Abaris – making the comparison of income annuities a simple and easy process

By Rick Huckstep

For many workers approaching retirement age, they are faced with making complex, jargon-riddled decisions that will impact the quality of their remaining lifetime, for better or for worse! Their financial assets accumulated over a forty-year or so period must now be put to work. With the average age for those about to retire being in the mid to late 80’s, and with 40% of them living into their 90’s, workers need to plan for a life span of another 20 years or more after they retire from work.

The ageing population and changing demographics around the world have put massive strains on corporate and government mechanisms to provide for those in retirement. The days of the defined benefit corporate pension are long gone, whilst State pensions and social welfare are under constant scrutiny to keep the pay bill down.

Over time, Governments have introduced legislation to create new incentives for individuals to take greater personal responsibility for putting money aside for the retirement years. These are more than just tax breaks, as I featured a few weeks ago in the article about the changes to UK pensions and the tech startup, Recordsure. The Government reforms try to create an environment where individuals are both incentivized (via tax breaks) and have some form of real choice (via flexibility in the highly regulated market).

Having featured the UK market recently, I was interested to speak this week with Matt Carey, CEO of InsuranceTech startup, Abaris. Based in Philadelphia, Matt took me through their business in the US market for income annuities.

Matt, who goes by the title Chief of Retirement Thinking, is one of three co-founders of Abaris along with Nimish Shukla, Chief of Numbers and Regulation, and Adam Colombo, Tech Expert. All three met through the Wharton School of Business in Philadelphia. Prior to forming the business, Matt worked on retirement policy for the US Treasury. It was here that he developed a profound understanding of the issue in the market from the decline in both social security and pension performance.

In the US, like most societies, the system relies on a 3 legged approach to retirement financing – pensions, savings and social security. Whether an individual choses to take an investment (take a risk) or an insurance (hedge your bets) approach at this point in their lives, the number one fear and risk for individuals remains the same – “will I outlive my money?”

The annuity product provides certainty but at a cost to the individual, partly driven by the capital and distribution cost for the insurance company, which can be as high as 20 cents on the $. And whilst annuities in the US are not the norm as they have been in the UK, the current high cost of distribution makes the income annuity market a good target for a new technology player like Abaris. By creating more competition online and through taking smaller commissions, Abaris can pool longevity to create a simple and open marketplace.

Abaris is the only platform in the US market that can provide a real-time, like for like comparison of retail annuity products.

The team’s current focus is on deferred income annuities, which are products that are purchased today with the promise of a certain future payout every month for the rest of one’s life. Individuals enter their basic information (date of birth, retirement age, income requirements) and Abaris, using their real-time API will go out to 7 of the 13 or so annuity providers that underwrite this product and compare the market. In a few seconds, the platform will present back an apples for apples comparison of the annuity options.

Simply, the platform will tell the individual, based on the data they provided, and by normalizing the different responses from across the market, that provider A will, for example, payout $700/month, provider B will pay out $800/month and provider C will pay out $750/month

Behind the scenes, the platform handles the jargon from each of the providers and makes sure that everything is translated back to a common language. For example, different providers may use the same term but with very different meanings. They may also use very different terms for exactly the same meaning. They may also state some terms where other providers are silent. And who says we all speak a common language!

This inconsistency in the use of terms and the different uses of language are confusing for individuals and, previously, made it hard for an informed buying decision to be made. It’s also made the challenge on the technology side pretty complicated.

Co-founder and tech expert, Adam Colombo has taken lead on building a restful API that is the first ever system that communicates programmatically with all of the carriers’ systems, thus enabling real-time quoting without providing access to the insurers’ underlying actuarial models. For those interested in the tech stack, it’s built on Jersey, which runs on the JVM.

Abaris also provides a simple comparison of the key differences between the product providers. To illustrate, one of the key variables that impact the value of the annuity payout is the credit rating of the provider. Provider A may pay out $700/month and provider B may pay out $800/month, but A has a higher credit rating than B, which means your $700 with A is, in theory, more secure than the $800 with B. The individual can make a choice of certainty over risk as they chose to do so.

