Gazing into the crystal ball of Australian fintech

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As I write this I’m working out of the Brinc co-working space in Hong Kong, in the heart of the trendy SoHo district. The guys very kindly offered me a hot desk for the day,

One side bonus is that when you work out of a hub there is no shortage of people to chat to.

This morning I met Antoine Cote, co-founder of Enuma Technologies, who showed me an early stage prototype for a credit card that could display your latest transactions via a small screen on the card itself.

The company is also working on an app based digital identity solution for consumers that allows users to only release the identity points they want to when requesting access to services.

Exciting and distracting stuff, and not helpful when I’m supposed to be putting the final touches on my presentation on Australian fintech for tomorrow’s Next Money event. In the final slides I’ve been asked to gaze into my crystal ball and try and envisage what the local market will look like in 2020. No pressure.

EY FinTech Australia Census 2016

While past performance is not indicative of future results (excuse the pun), there really is no better place to start than to recap where the local fintech scene has landed after an incredibly active few years. And the EY Fintech Australia Census 2016 is the perfect place to begin.

Late last year the FinTech Australia, the peak body established in 2015 canvassed the sector and compiled a number of great statistics and insights on the local fintech scene. The infographic below is perfect for a quick overview, otherwise you can read the full report here.

fast-facts-fintech-australia

Highlights/Lowlights

It’s heartening to see that out of the 57 percent of companies who claim they are post-revenue, 27 percent have a customer base larger than 500.

However only 9 percent of companies post-revenue generate over $1M per month. The majority, 41 percent to be exact, generate $50K or less on a monthly basis. And only 14 percent of fintech companies are profitable.

It’s interesting to note the average age of fintech founders is 41 – only 10 percent are under 30. Innovating in financial services is not for the faint of heart, and a deep, intuitive understanding of the complexity of the problems in finance, garnered from experiencing them first hand, is no doubt a huge advantage.

Where to next

37 percent of companies surveyed have less than a year to go until cash reserves dry up, so unless the money fairy visits them over the next 12 months, or they crack the biggest external problem listed by startups in the survey – customer acquisition – my crystal ball tells me, as it would most, a few will fold. However this is a short term prediction, and hardly that insightful.

However what could significantly shape the market over a 3 year horizon are a number of legislative and policy interventions by the Australian Government, who have already made a firm commitment to want to position the country as an APAC fintech leader.

Backing Australian Fintech

In what it claims to be a world first, the Australian Securities and Investments Commission (ASIC) announced in late December of last year that it would begin to exempt fintech businesses from requiring an Australian Financial Services Licence (AFSL) before launching their product. Fintech companies now have a grace period of 12 months and the ability to service up to 100 customers. This will go a long way to helping startups validate their business model before an inordinate amount of money is committed to an idea.

Just prior to this, in September the Australian Government also amended the Anti-Money Laundering and Counter-Terrorism Financing Rules to allow for reporting entities to now gather Know Your Customer (KYC) data on their customers rather than directly from. The distinction is significant, as sourcing information on is easier and cheaper than from, and can possibly be done relatively indirectly.

Finally the biggest event on the fintech horizon will be to what degree fintech companies can access an indviduals banking data. A draft report released by Australia’s Productivity Commission has recommended 3rd parties be given access to financial data, and that a future API framework be developed. If the government ultimately supports this recommendation then the game could significantly change.

My crystal ball is pretty clear – policy changes and government support are now required to really drive the fintech agenda forward. While inroads have been made, there is significant opportunity for improvement. Government procurement of fintech services is a great start, and something they have publicly committed to. But that’s a topic for another post altogether.

T-Zero sings “Love me do” to the SEC with its Blockchain Series A Preferred Shares

t0

Wonders are still happening in America!

Who would imagine that an online retailer who started out as an e-commerce business liquidating merchandise of failed companies, would be the first publicly traded company offering Blockchain Shares.

Let me introduce to you Overstock, a Nasdaq listed online retailer (OSTK) based in Utah and founded by Patrick Byrne.

