Happy birthday Daily Fintech: notes on a digital publishing experiment

This post is not about Fintech. It is about digital media, specifically digital media within a niche domain such as Fintech.

I started Daily Fintech exactly one year ago when I made the commitment to write every day about a business that I knew very well and which was entering hyper-growth.

Here for the record is the first post. It is worth a read and as it had only a handful of page views it is quite possible that you missed it.

Daily Fintech was not much more than a hobby at the start. In fact it was not called Daily Fintech when I started; that seemed a bit presumptuous, because I did not know whether I could maintain the daily writing commitment. Fintech fascinated me and I had to scratch that itch and blogging was a way to learn more and connect to others in the market; that was the extent of my strategic plan at the time.

All I I knew was that if I kept to my daily writing schedule that it would lead me to somewhere interesting.

It did. A year later, the audience is growing strongly each month in both page views and engagement (email subscribers and people reaching out to the writers who don’t simply want to push a press release onto the media). This is a niche audience. It is not a populist subject and we don’t chase hot news, but it is a very influential audience – founding teams, VC Partners, heads of Innovation/Digital at big Financial Institutions, senior execs at big tech firms moving into Fintech.

A few months ago, I started to bring on board other people to write regularly. They are like me – entrepreneurs who blog rather than professional bloggers – and experts in segments within Fintech. Our tag line is

“written by entrepreneurs for entrepreneurs”.

Daily Fintech should not work in theory. We create original content that takes a lot of effort to produce. We then give it away free. Our content is free, open and ungated. Many choose to leave their email address in order to get a daily email, but we don’t push that in any way and it is certainly not mandatory. However Daily Fintech does work in practice because it leads to insights and connections and that leads to fee based projects and investing opportunities.

If something works in practice but not in theory, it is interesting to figure out how it works in theory.

The Daily Finech media experiment is about how to monetize quality writing/analysis. This question has fascinated me ever since I was COO of ReadWriteWeb in 2009.

Which is more valuable:

  • A post that gets 500 views from CIOs and VC Partners spending $ millions who influence how huge markets develop?
  • A post that gets 50,000 views from people who spend very little and have very little influence.

Logically, the answer is A. However the digital publishing business, monetized through advertising, has a very clear answer. It is B.

In short, the digital publishing business is broken. The business of writing software to aggregate free content is doing very well (Facebook iand Google are worth $ billions). It is the business of writing content that is broken. The word “content” annoys writers because it implies fodder for the ad beast – but that is the reality.

There is only one currency online – page views – that get converted to money via advertising. The problem is that companies who do not pay for content (such as Google and Facebook) set the conversion rate from page views to money (aka online ad rates). Writing has become a low paid job that you can outsource via Mechanical Turk (or program a writing bot to automate it entirely). This is like the 19th century artisans losing to the factory machines – except that writers can write about the problem ad nauseam as an alternative to smashing the machines.

I did not know how I was going to monetize Dally Fintech when I started. The early blog entrepreneurs such as Michael Arrington (Techcrunch) and Arianna Huffington (Huffington Post) and Richard Macmanus (ReadWriteWeb) cashed in early enough to not have to worry about how to monetize quality writing online. One company in the B2B niche of tech blogs – GigaOm – raised Venture Capital and worked all the angles (such as paid reports and events) and did it with great intelligence and diligence. The founder – Om Malik – loved the craft of great writing/reporting. Still they failed.

Digitization is remorselessly slamming all of the niche B2B media monetization techniques:

–        Advertising: ad rates are set by giant platforms that don’t pay writers (Google, Facebook etc). Niche means small audience = small $. Getting the balance right – paying writers very little and still getting quality content, chasing page views and still getting quality content – is very, very hard. Adblockers going mainstream takes a sick patient and gives it a big whack over the head.

–        Paid Research Reports: Somebody who has a market research business told me that there are two types of research. One is “know to tell”. The customer wants a big brand (Gartner etc) to validate what they want to do (never underestimate the CYA motivation in corporate life). Unless you are a big brand you are in the “know to act” game, aka actionable insight. This is when customers buy market research reports and don’t care about the brand; they just need it to be accurate and actionable. Entrepreneurs think this way. The problem is that entrepreneurs watch every $ of spend like a hawk and are good at aggregating all the free content online. So Paid Research Reports is viable but hard.

–        Events paid by Sponsors and/or Attendees. MeetUp is the digitization truck hitting this revenue line. There is still value in the mega events but these are expensive to create and only a few can be successful. You have to invest a lot of money to create events that people will pay to attend. This is not game for bootstrapped startups, nor does it have the highly scalable revenue model that VCs seek. So Events is viable but not easy.

What the digital media business has failed to do is monetize offline influence. You can track online influence through tools such as Klout. However you only have to think of a few hugely influential people who have no Klout score because they don’t self promote online. So I discarded the idea of trying to measure the influence of the Daily Fintech audience. The Daily Fintech Experts (aka Writers aka Entrepreneurs) know the influence by the quality of people who reach out. So, it works in practiceIt does not work in theory because there is no way to measure the real influence of people who interact with online content. Some entrepreneur will crack this problem; if you have the solution, I am happy for Daily Fintech to be an early adopter test case.

