Digital currencies are the new portals

Once described as “The Internet of Money”, Bitcoin is much, much more: it’s software, it’s a store of value, and increasingly it’s being recognised as a legal form of payment. In its wake have come a multitude of other crypto-currencies, alt. coins, digital tokens and programmable assets. Each of them built on one or other blockchain protocol or using distributed ledger technology (DLT), and each of them seeking to serve a specific use case or to drive disruption in traditional markets and business models.

Based on my work with Brave New Coin (a market data vendor for these new asset classes)*, I was recently asked my opinion on all these “Initial Coin Offerings” (ICOs – although I prefer to call them Token Issuance Programs). My response was that digital currencies are becoming the new portals.

How?

First, they are building dedicated communities of interest. Many of them are designed for a specific audience or for a particular purpose. They are leveraging network effects to drive engagement and participation, such as MobileGo, for the online games community.

Second, they are becoming “destinations” in their own right, such as Steem for publishing, or CalcFlow, a market place for mathematical models. They are acting as repositories and resources for specialist content. They are also curating this content, and enabling users to contribute to the community, and get rewarded for doing so.

Third, they are building platforms that support e-commerce and other online transactions, such as SPHRE’s Air solution, and its XID token. In Air’s case, they are creating a paradigm shift in digital ID management: in contrast to most social media and old-school portals that monetize our personal data, our content and our search behaviour through the sale of advertising, Air is giving individuals more power over the use of their own data.

Finally, token issuance programs are creating new registries and alternative distribution networks for a range of tangible and intangible assets, such as MyBit for energy, and bitNatura, for natural capital.

So, as well as supporting P2P payments, facilitating cross-border remittances and enabling the purchase of electrical goods in Japan, Bitcoin and the like are becoming key tools in the new digital economy, just as AOL, CompuServe, Lycos, Yahoo!, Google and MSN were once the main public gateways to the internet.

*Note: the opinions expressed here are my own, and do not represent the views of Brave New Coin or their clients.

Next week: #Blockchain heralds a new railway age?

Personal data and digital identity – whose ID is it anyway?

In an earlier blog on privacy in the era of Big Data and Social Media, I explored how our “analog identities” are increasingly embedded in our digital profiles. In particular, the boundaries between personal/private information and public/open data are becoming so blurred that we risk losing sight of what individual, legal and commercial rights we have to protect or exploit our own identity. No wonder that there is so much interest in what blockchain solutions, cyber-security tools and distributed ledger technology can do to establish, manage and protect our digital ID – and to re-balance the near-Faustian pact that the illusion of “free” social media has created.

Exchanging Keys in “Ghostbusters” (“I am Vinz Clortho the Keymaster of Gozer”)

It’s over 20 years since “The Net” was released, and more than 30 since the original “Ghostbusters” film came out. Why do I mention these movies? First, they both pre-date the ubiquity of the internet, so it’s interesting to look back on earlier, pre-social media times. Second, they both reference a “Gatekeeper” – the former in relation to some cyber-security software being hijacked by the mysterious Praetorian organisation; the latter in relation to the “Keymaster”, the physical embodiment or host of the key to unleash the wrath of Gozer upon the Earth. Finally, they both provide a glimpse of what a totally connected world might look like – welcome to the Internet of Things!

Cultural references aside, the use of private and public keys, digital wallets and payment gateways to transact with digital currencies underpins the use of Bitcoin and other alt coins. In addition, blockchain solutions and cyber-security technologies are being deployed to streamline and to secure the transfer of data across both peer-to-peer/decentralised networks, and public/private, permissioned/permissionless blockchain and distributed ledger platforms. Sectors such as banking and finance, government services, the health industry, insurance and supply chain management are all developing proofs of concept to remove friction but increase security throughout their operations.

One of the (false) expectations that social media has created is that by giving away our own personal data and by sharing our own content, we will get something in return – namely, a “free” Facebook account or “free” access to Google’s search engine etc. What happens, of course, is that these tech companies sell advertising and other services by leveraging our use of and engagement with their platforms. As mere users we have few if any rights to decide how our data is being used, or what third-party content we will be subjected to. That might seem OK, in return for “free” social media, but none of the huge advertising revenues are directly shared with us as ordinary end consumers.