Tee-zero (t0.com) is a majority owned subsidiary of Overstock that is focused on using blockchain technology in capital markets. Last summer, we covered the issuance of a private crypto-currency denominated bond that settled on the T0 platform. It was a symbolic move, demonstrating that it is possible to issue, trade & settle (synonymous in the future T0 world), and have very fine divisibility of a bond and fast transferability. The trading activity of this bond was not the point of the implementation.

This December an even more important symbolic implementation happened. After the SEC approved in early Fall the issuance of a blockchain public stock offering; Overtstock will go down in history as the first publicly traded company that offered blockchain shares trading on an Alternative trading system (ATS).

The historic offering: Overstock Preferred Shares

Voting Series B Preferred Shares

  • 560,333 @ $15.68 (roughly $9mil)
  • Trading on NasdaQ OTCQB

Blockchain Voting Series A Preferred Shares

  • 126,565 @ $15.68 (roughly $2mil)
  • Trading on ATS under the symbol OSTKP

The above offering (total roughly $11mil) was handled by Keystone Capital, a conventional broker-dealer that worked diligently and closely with the regulators to obtain the required approvals.

Existing shareholders had the right to participate in the offering as follows: One subscription right for each 10 shares of common stock owned. Each share of the preferred stock has a preferential right to a 1 percent cumulative annual cash dividend.

The symbolic significance of the Blockchain Series A transaction is all about the

Transparency of the transaction and the fact that it boils down to the verification of two blockchain addresses.

What’s next?

I wasn’t an Overtsock shareholder on the required date and therefore didn’t participate in the offering. The broker-dealer, Keystone Capital handled the onboarding of the buyers (existing shareholders that exercised their right to buy the Series A preferred stock) of the digital securities. They created digital wallets and accounts for them and are now continuing to onboard outside buyers who will be matched on the T0 platform to sellers (those that participated in the first placement). Any individual that qualifies under the Title III Jobs Act, can participate.

Nasdaq is watching and probably nodding its head, since a large-scale adaption of such a process is not imminent. However, it is threatening to its core business.

Stock exchanges are one of the main three categories of players involved in capital markets; Brokers and Central Securities Depositaries handling settlements, are the other two main categories. The million-dollar question here, is who of them will embrace the T-zero or some such blockchain based platform and make the other two obsolete?

T-Zero is actually a viable product that targets the capital markets B2B vertical and is out there for the first mover to embrace it. Ironically T-zero is a private blockchain. In addition, this first symbolic implementation was accomplished with the participation and collaboration of market players and intermediaries that will be directly affected should this technology prove to change the capital markets infrastructure. Broker-dealers for example, which were instrumental in obtaining approval from the SEC and effectively laying the seeds for the growth of such an ecosystem of digital assets; will be cannibalized.

At the same time,

T-zero with Keystone Capital, are bringing up to speed the SEC and holding their hand towards Full Regulatory Transparency in public markets.

For me, this symbolic transaction is the first public performance of “Love me do” from T-zero to the SEC. Right at the time that the SEC has committed to a plan to spend $1.5billion to create a consolidated audit trial (CAT), T-zero is echoing loud and clear to them “Love me do”

T-zero can offer a freemium service to the SEC, if they adopt the T-zero platform which will naturally include a Consolidated Audit Trial.

If T-zero manages to seed an ecosystem of publicly traded digital assets (even if it starts small); then I foresee Lykke, the frictionless global marketplace for digital assets, accelerating its growth. Lykke, an open source platform, has started with frictionless, transparent, immediate settlement of FX, ICOs and cryptocurrencies, but is ready to broaden its assets base (anything digital can be on boarded).

The transformation in capital markets is here. Timing is uncertain but the trend is clear.

Sources: T zero news; Nasdaq news

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Fintech is entering the third wave and this will be a wild ride

 

big_wave_surfing_1

Disruptive change typically goes through three waves:

Wave 1: Everybody says that this is revolutionary. This is the initial hype wave. The basic ideas are right, but the timing is way off.

Wave 2: Everybody agrees that this is evolutionary. This is when realists point out that change takes a lot longer than the original promoters of change led us to believe and this leads to the Wave 1 ideas being discredited.

