently, we might conclude that only trustworthy people would want to join a network based on trust where each transaction is observable and traceable (albeit in the case of Blockchain, pseudonymously).

When it comes to trust and risk assessment, it still amazes me the amount of personal (and private) information people are willing to share on social media platforms, just to get a “free” account. We seem to be very comfortable placing an inordinate amount of trust in these highly centralized services both to protect our data and to manage our relationships – which to me is something of an unfair bargain.

Statistically we know we are more likely to be killed in a car accident than in a plane crash – but we attach far more risk to flying than to driving. Whenever we take our vehicle out on to the road, we automatically assume that every other driver is licensed, insured, and competent to drive, and that their car is taxed and roadworthy. We cannot verify this information ourselves, so we have to trust in both the centralized systems (that regulate drivers, cars and roads), and in each and every individual driver – but we know there are so many weak points in that structure.

Blockchain has the ability to verify each and every participant and transaction on the network, enabling all users to trust in the security and reliability of network transactions. In addition, once verified, participants do not have to keep providing verification each time they want to access the network, because the network “knows” enough about each participant that it can create a mutual level of trust without everyone having to have direct knowledge of each other.

In the asymmetric relationships we have created with centralized platforms such as social media, we find ourselves in a very binary situation – once we have provided our e-mail address, date of birth, gender and whatever else is required, we cannot be confident that the platform “forgets” that information when it no longer needs it. It’s a case of “all or nothing” as the price of network entry. Whereas, if we operated under a system of self-sovereign digital identity (which technology like Blockchain can facilitate), then I can be sure that such platforms only have access to the specific personal data points that I am willing to share with them, for the specific purpose I determine, and only for as long as I decide.

Finally, taking control of, and being responsible for managing our own personal information (such as a private key for a digital wallet) is perhaps a step too far for some people. They might not feel they have enough confidence in their own ability to be trusted with this data, so they would rather delegate this responsibility to centralized systems.

Next week: Always Look On The Bright Side…

 

Open Banking and the Consumer Data Right

While most of Australia has been preoccupied by things such as Covid-19 lock-downs, border closures, which contestant got eliminated from Big Brother/Masterchef, and which federal politician went to an NRL game (and depending on which State you live in), the ACCC has implemented the first phase of the Consumer Data Right regime (aka Open Banking).

The TLDR on this new regulation, which has been several years in the making, can be distilled as follows:

Banks can no longer deny customers the right to share their own customer data with third parties.

So, in essence, if I am a customer of Bank A, and I want to transfer my business to Bank B, I have the right to request Bank A to share relevant information about my account to Bank B – Bank A can no longer hold on to or refuse to share that information.

Why does this matter? Well, a major obstacle to competition, customer choice and product innovation has been the past refusal by banks to allow customers to share their own account information with third party providers – i.e., it has been an impediment to  customer switching (and therefore anti-competitive), and a barrier to entry for new market entrants (and therefore a drag on innovation).

Of course, there are some caveats. Data can only be shared with an accredited data recipient, as a means to protect banking security and preserve data privacy. And at first, the CDR will only apply to debit and credit cards, transaction accounts and deposit accounts. But personal loans and mortgages will follow in a few months. (And the CDR is due to be extended to utilities, telcos and insurance in coming years – going further than even the similar UK Open Banking scheme.)

Although I welcome this new provision, it still feels very limited in application and scope. Even one of the Four Pillar banks couldn’t really articulate what it will actually mean for consumers. They also revealed something of a self-serving and defensive tone in a recent opinion piece:

“Based on experience in other markets, initial take up by consumers is likely to be low due to limited awareness and broader sensitivities around data use.”

Despite our fondness for bank-bashing (and the revelations from the recent Royal Commission), Australians are generally seen as being reluctant to switch providers. Either because it’s too hard (something that the CDR is designed to address), or customers are lazy/complacent. In fact, recent evidence suggests existing customers of the big four banks are even more likely to recommend them.

For FinTechs and challenger brands, the costs of complying with some aspects of the CDR are seen as too onerous, and as such, act as another impediment to competition and innovation. Therefore, we will likely see a number of “trusted” intermediaries who will receive customer data on behalf of third party providers – which will no doubt incur other (hidden?) costs for the consumer.

Full competition will come when consumers can simply instruct their existing bank to plug their data into a product or price comparison service, to identify the best offers out there for similar products. (Better still, why not mandate incumbents to notify their existing customers when they have a better or cheaper product available? A number of times I have queried the rate on an existing product, only to be offered a better deal when I suggested I might take my business elsewhere.)