But just as Google and Facebook are facing demands to pay for news content, some tech companies are now trying to democratise our relationships with social media, mobile content and financial services, by giving end users financial and other benefits in return for sharing their data and/or being willing to give selected advertisers and content owners access to their personal screens.

Before looking at some interesting examples of these new businesses, here’s an anecdote based on my recent experience:

I had to contact Facebook to ask them to take down my late father’s account. Despite sending Facebook a scanned copy of the order of service from my father’s funeral, and references to two newspaper articles, Facebook insisted on seeing a copy of my father’s death certificate.

Facebook assumes that only close relatives or authorised representatives would have access to the certificate, but in theory anyone can order a copy of a death certificate from the UK’s General Register Office. Further, the copy of the certificate clearly states that “WARNING: A CERTIFICATE IS NOT EVIDENCE OF IDENTITY”. Yet, it appears that Facebook was asking to see the certificate as a way of establishing my own identity.

(Side note: A few years ago, I was doing some work for the publishers of Who’s Who Australia, which is a leading source of biographical data on people prominent in public life – politics, business, the arts, academia, etc. In talking to prospective clients, especially those who have to maintain their own directories of members and alumni, it was clear that “deceased persons” data can be very valuable to keep their records up to date. It can also be helpful in preventing fraud and other deception. Perhaps Facebook needs to think about its role as a “document of record”?)

So, what are some of the new tech businesses that are helping consumers to take control of their own personal data, and to derive some direct benefit from sharing their personal profile and/or their screen time:

  1. Unlockd: this Australian software company enables customers to earn rewards by allowing advertisers and content owners “access” to their mobile device (such as streaming videos from MTV).
  2. SPHRE: this international blockchain company is building digital platforms (such as Air) that will empower consumers to create and manage their own digital ID, then be rewarded for using this ID for online and mobile transactions.
  3. Secco: this UK-based challenger bank is part of a trend for reputation-based solutions (e.g., personal credit scores based on your social media standing), that uses Aura tokens as a form of peer-to-peer or barter currency, within a “social-economic community”.

Linked to these initiatives are increased concerns about identity theft, cyber-security and safety, online trust, digital certification and verification, and user confidence. Anything that places more power and control in the hands of end users as to how, when and by whom their personal data can be used has to be welcome.

Declaration of interest: through my work at Brave New Coin, a FinTech startup active in blockchain and digital assets, I am part of the team working with SPHRE and the Air project. However, all comments here are my own.

Next week: Investor pitch night at the London Startup Leadership Program

Spaceship launches the future of superannuation

Backed by some stellar names in the tech and startup worlds, Spaceship describes itself as a superannuation fund designed to “invest where the world is going, not where it’s been”. Squarely aimed at 18-35 year-olds (and savvy people in their 40s and 50s….), it is the brainchild of Paul Bennetts (a Partner at AirTree Ventures), Andrew Sellen (ex-Marketing Manager at Australian Ethical Investments) and two tech co-founders, Dave Kuhn and Kaushik Sen. Their central thesis is that global tech stocks are the future, and that these assets should form a greater part of a fully diversified portfolio, with a 10-year plus investment horizon.

spaceship-logo-03I first connected with Paul a couple of years ago, when I was working with a legal technology startup that was an early graduate of the Melbourne Accelerator Program. He was interested in what we were doing at Ebla, but the company was at too early a stage for him to invest in. But I’ve kept an eye on what Paul has been doing since, and have followed the Spaceship story quite closely. We last caught up very briefly during a recent roadshow event in Melbourne, as part of the Spaceship beta launch.