Wave 3: Everything changes. Some incumbents fail, some transform and thrive and a new power structure emerges with some new players.

The Internet went through these 3 Waves

Wave 1: This is revolutionary. From about 1994 to the peak of the bubble in late 1999.

Wave 2: This is evolutionary. From mid 2000 to around 2004. After the dot com bubble burst, everything digital was declared dead and the only tech was enterprise tech and that needed to be incremental and very low-risk. Remember Intranets and brochureware websites?

Wave 3: Everything changes. From 2004 to today, when the search and social era of GAFA and BAT emerged. The change envisaged in Wave 1 took longer than forecast, but the eventual impact was far bigger than even the most wild-eyed visionaries had forecast.

The 3 Waves look like this in Fintech:

Wave 1: This is revolutionary. After the Global Financial Crisis in late 2008 to the Lending Club IPO in December 2014 and an acceleration in VC funding in 2015.

Wave 2: This is evolutionary. This is what we saw in 2016, when Bitcoin became totally discredited and the bellwether Fintech stock, Lending Club, blew up. The key belief in this wave is that incumbents control the pace of change. Nobody debates that change is needed and change is good, but entrepreneurs are told to knock politely on the doors of the incumbents and sell technology to them.

Wave 3: Everything changes. From 2017 onwards. This post explains why.

 

Why Fintech is a big deal and will meet a lot of resistance

Financial Services is a big % of GDP, of employment and of corporate profits. Many big companies, that are not labelled as Financial Services, make a lot of their profit from Financial Services. By some estimates, Financial Services accounts for as much as 40% of corporate profits in the Fortune 500.

This article on Bloomberg does a good job describing how finance came to dominate-the US economy and you could write a similar story about the UK and Switzerland.

Almost all of this can be digitized and is therefore susceptible to disruption.

In short, there is a lot of money at stake.

That also means that a lot of money is spent to persuade people that nothing will change and the status quo will remain. Perception does impact reality (aka mindshare leads to marketshare).

However, this is PR. The reality is that incumbents can no longer dictate the pace of change. They can benefit from change or be hurt by change, but what they cannot do any longer is dictate the pace of change.

 

Why incumbents can no longer dictate the pace of change

Imagine Blockbuster saying “we will decide when and how streaming video will roll out”. Or Kodak saying that about digital photography or Borders saying that about book retailing. Disruption does not happen like that, particularly if it is Big Bang Disruption.

Straws in the wind indicating change

You can wait until the change is obvious, or you can try to get ahead of the herd. To do the latter, you need to get comfortable with incomplete data that I call “straws in the wind”.  It takes guts to see a few straws blowing about and bet that this is caused by an invisible wind, but that is what the best early stage investors do. The signs of change are far from obvious, but “the answer my friend is blowing in the wind”. We see 5 of these straws in the Fintech wind today:

  • Wells Fargo fake accounts scandal. This was what happens when organic growth slows because of a secular wave of change and managers pile on the pressure to maintain the illusion of growth.
  • Funding Circle raising $100m. This indicates that P2P Lending is alive and well. P2P Lending is a disruptive model where banks don’t dictate the pace of change.
  • Lending Club stock recovering. Since the ouster of the CEO in May 2016, the stock has recovered from a low of 3.51 to around 5.50 which is an annualized return of over 100% (which makes it one of the best performing stocks of 2016). Of course you can also measure from the peak (bad) or from the pre IPO early stage days (very good). The key point is that the P2P Lending bellwether is alive and well. Disclosure, I was fortunate to buy some shares at 3.51 after writing this post. You can get insights like this in your inbox every day – its free and all we need is your email.
  • Defections from the R3CEV blockchain consortium. This indicates that a bank-led consortium may not dictate the pace of change in blockchain deployment. An analogy would a consortium of camera makers doing something with digital photography. Looking at past waves of disruption it is much more likely that a startup harnesses the pace of change that consumers want and that individual banks figure out how to transform themselves for this new reality.