There is one example of a site where quality niche content is monetized very well without any of the normal media monetization techniques. That is a blog called AVC written by Fred Wilson (a Partner at Union Square Ventures in New York). He writes every day and has been doing that a long time. His daily writing commitment was my inspiration. I am sure he explains why he invests so much time in one his archived posts (which are a treasure trove for entrepreneurs). From the outside I can see that it works for him in two ways:

  • He gets more qualified deal flow because entrepreneurs can understand what he thinks about various subjects before they meet.
  • The “people formerly known as audience” provide crowdsourced research.

I am not running a VC Fund, so I don’t benefit from 1. However Daily Fintech is definitely working as a  crowdsourced research tool.

This is the counter intuitive thing I learned during my year as COO of ReadWrite (formerly ReadWriteWeb or RWW). The business side of ReadWrite was not exciting – get in enough ad revenue to pay the writers. So I agreed with the Founder (Richard Macmanus) that I could write about any tech subject whenever I wanted. I learned from this that if you have a high quality audience (which ReadWrite did) and if you do enough research to not look silly, the real experts will pop up out of the woodwork and tell you what you missed. They then become part of your network that you can reach out to when you need insights into that specific subject. As the old saying goes “it is not what you know, but who you know”.

That is why I refer to the “people formerly known as audience”. Audience implies a passive, lean back, traditional media experience. I could just say “community” and that does sort of capture it, but the term has become over used.

I now call Daily Fintech a “market intelligence platform” as a way to describe the value we get from this crowdsourced research. We use this platform as part of our Daily Fintech Advisory services. The content is the free in freemium.

This is only my baby’s first birthday and I don’t yet know what it will become as it grows up. Like any startup, it is an experiment to find product fit to market and I can only promise to keep iterating on that journey – and to report back on the second anniversary.


DarcMatter: from secret spreadsheets to an online marketplace in alternatives

By Efi Pylarinou

DarcMatter provides transparent, institutional-level access to alternative investment opportunities. I’ve already mentioned them in a post focused on disruptions in the hedge fund asset class because they cover a full range of alternatives, including venture capital, private equity, hedge funds, and fixed-income products. They are US based, their investors are 100% US accredited and with a minimum investment requirement of 25k. Issuers are also US for now but they could include foreign issuers looking to tap into US investment pools.

The founder of DarcMatter, Sang Lee, is an investment banker baffled by the fact that due diligence, research, analysis, etc. in this business are mostly on excel spreadsheets. Kids are taught in middle school how to manipulate formulas in spreadsheets; this is part of math curriculum, along with statistics and probability. Teaching coding still remains an extra-curriculum activity and special educational NGOs are the main promoters of such skills.

DarcMatter caters to accredited investors; an estimated 8million in the US. Within that universe, only 300k are actually investing in that space. So not even 4%! Big market potential if one wants to look at the glass half full.

Accredited investors are actively seeking opportunities for private market allocations. BC Partners claimed that more than $1trillion dollars globally are seeking to be invested in the private equity space alone.

Under private market allocations, DarcMatter is broadly positioned as an online marketplace. They are not an online broker-dealer, they are not a cap intro business, they are not an investment advisor. As James Suh in charge of business development explained to me, they are a tech platform showcasing private deals. In this online marketplace, you can access directly the offerings or invest into pooled structures. Accredited investors and qualified investors such as family offices, wealth managers, and financial advisors can use the platform for free.

Four private categories are showcased:

  • Venture capital (startups-high growth-mainly 100% ownership)
  • Hedge funds
  • Private Equity (more mature and partial ownership – no single startup deals)
  • Private financing

DarcMatter is not involved in angel investing (like Angel List). DarcMatter showcases issuers or originators of the private deals. As an accredited investor you can choose to directly invest in one deal or into a fund structure that pools private equity or private finance deals . They provide all relevant information in order to help investors to make an intelligent investment decision. They screen issuers to make sure that they provide information on their platform that meets DarcMatter standards. They do not screen them with the eye of an investment advisor. The degree of privacy or openness for each deal can be determined by the issuer and the applicable regulatory framework.

DacrMatter is about transparency in the private market space. By offering fund and pooled structures they are also facilitating accessibility to those that are not wealthy enough to invest 100k in more than one single deal. They also provide logistics to issuers (like hedge fund managers) that accept individual accredited investors and don’t want to deal with the hassle of providing fact sheets, performance etc to them. They are actually playing a role of a CRM system in the private market place at a large scale since they are an aggregator.

They are also overlapping somewhat with the cap intro business which has been traditionally based on person to person networking. I see that this business is already in the beginning of the second phase of their development, in which they are starting to partner with the “adjacent” traditional businesses. Third phase is to partner with the incumbents (i.e. investment banking and private placement agents) .