Any new superannuation brand, especially if it is neither an industry fund nor a retail fund backed by a major financial institution, is going to struggle to attract members: the industry and public sector funds have the benefit of workplace incumbency (sometimes backed by industrial awards), and the big retail funds have extensive distribution channels via advisor platforms, dealer groups and financial planners. As for corporate superannuation funds, in my experience, many of these employer-run funds are often a re-badged or customised version of an existing retail fund, or a highly outsourced business that retains the company name for brand recognition among employees.

Spaceship is challenging the market by using technology (and very targeted marketing) to streamline the recruitment and on-boarding process. As evidence of its marketing success, Spaceship claims to have built a waiting list of 12,000 prospective members in just 30 days, mostly through social media and word-of-mouth. And as evidence of its success in attracting “smart” money, witness some of the big names who have backed the venture as investors, or joined as members themselves.*

Not surprisingly, Spaceship is also developing some interesting content marketing and social media tactics to drive member engagement. This includes thought leadership on portfolio diversification, understanding investment horizons, accessing investments in early-stage tech companies, and investing in tech brands that its members love and use.

But while much of the media coverage for Spaceship has been positive, it has already drawn detractors (almost in the same breath…). Some of the latter reckon that it won’t achieve necessary scale to be sustainable (in light of APRA moves to drive consolidation among smaller funds), it will be highly concentrated in its exposure to tech stocks (which have a tendency to be more volatile), and without face-to-face contact with members, it will be harder to drive customer engagement.

Given that, following some delays, Spaceship does not launch to the general public until the end of this month (it is still running a waitlist), it’s probably a bit churlish to say it is doomed to failure before it has even really begun. Equally, having worked in financial market research myself, I have met with a number of industry, public sector, retail and corporate superannuation funds who cite member engagement and retention as one of their biggest challenges. The main issue is this: how do you interest an 18-year old in something from which they won’t derive any benefit for at least 40 years?  And once you have got their attention, how do you sustain that interest over the lifetime of their membership and into retirement?

Now technology is having a larger part to play in disrupting the superannuation industry, and changing the way members interact with their fund. As the COO of a major industry fund said recently at a FinTech Victoria event, “consolidating your super balances is only three clicks away” (to which Spaceship, replied “it’s now only one click!”). But it’s not enough to have a smart phone app to check your balances, switch investment options or make voluntary contributions. Members are looking for other services, such as financial education, estate planning, insurance, loans and mortgages, and tailored advice. Plus, they expect much more streamlined processes and pro-active member support.

I suspect that a key factor that will likely contribute to Spaceship’s potential success is the growth of the gig economy:

First, with more people working as freelancers, contractors or becoming self-employed, they will have no ties to a fixed workplace or a single employer – so they will be drawn to a fund product that appeals to their independence and flexibility.

Second, much of the gig economy lies in the tech and startup sectors, so again, prospective members might well be looking for a fund that invests in what they are interested and involved in themselves.

Third, if we are all expected to live and work longer, and if we are going to have to rely more on our own accumulated retirement assets, a fund that fully aligns with this long-term investment philosophy is hopefully going to be better placed to help us meet our financial goals.

Of course, it’s worth remembering that the Australian superannuation industry is both large ($2.1tn in assets as at September 2016, and the 3rd largest pool of pension funds in the world), and highly regulated (for very good reason). Equally, it has been slow to adapt to a changing economy and to different market factors, and is increasingly dominated by just a few big funds. Among some large industry funds, there is almost a cosy, symbiotic relationship between their members (who work in say, construction, energy, mining) and some of the assets the funds invest in (infrastructure, buildings, utilities). (But that may prove to be Spaceship’s USP – representing members who work in the tech sector?)

Although the Australian superannuation and managed funds sectors have established strong capabilities in administration, trustee, custody and asset management services, many of these back-office operations run on legacy IT systems which are potentially ripe for disruption. Plus, while government initiatives look for ways to attract more offshore institutions to place their assets with Australian fund managers, under various financial passport arrangements Australian institutions can invest in offshore funds domiciled and managed in key investment centres such as Luxembourg and Singapore.