 

Expect a lot of PR that it is business as usual

During the evolutionary wave, the incumbents see an opportunity to slow things down and control the pace of change.  They do this through both acquisitions (buying and closing down a competitor or changing how they operate) and PR.

The PR works, because people have an instinctive reaction to believe that the status quo will remain. Banks have not fundamentally changed for hundreds of years, so it is really hard to imagine a world where Banks are not at the center of Financial Services.

For example, read this view by Goldman Sachs that the third wave of Fintech will be all about “partnerships between big banks and startups.  

I don’t mean to pick on Goldman Sachs, but I think this is PR and not reflective of reality. Some incumbents will make the transition after Big Bang Disruption and I think Goldman Sachs will be one of them. From personal experience of selling technology to them, I know that they were Fintech before it was called that and that they fully understand the level of disruption that is coming.

Partnerships between Banks and Tech Startups are real and a key feature in how Fintech evolves, but what is different this time is how the world has changed from Traditional Fintech when Banks controlled the pace of change.

Today , both Banks and Tech Startups need a reality check before a real partnership can be negotiated.

 

Partnerships require a reality check by both parties

When Banks and Fintechs first date, it is a Venus and Mars story. If the relationship continues, it goes through three levels of maturity:

  • Level 1: Incomprehension. The other party just looks strange and it is hard to imagine a productive conversation. Whether the emotion is fear or disdain, the reaction is the same – inertia. Banks seek to overcome the incomprehension problem by funding Accelerators and Hackathons.
  • Level 2: Funding. Banks take minority equity stakes in Fintech ventures through their Corporate Venture Capital (CVC) unit. This is the level that most relationships have reached. Funding while still in Incomprehension mode is clearly dangerous.
  • Level 3: Strategic. This is where the relationship drives needle-moving revenues and profits for both parties. This may or may not include an equity relationship; the strategic relationship comes first.

As Fintech entrepreneurs and Banks seek strategic win/win relationships, they will move beyond Level 2. The Corporate VC wave of funding into late stage Fintech that we saw in 2015 was a classic sign of an overheated market. The real win/win deals will be at Level 3 and equity will not be a primary feature of those deals; they will be straightforward revenue share deals. Big Banks will have to gain the trust of entrepreneurs who might worry that Big Banks want to learn from them and then build in house or buy a struggling competitor. In other words, Big Banks could be competitors or partners. Smaller Banks don’t have an option to be competitors; they are partners that entrepreneurs can feel comfortable with.

A real partnership only happens when both parties have a clear answer to one strategic question:

  • The one question that banks need to answer is where in the stack do you want to excel? Do you want to be a platform for consumer-facing businesses? Or do you want own the customer experience? Both are great strategies, but it is a choice – it’s very, very hard to be both.
  • The one question startups need to answer is do you want to market direct (B2C) or via channels (B2B2C)? The answer can be “both”, but only if the startup is getting real traction in B2C. Without that, startups are really doing B2B, meaning they are selling technology to Banks (aka Traditional Fintech).

The difference between inevitable and imminent

During wave 2, realists point out the difference between inevitable and imminent. This has killed many startups. They understood what change was coming and how to position for it, but underestimated how long it would take – and that means running out of cash and that is the end for a startup. That is one reason startups are so hard. However, that is no consolation for incumbents. They face a relay race where the runners who give up exhausted can pass the baton (IP & team) to a new runner. Investors lose money on one runner and invest in the next one.

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Wrap of Week #2 of 2017: P2P, Cloud computing, Next Money Aussie fintechs, Lemonade, Dabbawals.

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We started the week reporting from the original and genuine perspective of lenders on P2P platforms. In Back to the future of P2P Lending, we interview one of those peers, Hector from New York shares his journey.

We looked into the positioning and involvement in Fintech of cloud computing providers like AWS, IBM, Microsoft and Alibaba.

We reported on the Australian Fintech finalists that will participate next week in Next Money Fintech Finals 2017 in Hong Kong.

Don’t miss out on our thoughts on Insurtech in Parsing Lemonade PR to see if P2P insurance is game changer or a mirage.