But the real innovation comes from the flexibility that the platform gives the individual to model different options. What if the individual retired 2 years later, or at 70 instead of 65, what if they wanted to index link their income, or protect against a fixed rate of inflation?

The platform allows the individual to adjust key variables and in real-time, compare the outcome from the annuity providers. At retirement age 65, provider B may have offered the best product, but retire 3 years later and now provider A has the best rate. Add in inflation protection at 2% per annum and now provider C has the best rate.

The user interface is beautifully simple, both visually and also in the way the site “talks” to the user. Abaris has worked hard on their user experience to remove the traditional barrier of jargon when buying a complex product like an annuity.

The platform has also built in a trust promise to its users, which is that they won’t sell a product that isn’t right for the individual. Based on the individual’s details, the platform will let the individual know when the product they are looking for isn’t for them, or if the variables they have entered don’t make good sense. They also are transparent on the commissions they earn as the intermediary between the individual and the product provider.

In the US market, there are different regulations governing annuity products that vary State by State. This adds a layer of complexity in this market when comparing the different annuity providers and the platform takes this into account when comparing prices across different products.

Abaris is a business that represents exactly what InsuranceTech is about. They have simplified a previously complicated buying issue for prospective retirees, and in doing so, they are working to take cost out of the supply chain and improve the consumer experience at the same time.

And if, like me, you were wondering where the name Abaris comes from? It’s from Greek mythology, where he was a priest to Apollo and was said to be “endowed with the gift of prophecy, and by this as well as his simplicity and honesty he created great sensation in Greece, and was held in high esteem.”

It seems to me to be a very apt name for a business that combines simplicity, honesty and prophecy at the heart of its business.

Corporate Banking is mostly Traditional Fintech but disruption is coming via Blockchain

Banks serve Consumers and Corporates. (Banks don’t know how to service Small Business but that is another story).

In this post I want to focus on Corporates (Global 2000). This includes;

  • Debt (and maybe equity but that is more the domain of high growth ventures). Banks lend from their own Balance Sheet and are the conduit to the capital markets.
  • Treasury Management services.
  • Foreign Exchange.

This is a hyper competitive market. Corporates have a lot of clout so they get good prices and service by getting banks to compete. This is the opposite of what has traditionally been true in Consumer and Small Business markets where the Banks have had all the clout – and abused that clout – which is why Emergent Fintech ventures are doing so well in those markets.

In Corporate Banking there are three possible plays:

  1. Provide technology to Banks, which Banks use to service Corporates. This is Traditional Fintech and it is a huge and mostly consolidated market, but the Banks are always on the hunt for 10x better faster cheaper solutions enabled by new technology.
  1. Provide technology to Corporates that help them get better prices and service from Banks. An example of this is 360T, which does this with great success in Foreign Exchange.
  1. Provide technology to Corporates that enable them to bye-pass Banks. This is the bleeding edge. There are few examples as yet. It is difficult because Banks offer bundled deals that are a disincentive to Corporates who look to cherry pick a better price from some disruptive venture. These C Suite golf course relationships are powerful because the ability to pull all the threads together to make something big happen quickly is so valuable to Corporates – and today only Big Banks can deliver that.

However nothing withstands Moore’s Law forever and the disruption may come from a mix of Regulation (for example Dodd Frank mandating transactions via Exchanges versus Over The Counter) and Blockchain systems.

Blockchain systems are natural for cutting out intermediary costs in complex inter-enterprise processes where no institution needs to be trusted.

Smart Contracts can be programmed to whatever level of functionality is needed. Escrow agents that are Distributed Autonomous Corporations can hold money until conditions are met. This means that an Enterprise does not need to trust to any other Enterprise or any Institution; they trust in code which they can review to the hearts content. Corporations like being in control and Blockchain systems put them in control rather than having to trust to intermediaries.

Lone trader flash crash story – replacing brokers is killer app of Blockchain

Did one high frequency trader in London – the guy in his pajamas in a suburban home – single handedly nearly bring down the global equities markets in the May 2010 Flash Crash?