Finally, new entrants to the superannuation industry are less likely to be reliant on incumbent and legacy service providers, and more able to take advantage of emerging technologies such as blockchain solutions (distributed ledger platforms), and fully integrated end-to-end CX (mobile apps and tools).

* Declaration of interest and disclaimer: I was successful in signing up to Spaceship in beta/waitlist, and have allocated a small portion of my own super to the fund. I do not have any other commercial connection with Spaceship or its founders. I have not been paid to write this article, nor should it be construed or interpreted as financial advice – it has been provided for general information only. BE SURE TO SEEK YOUR OWN INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY FINANCIAL INVESTMENT.

Next week: Gaming/VR/AR pitch night at Startup Victoria

The FF17 Semi Finals in Melbourne

As part of the recent Melbourne Startup Week, Next Money hosted the Melbourne heat of the FF17 pitch contest, to decide which local FinTech startup will compete at the FF17 finals in Hong Kong later this week.

screen-shot-2017-01-15-at-8-15-03-pmAt the outset, I should declare an interest, as I myself was one of the pitch contestants, but hopefully that doesn’t preclude me from commenting on the event. The competing startups were as follows (as listed on the event Meetup page):

AirWallex

This payments solutions provider has featured in my blog before. Since the last time I saw AirWallex pitch, the market for cross-border remittance and payment solutions has drawn a lot of attention. First, the growing opportunity for exporters to market products and services to Chinese consumers and tourists means that payment platforms like AirWallex (and others like Novatti, LatiPay and Flo2Cash) are partnering with Chinese payment gateways such as WeChat Pay, AliPay, JDPay and Union Pay). Second, cross-border remittance services has become a key use case for Bitcoin and other digital currencies (as evidenced by the recent partnership between Novatti and Flexepin).

Analyst Web

Still in private beta, Analyst Web is aiming to disrupt the market structure (and payment model) for equity research. By enlisting qualified CFAs to write bespoke investment reports on listed companies, then distribute them via subscription services, Analyst Web claims to be bringing quality, objectivity and value for money to this investor service. Currently, investors have to rely on either brokers (who may offer “free” reports to their clients under soft dollar arrangements) to provide research on individual stocks; or subscribe to independent research houses (such as Morningstar). Typically, neither brokers nor the research houses cover the full market – tending to focus on the bigger stocks and those included in benchmark indices. Of course, companies themselves use investor relations services to issue commentary on their market performance and prospects, but these communications perhaps lack objectivity. There are also other models, such as the ASX Equity Research Service, whereby research providers are “sponsored” by the stock exchange to provide reports on qualifying companies to boost market coverage. Some of the challenges Analyst Web will need to overcome are: investor willingness to pay for research; market credibility and acceptance of their reports; and sustainable financial models that appropriately compensate the analysts without compromising independence and objectivity.

Proviso

Proviso has also been mentioned in my blog before, and they continue to impress with their solution to take friction out of the documentation processes for loan origination, and their ability to secure more financial institutions as clients. In my previous commentary, I noted that Proviso risked being disintermediated by an industry-owned utility. While I still think that is a possibility, I also see that the combination of Blockchain solutions (for distributed ledgers and bank data feeds) and more open APIs for financial data and account information may mean that customers themselves may be empowered to drive the process, since it will be easier for them to demonstrate their creditworthiness and establish their cashflow status, but also have better control over the disclosure of their data.

DragonBill

DragonBill, an invoicing solution for SMEs, is yet another of the FF17 contestants to appear in my blog, most recently when they presented at Startup Victoria’s regular pitch night. In addition to offering both direct payment and escrow options for micro-businesses and sole traders, DragonBill continues to mine an interesting niche market among sports clubs and associations – the reason being that many club members are themselves sole traders. As part of its future developments, the business is scoping a solution to help clients manage their superannuation obligations, and to provide informed advice on cashflow management.