We ended the week with a global theme around Food and Fintech. Enjoy The dabbawalas in India point to future e-commerce and payments.

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The dabbawalas in India point to future e-commerce and payments

dabbawala

If you spend any time in India, you will often be told that home-cooked food is far better than restaurant food. As the restaurant food is so delicious, this is hard to believe, but it is true.

In Mumbai, India, 200,000 workers get fresh home cooked food every day. In this relatively impoverished city, workers get better food that is totally customized to their individual needs than the most pampered workers in Silicon Valley and other wealth hubs.

Investors and entrepreneurs who have spent $billions on food and grocery ecommerce should take serious note of how this is done.

Policy makers might also pay attention as this is good for the environment and for jobs.

The future of e-commerce is mobile. The future of payments is also mobile. So these two worlds of e-commerce and payments are converging around mobile phones and Internet Of Things devices. We see this convergence in companies such as Uber, Amazon, Alibaba and Paytm.

 In short, it is time to take note of what Mumbai’s dabbawalas are doing.

Once again this illustrates our theme of First The Rest then the West – that countries formerly known as emerging aka the rest of the world are leapfrogging the West thanks to not being invested in legacy technologies, processes and models.

Dabbawala 101

A dabbawala (aka tiffin wallah) is a person in Mumbai, India, who collects hot food from the homes of workers in the late morning, delivers the lunches to the workplace and returns the empty boxes to the worker’s residence that afternoon. They are also used by meal suppliers in Mumbai, where they deliver cooked meals from central kitchens to the customers and back.

Dabbawala translates to lunch box delivery person. “Dabba” means a box (usually a cylindrical tin or aluminium container aka tiffin) while “wala” is a suffix, denoting a doer.

These tiffins have become fun gifts in the West. Some parents use them for their kids lunch box.

Hot VC sector

The food and grocery delivery space has been hot. For a good analysis in 2015, read this post on Techcrunch by a VC. VCs put in more than $1 billion in 2014 with a big acceleration in 2015. A few successful IPOs such as Just Eat and Grubhub/Seamless led to a rash of similar ventures.

There has been a cooling in 2016 as some ventures inevitably failed and VCs focused on a few late stage deals. However, the window is still wide open with the online penetration % in low single digits.

The first generation was simply an online ordering layer (replacing phone orders with online orders). The second generation of restaurant marketplaces includes behemoths such as Uber and Amazon that compete on logistics through a network of independent couriers. The logistics network creates a powerful moat and a correspondingly higher commission around 25%.

It is this second generation, competing on logistics, that should be studying the dabbawala network. Actually they probably already know about it and understand its disruptive power (and would prefer if it stays in Mumbai). It is the third generation that will use the ideas behind the dabbawala network to create a new wave of digital cooperative network.

Indian frugal innovation

The dabbawala network is a good example of what has been termed “jugaad” in India which translates to “frugal innovation”. This became fashionable to study in the West around 2011 when big companies and universities (such as Santa Clara and Stanford) strove to understand how to reduce the complexity of a process by removing nonessential features. This becomes critical in serving mass market consumers at razor-thin margins without reducing quality.

Also in rich countries

Switzerland could not be more different from India – a tiny country with a high GDP per person.  Yet we see a dabbawala network operating here.

The appeal of fresh, delicious, nutritious food cooked with love and care is universal.

Better for the environment

The packaging wastage around today’s e-commerce (big disposable cartons) upsets a lot of people. If this upsets wealthy people who are influential this can damage the bottom line of the e-commerce marketplace. The dabbawala tiffins are reused every day.

Pave the cow paths with proven digital innovation

The dabbawala network started in 1890 with 100 delivery people (it now has about 5,000). So this was hardly a tech startup. Yet one Silicon Valley mantra is to “pave the cow paths”. This means adding innovation to whatever is already working.

There are 5 tech innovations that are already proven which would add a digital layer to a dabbawala network to make it massively scalable:

– QR code to replace the unique ID stamped into the tiffin.The current system is well thought-through and would translate easily to a QR code.

dabbawalla-7

– ChatBot UI for service inquiries and exception handling. Lets say you want to change the the location to your friend’s office or cancel for a few days next week when you are travelling.