TL:DR – the broker model is dead. The broker model is the heart of what we call Wall Street, so this is a big deal.

There are three possible stories here:

  1. Super empowered individual outsmarts the Wall Street establishment. Three cheers.
  1. Rogue trader again. Yawn. Move on please.
  1. “Round up the usual suspects” scapegoat.

Michael Lewis nails the story as always.

This story shows us that complex systems behave chaotically when they are disturbed.

Any meteorologist or software developer knows that. There are few systems more complex than the global trading markets – huge, totally digital and totally global. They are bound to be chaotic – meaning one small action can lead to massive results (the classic butterfly flapping its wings causing a storm). Obviously there will be profits in disturbing these complex systems – legally or illegally. Regulators seem very slow to understand this. Maybe reading @nntaleb works should be mandatory for regulators.

The Lewis story illustrates how brokers (in all markets) benefit from HFT (because HFT increases trade volume and brokers thrive on trade volume). Yet in #francogeddon the brokers were victims of chaotic markets.

The killer app for the Blockchain is a trustless decentralized system to replace the broker model.

In the digital age, the broker model is at best irrelevant and at worst dangerous.

When Bill Gates proclaimed his vision of a computer in every home and people asked “what could you use it for”, the answers were pretty weak. Storing cooking recipes was a leading contender.

Clearly humans are not good at predicting the way that disruptive technology will actually get used. The history of computers is full of examples of killer apps that took everybody by surprise. Despite this, I am going to take my shot at explaining how replacing brokers will be the killer app of Blockchain systems.

On a Hacker News thread about Etherum (one notable Blockchain platform) somebody with the drcode handle had this useful insight:

“At its heart, ethereum is a tool for minimizing counterparty risk and cost. You don’t want Twitter to extinguish 3rd party twitter clients? You don’t want Uber to take a 30% monopoly fee on every transaction? You don’t want your stock broker to front-load your market orders? These are all forms of counterparty risk/cost.”

Thank you drcode wherever you are.

The low cost sharing economy services is one huge opportunity that will be very popular once the macro cycle turns negative (aka people pinching pennies in a recession). I wrote about that here.

HFT is many things. One of them is legalized front running.

Brokerage is being driven by Moore’s Law to Free as the story about Robin Hood illustrates. So brokers will take more risks with customer funds. So we can add to that question:

“You don’t want your broker to raid your money from segregated accounts during a liquidity crisis?” (The MF Global story).

and

“You don’t want your broker to go bankrupt because they used too much leverage assuming that Black Swans don’t exist?” (The Francogedon story)

TL:DR – the broker model is dead.

The broker model is the heart of what we call Wall Street, so this is a big deal.

Who is adopting Robo Advisors?

By Efi Pylarinou

The robo-advisors space is in-vogue, despite the tarnished “robo” prefix (following the aftermath of the 2008 housing crisis and the use of “robo-signing” to hasten the foreclosure process on homeowners).

The two biggest independent robo advisers, Betterment and Wealthfront, have together attracted more than $3.4 billion. From the financial giants, Charles Schwab Intelligent advisor only, raised a staggering half a billion dollars in the first three weeks. Their large-scale marketing campaign, covered the New York transit system, with a launch at the Grand Central Terminal; and in a recent MarketWatch article (a Dow Jones & Co online publication) there was an impressive ROBOSCHAWB illustration.

A dozen articles popped up at the same time on MarketWatch about Robo-advsiros. It felt like on Twitter land, where you tweet about the same topic in different ways at different times. And then two days later, MarketWatch launched The New portfolio service, which is powered by Next Capital. This new service is an investment-tracking platform to sync all of your accounts (a la SigFig) while integrating Marketwatch’s financial analysis, along with news from The Wall Street Journal. Next Capital is not a registered investment advisor yet, like all the robo-advisors that I mentioned above. However, they offer broad online financial planning, mostly automated.

Today, I will confine myself to financial services that offer low cost; online automation (full or semi-); only asset allocation mainly passive (not broad financial planning); to retail investors and financial advisors. I wont touch upon those that offer low cost, automated services for asset management (mainly active) either through alternative financial products (hopefully new alpha); more quantitative strategies or artificial intelligence signal providing.