BreezeDocs

Similar to Proviso, BreezeDocs is a document automation solution for lenders, although currently focusing on mortgage origination. And like Proviso, at the heart of the solution is the ability to streamline the extraction and processing of data from customer documents. On top of a core OCR capability, BreezeDocs also claims to be using machine learning to train their systems on different document types, formats, structure and content. Despite the use of ETL processes within financial institutions, the disparate nature of financial products and documentation; the way customer, product and transaction data is often maintained in different systems; and the fact that customers will often have accounts and products with different providers can undermine the need for standardised processes.

Vestabyte

As I commented in my previous blog, equity crowding may be about to come into its own as a way to connect investors with entrepreneurs and startups. Vestabyte are certainly enthusiastic exponents of this method for raising capital, but legal constraints mean that their platform still has to operate under a unit trust model, rather than offering access to investments in the form of direct shares in specific assets, companies or ventures. This may change if the proposed legislation can get through Parliament, although it’s far from being a done deal. But in the absence of formal legislation, it sounds like a great opportunity for a FinTech startup seeking funding to test ASIC’s first licensing exemption under its sandbox regime….

coHome

By their own admission, coHome is very much a nascent business – one that is still defining its customer offering. At its heart, this shared ownership service provides a matching service for aspiring property owners, along with some standard documentation for a co-ownership agreement, known legally as a tenancy in common. With multiple parties to the property transaction and mortgage application, coHome aims to streamline the process, make it easier for buyers to connect with other interested parties, and provide customers with appropriate legal safeguards. It’s clearly an admirable objective, and one that deserves to gain attention. But monetizing the service may prove challenging, unless coHome takes a commission from the mortgage providers, lawyers and conveyancers?

BugWolf

Not strictly speaking confined to the FinTech sector, nevertheless BugWolf, a tool for managing user-acceptance testing, has managed to gain traction with at least one of Australia’s Big 4 banks. Using gamification, competitions and other techniques to recruit, engage and manage teams of testers, BugWolf claims to support all aspects of functionality testing across software, websites and mobile apps. Combined with robust reporting and analytics, BugWolf can also help clients achieve shorter product development cycles.

Brave New Coin

I joined the team at Brave New Coin (BNC), a provider of market data for digital assets, in early 2016. So, it was the first time I have pitched, outside of hackathons, client presentations and sales conferences. And the fact that BNC was a last-minute confirmation for this event made it an even more interesting experience. Established about 3 years ago by a team of founders with an interesting mix of publishing, Bitcoin and full stack development experience, BNC has built a suite of data APIs (market prices, indices, exchange rates and analytics) for Bitcoin and most other crypto-currencies and Blockchain assets. While the APIs are typically used by developers, the growing interest in digital assets among brokers, investors and asset managers means that market data on these new asset classes is in demand, and BNC is busily building distribution partnerships and subscription deals with traditional brokers, market data vendors and exchanges. Recent price fluctuations for Bitcoin may suggest continued speculation in this currency, but the launch of investable and tradeable products such as CFDs, futures, ETFs and other derivatives also suggest that digital assets are starting to achieve broader market acceptance.

BankVault

Unlike other solutions to defeat hackers and hoaxers (e.g., anti-virus software, spam-filters, VPNs and proxy servers), BankVault uses virtual machine technology to protect customers’ bank details when they transact online. This means a “new and instant” machine is created for one-time use only, each time a customer launches the BankVault service. Offering both individual subscriptions and enterprise solutions, the business is in the process of launching in the USA.

Conclusion

The winner, based on the judges’ votes, was BugWolf, which came as something of a surprise to a number of the other contestants, myself included. Without wishing to sound churlish, this event was supposed to be about the future of finance (hence FF17…), so it would seem reasonable that the winner would be based in FinTech (as opposed to TechTech?). The result (although highly deserved and based on an impressive pitch), also reinforced my sense that this event did not draw the “usual” FinTech or startup audience in Melbourne, based on the many pitch nights and meetups I have attended over the past few years. From my perspective, neither was it an investor audience, nor a capital markets audience, meaning I wasn’t really sure who I was pitching to. I’m hoping that the organisers will reflect on this event, and look to make some changes for next year.

Next week: A few rules on pitching