– Mobile payment at delivery time (with auto routing of payments to the cook and the delivery person).

– RFID sensors in the tiffin so that the whereabouts can be tracked automatically (your phone pings you to say that lunch is in the lobby and getting into the elevator).

– fully electric cheap cars and scooters for delivery (cannot rely on trains in many countries and many delivery people will object to pedal powered bycicles).

Delegate don’t micro manage

Ordering takeaway food online rather than by phone increases efficiency, but adds to the tyranny of choice. What shall I eat for lunch today that is a) delicious b) nutritious c) avoids any dietary or religious prohibitions? How much nicer to have somebody who really understands all those needs decide for you and occasionally surprise you within those constraints.

For a lovely movie about the romance of this, watch The Lunchbox.

Put in more MBA terms, it is surely better to delegate this task rather than to micro manage it.

Digital Cooperative Future

The dabbawala network grew in an era and culture where/when men worked for pay and women cooked at home. Today, those roles could be reversed or both could be working and the cooking is done by somebody else.

The Gig Economy is the new normal for a large % of the population. The only question is, do we have a power law society (with the lion’s share of the economic value of these networks going to the network operator) or a bell curve society where the broad mass of people get most of the benefits of these digital networks? The latter is the vision of a digital cooperative future. Many of the blockchain startups envisage a future like this, but the beauty of the dabbawala network is that it does not require any technological breakthrough.

Look at the dabbawala network in the context of recent digital innovation compared to Uber:

  • Each dabbawala is required to contribute a minimum capital in kind, in the form of two bicycles and a wooden crate for the tiffins. This is like an Uber driver owning their own car.
  • Each dabbawala is required to wear white cotton kurta-pyjamas, and the white Gandhi cap. Rich people will pay more if their Uber driver looks like a chauffeur and that branding also helps the network operator.

Here is the fundamental difference with sharing economy network. Each month there is a division of the earnings of each unit. This is a cooperative, not simply individuals using a common system and brand.

At a human level, this enables the connection that people make with their postman or Fedex or UPS driver (or going really far back, the guy delivering milk). The same person comes every day. For humans who like humans, this is more appealing than drone delivery.

Doorstep services is not just for food

This is why Uber got into food delivery. If you have a logistics network, you can use it for anything. This is simply a networked, free agent model of Fedex and UPS. Entrepreneurs in India have figured this out. For example, Anulom uses the Aaadhar unique ID and the dabbawala network for the paperwork around rental service agreements. This earned them a tweet from the Prime Minster, Narendra Modi.

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Parsing Lemonade PR to see if P2P insurance is game changer or a mirage

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One of our 2017 Insurtech Predictions was:

#2 P2P Insurance does not (yet) live up to its promise.

We will see many drop out, leaving one or two well positioned to win big in 2018 and beyond. The term P2P Insurance will fall into the slough of despond.

Today we dig deeper into that subject.

A lot of the InsurTech innovation we see can be coopted by the incumbent carriers relatively easily. Knowing how to build a compelling digital user experience is not enough to create a moat and sustainable advantage. So a lot of people are looking at P2P insurance as the disruptive game changer. 

Ever since Lemonade did their $13m Series A funded by the hot hands of Sequoia Capital just over one year ago, there has been a lot of speculation about whether Lemonade will prove this model to be a game-changer or whether the whole thing is a mirage.

Now that Lemonade is releasing some information, we take a look at what we can learn about the whole sector.

P2P insurance 101

P2P insurance, sometimes also called reciprocity insurance, reduces the inherent conflict between insurance carriers and their policyholders. Policy holders are given more control in return for taking reciprocal risk (i.e. paying out to other members). Peers control decisions that are traditionally made by the insurance carrier, such as:

  • forming their own risk pools for deductible coverages
  • making decisions about the proceeds of the pool
  • allowing peers to adjudicate their pool’s claims.