On the high end of the market, there are start-up robo-advisors like Wealthfront and Betterment competing with financial giants such as Vanguard and Charles Schwab.

There are more than two-dozen of such stand-alones mainly in the US (list is too extensive for this post). Elsewhere, there are remarkably fewer, like WealthSimple in Canada, Nutmeg in the UK, Stockspot in Australia, Quirion in Germany but more of an online advisor.

It is clear by now that there are cost savings in their offerings especially for small to medium size investors. Of course, fees shouldn’t be the only factor considered.

Robos inherently, offer a limited choice of investment products. This is necessary to reduce both costs and complexity to a manageable level. They typically, use index ETFs and maybe fundamental ETFs (small cap, high-dividend, growth etc). Most end up suggesting less than a dozen holdings. Very few allow individual stocks and bonds as part of the portfolio mix. Robo-advisors that consider investments such as real estate, commodities, are TradingKing and MotifHorizon. I don’t know any robo advisor that include options.

The last hidden (not deliberately) feature is the way holdings are rebalanced. Initially, based on the client’s age, goals, and risk tolerance, the weightings of the allocations are determined. As a result, lets say one gets a 20% allocation to an ETF tracking European equities. If the markets move favorably, and this holding grows to be 25%, then the rebalancing requires selling a quarter of the ETF holdings and reinvesting those proceeds in other ETFs in the portfolio to restore the original ratios. The portfolio review is done constantly and automatically and usually a 5% divergence in the allocations will trigger automatic corrective actions.

Similar, if one wants to withdraw cash from the robo-account, the system will sell the appropriate amounts of ALL allocations to raise the cash demanded.

UBS, Bank of America, and Morgan Stanley stand out in the traditional global wealth-management industry, with each responsible for handling more than $1 trillion in investors’ assets. These firms continue to draw multimillion-dollar clients, but the robo-advisers seem to be attracting the under banked (not earning enough to pay for the fees of human financial advisor) and the so-called HENRY (“High Earning, Not Rich Yet”) clients.

TD Ameritrade is taking a different approach that is geared towards financial advisors rather than retail investors. For financial advisors that custody with them with TD, they offer an open architecture solution via the Veo platform to access to robo-advisors like Jemstep, Upside, and Nest Egg Wealth. Additionally advisors also can be accessed, such as Edelman Financial, SigFig, Financial Engines.

Fidelity bought in Feb, eMoney Advisor, a leading wealth planning software company that really falls in the advanced CRM category for financial planners. It is in alignment with the larger Fidelity vision to continue enhancing via digital solutions across its retail, workplace and institutional channels. I mention this because it gives us a sense of the broad strategic choices that wealth and asset managers can choose from as they head towards a digital transformation.

At the same time, Wall Street is funding robo-type ventures. Citi Ventures for example, has contributed more than $100 million to Betterment. USAA and BlackRock are investors in Personal Capital.

Fintech Global Tour goes to Spain to find both local & global innovation

Guest Post by Fabrizio Villani

(Editor Note: a few weeks ago I asked Fabrizio to be tour guide to Fintech in Italy. That was such a success that I asked Fabrizio to do the same for Spain.)

Let’s start with Novobrief.com that on 9th of April released a list of 67 Spanish Fintech startups (in my previous article on Italy I mentioned Fintech Atlas of 2015 with a list of 78 Italian Fintech startups) someone would assume that Fintech is flourishing more in Italy, than in Spain, well nothing is more wrong than this.