Recently, my bank unilaterally decided to change the brand of my credit card. Instead of showing initiative by offering to transfer my existing subscriptions and direct debits to the new card, the bank simply told me to notify vendors and service providers myself. If I didn’t request the change of card, why am I being put to the inconvenience of updating all my standing orders?

For real innovation, we need banks and other providers to maintain a unified and single view of customer (not a profile organised by individual products or accounts). Moreover, we need a fully self-sovereign digital ID solution, that truly puts the customer in charge and in control of their own data – by enabling customers to decide who, what, when, why and for how long they share data with third parties. For example, why do I still need 100 points of identity with Bank B if I’m already a client of Bank A?

Finally, rather than simply trying to make money from managing our financial assets, banks and others have an opportunity to ensure we are managing our financial data in a more efficient and customer-centric way.

Next week: Counting the cost of Covid19

 

 

 

Antler Demo Day – Rewired

As with the recent Startupbootcamp Virtual Demo Day, the Antler incubator program also ran its Demo Day Rewired as a live webcast. Both online events were an opportunity to see what their respective startup teams could achieve in less than 3 months, and a chance to interact in real-time with the founders themselves. The main difference was that Antler decided to stream the event live (rather than broadcast pre-recorded presentations) which worked surprisingly well in the circumstances – and not just the technology; it must have been really challenging to pitch to an empty room, with no ability to “read” the audience.

Like Startupbootcamp, the majority of teams were only formed at the start of this cohort, and to do this during the current pandemic lock-down must have been especially challenging.

Of the 12 teams to present, half were SaaS solutions, two were curated marketplaces, two were related to carbon offsets, while the remaining pitches offered a support platform for people suffering addiction, and an investment solution aimed at Millennials.

All of the SaaS teams, deal in some way with managing other SaaS applications, as follows:

Intalayer – streamlining software development and product management tools

motiveOS – streamlining CRM, accounting and billing systems to track sales commissions

meetric – streamlining productivity and collaboration tools

Elenta – streamlining workplace L&D services

CloudOlive and Hudled – streamlining the procurement, provisioning and management of SaaS stacks themselves

Given the similar nature of these concepts, there was some commonality in their approach to problem identification, solution design, and market sizing. A number of the audience questions also asked why existing incumbents in each of the specific verticals wouldn’t simply come up with their own solution (even if it was simply to offer 3rd party plug-ins, which leading SaaS platforms such as Xero and Salesforce already do)?

Both Pathzero and Trace aim to make it easier/cheaper to go carbon neutral (via carbon credits and offsets) for SMEs and consumers respectively. Both solutions are essentially curated services, to help customers access, evaluate and verify carbon offsets and make informed decisions about going carbon neutral. Other traditional solutions involve repackaging wholesale schemes (often expensive to administer, since they are not designed for small businesses and retail consumers), or they lack transparent reporting and certification. Blockchain (as a form of immutable distributed ledger) and tokenisation (to streamline the origination, structuring and distribution of carbon offset assets) are also concepts that are being explored.

In the curated marketplaces, Mys Tyler is a platform for women’s fashion, and RightPaw is designed to help dog breeders connect with prospective dog owners. The former may find an opening now that Amazon has decided to decommission the Echo Look (an AI-supported camera offering fashion advice) although Amazon claims most of the features have been incorporated into the main Amazon Shopping app. While the latter made the point that during Covid19 lock-down in April, online pet scams increased 5-fold.

Combining clinical research, community networking and self-help solutions, Aurelius is designing an online support system for people who suffer from addiction, or living with family and friend who do. It’s quite an ambitious goal, given the value will be in providing highly personalized, proven and achievable outcomes for their users, but the team are not, and do not claim to be, medically qualified professionals. It was not clear from the pitch how the service will be funded.

Finally, Yolo ex is designed to be an investment platform aimed at Millennials. On the one hand, it was suggested that younger people don’t have access to investment products and services suited to their needs, since current solutions are geared towards older investors. On the other, Millennials are said to be more likely to research and do their own analysis on investment choices and opportunities. Part of me thinks that if it was that easy, superannuation brands and financial planners would find it easy to engage with this demographic (remember those colourful ads for Kinetic Super, before it ended up merging with Sun Super?). Another part of me is encouraged by what I have seen after more than four years working in the Blockchain and crypto space – the adoption of Bitcoin and other  digital assets by younger people demonstrates that they looking for alternatives to what the major banks and traditional wealth management providers offer them. And not all of them are looking to make a quick buck via RobinHood and Hertz….

Next week: Music during lock-down