Variants of P2P insurance

  • By country: Both regulations and social networks vary widely by country, so it is natural to see entrants from so many countries.
  • By risk type coverage: some go after automotive, others move into new insurance needs related to the sharing economy. Other examples are liability insurance, household contents insurance, legal expenses insurance and electronics insurance. Which one gets traction first is still unclear.
  • Broker model: a part of the insurance premiums flow into a group fund, the other part goes to a third party insurance company. Claims are firstly paid out of this group fund. Claims above the deductible limit are paid by the insurer. When there is no insurance claim, the policyholder gets his/her share refunded from the group pool or credited towards the next policy year. If the group pool happens to be empty, a special insurance comes into force.
  • Carrier model is similar to the broker model, except that as the peer-to-peer provider is also the carrier. If the pool is insufficient to pay for the claims of its members, the carrier pays the excess from its retained premiums and reinsurance. Conversely, if the pool is “profitable” (i.e. has few claims), the “excess” is given back to the pool or to a cause the pool members care about. Peer-to-Peer insurers take a flat fee for running the operations of the insurance enterprise. The fee is not dependent upon how many (or how few) paid claims there are. The carrier model can be launched by incumbents or full stack, regulated InsurTech startups.

Social and affinity networks

Trusting your peers is critical to the model, so Social and affinity networks will play a key role. The trust is not based on personal relationships, more to do with affinity. To take one example, window cleaners need insurance and if you are a window cleaner you and your peers understand the risks better than any insurance company can as long as you all have access to the same data.

In the broker model, the only requirement is that all group members must have the same type of insurance. In the carrier model, the only requirement is that the group members have something in common, such as being members of the same club or profession or believing in the same charity.

Some P2P Insurance Players

You can see from this list why analysts focus on Lemonade. Most others have not raised much. One that has – Huddle Money from Australia – positions more broadly as a P2P Bank.

Name Country $m Raised
Huddle Money Australia 6
Friendsurance Germany 15.3
Lemonade USA 60
Besure Canada Undisclosed
TongJuBao China Undisclosed
PRVNI Czech Republic Undisclosed
insPeer France Undisclosed
PeerCover New Zealand Undisclosed
Riovic South Africa Undisclosed
Guevara UK Undisclosed

There are many others. This thread on Fintech Genome is where the list is being crowdsourced.

Now for the case for a game changer presented by Tigger and the case for mirage by Eeyore. Note for those who did not grow up with Winnie The Pooh stories, here is the cast of characters:

– Tigger is the excitable cat, full of enthusiasm for every new technology which will surely change the world for the better and do it right now.

– Eyore is the old grey donkey who thinks it is all rubbish, that all this change will only end badly or won’t happen at all.

– Winnie The Pooh is a humble “bear of little brain” who somehow gets to the right answer by asking good questions. We all want to be that insightful bear, but in the tech world the market is the only judge of what works or does not work.

First, lets look at what information Lemonade actually released.

Lemonade’s recent PR 

  • A ‘world record’ for the speed of paying a claim. The company claims that at seven seconds past 5:47pm on December 23, 2016, Brandon Pham, a Lemonade customer, hit ‘Submit’ on a claim for a $979 Canada Goose Langford Parka. By ten seconds past the minute, A.I. Jim, Lemonade’s claims bot, had reviewed the claim, cross referenced it with the policy, ran 18 anti-fraud algorithms on it, approved the claim, sent wiring instructions to the bank, and informed Brandon the claim was closed.

The case for game changer by Tigger

  • P2P Insurance fundamentally aligns the interests of the insured and insurer, breaking the win/lose basis of traditional insurance.
  • Affinity networks lead to organic customer acquisition, reducing CAC.
  • Millennials are under-insured and a natural target for renters insurance.
  • Lemonade is a great UX that is personalized & relevant, with a new backend that was built from the ground up (not a new UX on a 30 year old legacy system).

The case for mirage by Eeyore

  • Risk assessment is hard and no UX gloss can change that.
  • There is nothing new about mutual business models.
  • It’s just some social marketing and incumbents can easily copy that.