Spain has established a Fintech Hub (@SpainFintechHub) coordinated by Madrid Financial Centre and only a few days old it’s the news of the creation of the Spanish Association of Financial Technology (SAFT) with six companies joining forces. In Italy for instance we don’t have anything similar (my only hope is in the ability, influence and big network of Matteo Rizzi (@matteorizzi)). There are mainly four benefits in having a Hub:

  • Government-backed support and finance including grants, finance and loans, mentoring, consultancy, etc. (e.g. more in UK than in Spain, does not exist in Italy).
  • Venture Capital here in Spain has a great advantage in comparison to other countries. During my time here, I had the opportunity to discover a small but great VC community: above all, my favorite one for his style and success is Carlos Blanco even if I do not agree with all of his investments. The increase in exits, combined with the surge in venture capital activity are good signs for Spain but let’s not get ahead of ourselves: there’s a lot of room for improvement and Spain is well behind other European ecosystems (not Italy).
  • Human Capital with the right people and the right education (Esade consistently ranks near the top of the main global business-school rankings).
  • A natural ecosystem of business, companies and institutions involved directly or indirectly towards financial technologies (e.g. there are a lot of e-commerce and marketplace companies in Spain like Privalia, ElTenedor, Milanuncios, eDreams, etc.)

Spanish Fintech companies still mainly have a  focus on their home market with some interesting exceptions of dual companies (e.g. Headquarter in London and operations in Spain or tech team in Spain while Sales and Marketing in U.S.) like:

  • Darwinex an FCA-approved FX broker and asset manager that offers “copy trading” to its users that we already covered on 09th of March on this website (London – Madrid). (Ed note, covered by Efi Pilarinou here.)
  • Novicap won the first prize in the 2014 edition of the famous Spanish accelerator SeedRocket. It offers what is known as invoice discounting. In a nutshell, it involves a company selling its invoices to a third-party, in this case a marketplace managed by Novicap, in exchange for cash that will be advanced to the company account within one working day (quite sure that at this stage this short time period is only for EU based companies). It is different from a loan, since the service engages in buying and selling rather than lending funds (London – Barcelona).
  • peerTransfer is a leader of innovative global payment solutions. Its current focus is in the Education industry, where enables international students at hundreds of schools globally to save time and money when making or receiving international payments (Boston – Valencia).

Not dual company but still very interesting and notable in the payment field are:

  • Setpay allows merchants to accept card payments anytime, anywhere. The service is based on a mobile POS that connects wirelessly to mobile or tablet and allows accepting card payments through a secured payment gateway. In addition, the seller has a range of value added services that simplify managing their catalog, overview sales statistics and customer loyalty.
  • Besepa process direct debit payments through its API in a cleaner, simpler and quicker way in comparison to banks. Its goal is to become the Spain’s leading direct debit provider and then focusing its attentions on larger businesses and foreign markets, with competitors like Gocardless in UK and Figo.io in Germany.

I believe the greater competition now in Spain is in the P2P lending with:

  • ECrowdInvest is a crowdlending (crowdfunding for loans) platform for causes with social or environmental positive impacts. A “classic” win-win situation where good projects get funds, investors receive a higher interests to those obtained through banks and there is a positive impact on environment for instance in funding projects with reduction in Carbon Dioxide emissions.
  • Arboribus and Loanbook (both part of SAFT). Arboribus in 2013 made the first “crowdfunding” loan and has collected more than a million Euro. Loanbook is a credit advisory and management business specializing in offering loans, and other types of credit, to SMEs in Spain.

Thanks to all the people (now became friends) that send me information on their company, especially François Derbaix. I am sure that at a certain point in time I will also have the opportunity to talk about your adventures, if I didn’t do it yet here, please (por favor) keep disrupting.

Please let me know if there is any mistake or inaccuracy and keep in mind that this is my personal list of Spanish Fintech companies there are many more that are waiting to be discovered or that have been forgotten.

Here are some Twitter handles of people involved with Fintech in Spain:

– Carlos Blanco @carlosblanco

– Darwinex @Darwinexchange

– peerTransfer @peerTransfer

– Setpay  @SetPay

– Besepa @molpe

– Ecrowdinvest @ECrowdinvest

– Arboribus @Arboribus

– Loanbook @Loanbookcapital

– Francois Derbaix @fderbaix

Peer to Peer, Social and the Sharing Economy for Insurance

By Rick Huckstep

A good friend of mine once described selling as the “art of making buyers”. Whether you agree with this perspective or not, the one thing that is true about the world of sales is that for someone to buy, they need to be motivated to do so.

Now apply this truism to Insurance. What motivates buyers to buy insurance? Especially when it’s a commodity protection product. The buying process is more involved for the sophisticated insurance products you find in commercial lines, reinsurance or life and pensions. That’s a subject I will write about another time!

This week, I was interested to look at how protection products are being sold by the new players in the world of InsuranceTech. This is the world of distribution, where customer acquisition costs, sales velocity and volume are the key performance indicators.

Over the last decade, with the massive growth of the Internet age, we have seen the emergence and prominence of the aggregators. These new channels for distributing protection insurance shifted the market, drove down rates and moved the insurance product further towards commoditization.

Price became the only differentiator!

However, this isn’t a piece about the aggregators since we all know who they are. We also know that they spend a ton of money on promoting themselves against each other from their never-ending stream of “notice me, notice me!” brand advertising campaigns. From the swaggering booty of the business man, to the mustachioed opera singer, to the numerous adventures of the cute, little mongoose-like creatures from the Kalahari desert!

This week’s focus is on the next wave of distribution that is emerging. There are a growing number of new entrants that are purely digital and built on an automated, straight through processing platform. And for these new entrants, it’s no longer just about price.

The new wave of protection insurance is peer-to-peer and it’s social! This is the sharing economy applied to Insurance.

In the same way that Zopa created the peer-to-peer lending (“PSPL”) market a decade ago, we’re now seeing peer-to-peer insurance in the protection market. Arguably, for Banking and the bankers, P2PL offers a convenient alternative for them since unsecured personal lending is not overly attractive to the traditional players, it is a commodity sell and it is a relatively small segment of overall lending market (c5% of the lending market in the UK).

It’s not quite the same market, however, for Insurance and the insurers. Take car insurance, which is one of the largest segments in the insurance protection market. According to the OECD report on Global Insurance Market Trends 2013; “heightened competition in motor insurance markets, typically one of the largest segments within the non-life sector, continued to be experienced in many countries, leading to lower premium rates. This environment, while beneficial for consumers, has raised issues in some countries regarding pricing adequacy and profitability of the segment.”

Whilst markets vary around the world, if we just look at one of the biggest, the US, we see that the average cost of car insurance has stayed largely flat for a decade, going from $830 in 2003 to $815 in 2012 according to the National Association of Insurance Commissioners (December 2014). And this is compared against a rise in the cost of living of around 21% from 2005 to 2014.

So who are they, this new breed of insurance providers? First, and continuing the theme of car insurance is Guevara

You’re greeted with a cool front page with an animation that immediately establishes the brand image. And then the elevator pitch (which is sales speak for being able to quickly summarize your business to the person your selling to when you ‘accidentally’ bump into them in an elevator)…

Guevara is a whole new way to think about car insurance. It lets you pool your premiums online to save money. Unlike traditional insurance any money left in the pool at the end of the year stays with the group and lowers everyone’s price next year. If you keep claims low you could save up to 80%.

Simple, social and sharing all rolled into one.

It works on the basis that you join a group of fellow car insurers. These can be people you know, groups you ask to join into, or groups that Guevara recommends for you. By joining a group, you combine with others to share a common goal to keep your premiums down by not taking money from the collective pot.

What I liked is this subtle emphasis on personal responsibility. Whilst most people understand the principles of the pooling of shared risk that sits behind car insurance, what Guevara are doing is linking personal responsibility directly with the pooling of shared reward.

Since broadly 70-80% of an insurance company’s costs go on settling claims, Guevara’s sales motivation is a sharing one; we’re all in this together and we know who you are! If everyone drives better and make fewer claims, everyone will pay a lower premium next year.

They back this business model with a digital platform, using a mobile app to capture claims information at the scene, directly into your phone. Which is all contributes to minimizing the claims costs in the event that this is an incident.

In a recent post, I featured Bought by Many when they won the Fintech Innovation of the Year at the annual Bobsguide Fintech Innovation Awards dinner in March.

Bought by Many provide a wide range of protection insurance, that includes vehicle, travel, pet, gadget, health, home, sport and professional insurance. Their elevator pitch is simple and to the point;

“A smart new way to buy insurance. Together, our members are making insurance companies listen.”