Our take

I incline to the Tigger game-changer case. Possibly that is me being an entrepreneur and thus having an optimistic mindset, but I also think that the combination of deep-pocketed Reinsurance and full stack new Carriers using a new model and new social techniques and new UX and new anti-fraud technology stands a very good chance. It is still really early in this game, but Lemonade are making all the right moves. A few more thoughts:

  • Quick payout is a big win for consumers. Doing that on big claims may require reducing settlement latency via a blockchain network. So they are smart to focus on really quick payouts on really small claims that do not have that dependency.
  • Loss leaders are a normal way to get early traction for well-funded startups. You cannot glean unit economics from that PR story about one claim to payout thatr was done in seconds.
  • Their PR story does not match the focus on renters insurance. Maybe they had a PR deadline and this was a story that fit, but this seems like a misstep. Or maybe the PR story about instant payout will give their anti fraud tech a real stress test as the bad guys swoop in. Maybe that was the real audience for their PR?

Two horse race at moment

Friendsurance, out of Germany, started earlier, in 2010. Their investors – Horizons Ventures – are not as famous as Sequoia Capital, but a quick glance at their portfolio and the people behind them like Li Ka-shing (the richest person of East Asian descent in the world and the 11th richest person in the world with an estimated wealth of US$26 billion) generates a lot of respect. Expect a move into Asia by Friendsurance given the credentials of the Horizons Ventures team – but not in any hurry as Germany is a very big market on its own and they will be passported into the rest of Europe.

For discussion, please go to this thread on Fintech Genome

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Next Money Fintech Finals 2017 – The Aussie Finalists

ff17

Next week I’ll be in Hong Kong speaking at the Next Money Fintech Finals 2017. Sponsored by Visa and a host of other technology companies, the event slots in with Hong Kong’s StartmeupHK Festival and showcases the exciting developments happening in the Asia Pacific region.

Hong Kong is quickly turning into a vibrant hub for the fintech community down under. FinTech Hong Kong boasts just under 2000 active members while the SuperCharger FinTech Accelerator is now into its second year, helping launch businesses primarily (but not exclusively) who have an Asia bent.

During the conference 24 shortlisted fintech startups will compete via a six minute pitch for the coveted title of Next Money Fintech Finalist of the year. Three of these finalists herald from Australia – Tapview, Bugwolf and Boundlss.

Tapview

Based in Sydney, Tapview technology allows online media platforms to charge readers on a pay per article basis, circumventing the traditional monthly subscription. Having already landed a partnership with Fairfax Media, one of Australasia’s biggest media empires, the startup is surely a strong contender for the FF17 title.

Boundlss

An insurtech startup based out of Perth in Western Australia, Boundlss is positioning itself as the employers ‘go to’ for staff wellness programs. The app claims its ‘secret sauce’ is its AI powered chatbot come personal coach Loyd, who can recommend handy stretches to alleviate back pain, diet suggestions and workout plans. The platform connects to over 150 wearables and apps already tracking health metrics for a user, which it no doubt leverages to makes its custom suggestions.

Health insurers are making serious inroads into the wellness space, as they look to find ways to reduce future claims. Australian insurer Medibank has partnered with loyalty program flybuys, offering bonus points for fruit and vegetable purchases. In addition bonus points can also be accrued for every 10,000 steps made a day, measured by linking up your Fitbit device.

The insurer has also partnered with local gyms via its GymBetter program, offering a pay as you go model via the app.

Airline Qantas has also made a foray into the health insurance space with Qantas Assure, white labeling an insurance product from NIB. The service allows customer to access bonus Qantas airpoints for switching and additional points for linking health data.

Bugwolf

The third Australian finalist is Bugwolf. The platform allows software developers to access a vetted marketplace of testers and managed tests. Alternatively they can use the platform to bring together testing communities made up of employees and customers. It sounds a little like a more specialised version of Amazon’s Mechanical Turk or Upwork.

Banks and fintech companies, like other tech companies have to test their products – which costs money – so one imagines being able to deliver a high quality testing platform for less will be an element of the company’s pitch.

If you’re in Hong Kong next week and are keen to catch up for a coffee, drink or just a chat – either email me or connect with me on Twitter. Would be great to meet in person!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.