The business model is very simple, it’s social and it’s a sharing one. Buyers looking for insurance protection, look for others who are seeking the same or similar insurance and they group together. Bought by Many then use the collective buying power to negotiate a better premium on behalf of everyone in the group. Essentially, this is buying insurance in bulk to achieve a lower premium than any individual would achieve.

Or it could be that the group has a special need and Bought by Many will negotiate better terms. Some of the groups I noticed were “Thatched House Insurance UK”, and “House Insurance in Flood Risk Areas” and “Travel Insurance for People with Heart Conditions”.

Finding specialist protection insurance or where you have conditions that often preclude cover for general policies, can be a challenging. Using this approach of collective bargaining on behalf of groups of common interest is an innovative way to get better deals for consumers, whilst also helping insurers by bringing them volume.

Finally (for this week anyway), I looked at Friendsurance, a Berlin based general insurance provider with an innovative social model.

The Friendsurance model is based on the concept that everyone in a network shares a small cost of any claim. This, in turn, reduces the cost of the claim for the insurance company, who then rewards the claimant/policyholder with a rebate on their premium.

Their elevator pitch is;

“Customers can connect to form individual insurance-networks, thereby lowering their annual insurance premiums by up to 50%”.

The buying process starts with finding the insurance you want through a comparison service on the Friendsurance platform. People then use social networks to connect to each other through invitations and in doing so they agree to support each other with a small amount of money, e.g., €30 max. The more connections that are made, the more claim cover is put in place and the less payout is required from an insurer.

And of course, for small value claims, these need never go to the insurer because they can be covered by the network. At the end of the policy term, the insurer will rebate the policyholder against their reduced claim amount.

Friendsurance have built in a safeguard mechanism to ensure that no individual policyholder can over-commit in the network. They do this by calculating the potential payback and using this to limit the exposure in the network.

These are just three of the innovative start-ups in the social, peer-to-peer insurance space. If I missed you out, then please get in touch and I will feature you next time…there’s a lot more to write about in the Sharing Economy for Insurance!

Grexit Bitcoin April Fool crazy as a fox story won’t go away

Warning: this post is science fiction (hopefully entertaining and thought provoking).

I was on holiday in Crete last week. Like millions before me, I fell in love with the country, but being a Fintech fanatic I was also thinking about Grexit and Bitcoin.

The story about Greece possibly going to Bitcoin if they left the Euro first surfaced in this article in Bitcoin Magazine.

This is not the first time that people have speculated about a country moving to Bitcoin for various reasons:

  • Secession e.g when Scotland was voting on independence from UK.
  • Failed currency e.g Venezuela or Zimbabwe
  • Currency Union e.g a Pan African or Pan Asian currency.

The Greece Bitcoin story got a new lease of life with an April Fool joke from Greece’s Finance Minister. This was a savvy move dressed up as a joke. If he had issued it as a serious white paper it would have been treated as a joke in a not funny way. By issuing it as an April Fool joke, he gets a real laugh and gets some people speculating “what if and how”. It was a smart way of floating a trial balloon.

This is my “what if and how” speculation.

First, Yanis Varoufakis, the Greek Finance Minister is hardly in the usual mould for that job. He would be more at home in a tech startup, merrily blogging about outside the box ideas. Here is his Twitter account with 392k followers and it looks like he may actually write his own stuff.

Here is an extract from his post that was plausible enough to work as an April Fool joke:

“The Greek Finance Minister went on to explain what is the cryptocurrency and how it will be implemented into Greeks’ day to day life by using a special mini computerized card with a chip. All citizens will carry the card as an electronic wallet. The card will be distributed for free to all Greek citizens via the local tax offices but it will also be available for purchase at the country’s entry points for 45 euros, or 0,20 Bitcoin each. The sale of the card to tourists is expected to be another form of revenue for cash-strapped Greece.

“This is the smartest move to beat corruption and tax evasion, all transactions will be recorded to the Greek Ministry of Finance new secure and dedicated Bitcoin servers and we ‘ll be able to track transanctions at any given moment,” said Varoufakis defending his decision.”

Mr. Varoufakis is actually quite critical of Bitcoin as he explains on his blog. He seems to favor a government controlled digital fiat currency, which I think is a mirage. Whether it is FedCoin or the DrachCoin, if it is Government issued it is not Bitcoin.

In the high stakes poker game between Greece and the ECB, a move to a digital Fiat currency may work as a bluff. However a DrachCoin is really no different from the Drachma (which may or may not be a good idea, I do not want to get into that debate).

However a parallel Bitcoin economy within the overall Greek economy is a quite sensible idea.

The very pragmatic, conservative Swiss have a parallel currency called the WIR as I discovered at a Bitcoin/Blockchain MeetUp in Geneva. That means that Switzerland is officially a multi-currency country (which does not change the fact that the Swiss trust their Swiss Franc currency more than most nationalities trust their currencies).

What if Greece became a multi currency country with Bitcoin running alongside the Euro? IANAL but I think Greece is a sovereign nation that can do this if they want.

Bitcoin worries people because it is deflationary. It is a modern digital version of the “cross of gold” problem that caused Britain to leave the gold standard during the Great Recession.

However deflation is not all bad; lower prices do help people. The problem with deflation is that it stops people spending in the expectation that their cash will appreciate in value. That is not an issue in the parallel currency model that I envisage as Bitcoin would only be used for what Brits call “the readies” the immediate spending cash. If you want a pizza you buy a pizza even if you defer the purchase of that car or house. Also in the parallel currency model, like we have within Switzerland with the WIR, the deflationary aspect of Bitcoin does not have to drive the whole economy.

It is more like creating an intrapreneurial skunkworks startup economy within the main economy.

This is like the free-zones that worked well in places like China and India.

The real prize here is for Greece to become the Bitcoin capital of the world.

Necessity is the mother of invention. This won’t happen in countries with strong currencies. So, this won’t happen in America, UK, Switzerland, Singapore, Scandinavia, Australia, New Zealand.

You need a crisis. You also need a well educated hard-working population. Despite all the lazy stereotypes, Greece has both. The country that invented philosophy has plenty of brains (as the Greek diaspora continually proves).

So, it could happen in Greece. Or, it could happen in one region in Greece. For example it could happen in Crete. This could appeal to the Cretan spirit of independence.

Crete could kickstart the mainstream adoption of Bitcoin and become the Bitcoin capital of the world.

Here is the science fiction part:

  1. Visitors to Crete are issued with a Bitcoin wallet and they load Bitcoins into that wallet or convert from their Fiat currency into Bitcoin. Or the visitor could choose their existing wallet if they prefer.
  1. Shops, restaurants, bars, coffee shops are told that they have to accept Bitcoin. This has to be mandated to get quickly to mainstream. It is no hardship to the merchant as long as there are good cheap payment processing options. This would be somewhere between cash (zero processing cost) and credit card (expensive processing cost). Given that Bitcoin payment processing is almost cost free on a unit basis and that there is free market to choose different payment processors I would expect prices to be very low.
  1. Whatever sales tax is in place gets collected automatically. As this reduces evasion and collection costs there would be room to reduce sales tax. Despite this one assumes a black market in cash to thrive but that is normal and maybe restricted to locals. Visitors would prefer to use Bitcoin as they can refresh their wallet with more Bitcoin wherever there is Wifi. As Wifi is far more ubiquitous than ATM in Crete, this is a good service to visitors.
  1. Merchants would be offered a choice of payment processors. Some might offer payment processing tied in with legacy Credit Card POS. I can imagine payment processors being very keen to participate in this mass market experiment.

Crete has one other major asset for the Bitcoin economy – lots of Sun for solar energy to power mining operations.

However the big deal is having Crete as the world’s first mass market Bitcoin economy. Direct flights from San Francisco, New York and other financial centers would bring in those high spending VCs looking to cash in on the Bitcoin economy.

Techies looking for a great lifestyle while writing code would flood in, followed soon after by Hipsters. The local economy would boom.

Science fiction is fun.