DarcMatter is already in discussion with organizers of cap intro events. They foresee their tech platform used by the cap intro dating business model, as a tech tool that efficiently aggregates relevant data of their participants.

DarcMatter has a role to play in the private markets. Registered broker dealers select their issuers and deals and promote them. On the other end of the spectrum, are networking and marketing services (sales person traditional approach). DarcMatter is neither. They are an online marketplace; their motto is transparency; their vision is to become the place to shop for private investment allocations; their contribution being broadening of the market, leading towards an exponential increase of allocations in the private market space. DarcMatter wants to educate the 96% of the accredited investor market share that is not even looking at the space.

That is the reason they closely monitor all the tech metrics related to the activity on their platform. It has only been a couple of months that they have gone live and they are continuously in development.

Their business model is based on charging fees to issuers. They do not charge a success based fee but rather a subscription fee and they don’t seed startups. For investors the platform is free.

Isle of Man and the ramp up in Bitcoin regulatory competition

I think of the Isle of Man as home of the TT motorbike race and a colder version of the Cayman Islands (low tax place).

That needs updating, because on Wednesday 26th March, the island’s Financial Supervision Commission confirmed that a bitcoin exchange that holds client funds with a licensed overseas payment service provider is not required to obtain a licence in the country for its activities.

The background is that the Isle of Man is a self-governing British Crown dependency. In other words, this tiny (£4m GDP) country makes its own laws. This is what enables Isle of Man to have a different tax jurisdiction from the UK.

For those Bitcoin entrepreneurs struggling with heavy-handed regulators, the idea of a jurisdiction where Bitcoin exchanges are not regulated seems like a gift. To those who lost money in Mt. Gox, this might sound like an invitation for scammers to set up shop in the Isle of Man. Most credible exchanges post Mt Gox welcome regulation.

There must be some nuance here. This article, from a firm on the Isle of Man, has the details. The key point is that anti-money laundering laws still apply.

The big picture is that the competition between jurisdictions to attract Bitcoin entrepreneurs is ramping up. We covered the story of cross border regulatory competition nearly 6 months ago. The key point is:

“ventures with a globally distributed team can choose their regulatory jurisdiction. Unlike a physically based business, the regulatory jurisdiction is not imposed upon them; it is an active decision.”

The real prize for a country like Isle of Man is not to be a nameplate offshore operation. It is to be the place where Bitcoin goes mainstream. It is a lot easier to do this in a small country where a large % of the population are Bitcoin enthusiasts. That maybe happening on Isle of Man because it has two big draws:

  1. Low tax – resident individuals are taxed at 20% to a maximum of £120,000 per year, while businesses pay no corporate tax and there is no capital gains tax.
  1. Good bandwidth and hosting options (a cool climate and sef-sufficiency in energy helps) and is due to be the first country to get 5G.

According to some sources, digital startups make up nearly 20% of GDP and there are 170 tech startups (of which 25 are digital currency related) in a population of only 85,000. In short, there are a lot of techies telling merchants to accept Bitcoin and telling regulators not to kill the golden goose.

This competition among regulators to attract Bitcoin entrepreneurs is a healthy sign. It shows that we are well past the days when a government or regulator can simply “close down Bitcoin”. That is now likely to be as effective as Mubarak closing down the Internet in Egypt.



Forget yoga, wearables insurance is the path to a better life!

By Rick Huckstep

And before my yoga-practicing daughter berates me, it’s a tongue-in–cheek headline! But it is also a headline born out of the emerging trend in life and health insurance to encourage and motivate policyholders to lead a more active life.

This stems from the fundamental problem insurers have in this market. To rate the risk you are seeking to cover, they require a lot of data. Policyholders fill out extensive questionnaires asking for personal data, family histories and the like (I’ll come back to personal data in a minute).

Prospective policyholders also often submit themselves to expert examination. All this information is fed into complex actuarial models that seek to normalize the specific variables of the assessed. Using comparable data collected over large samples of the population and with decades of history, the result is a statistical assessment of the risk of a life threatening illness or being knocked down by the proverbial bus.

But, here’s the problem.

This is a static, point in time data model. Like a balance sheet in the annual report, it’s a snapshot view of the state of the individual. Unlike the balance sheet analogy, the insurer doesn’t have the equivalent of a CFO updating the balance sheet on a regular basis.

The insurer is not able to reassess the changing risk profile over the term of the policy.

Once the risk has been assessed and the premium has been set, this is the base line for the term of the policy. Whilst the policyholder has an obligation to declare material changes in circumstances, the reality is that these only cover the exceptional items.

For example, a year ago I regularly went to the gym, and had done so for about five years. Then I stopped because I simply got out of the routine. These things happen as other things took my attention, like writing for Daily Fintech every week. Now I don’t go to the gym anymore.

I’m not obliged to disclose this “material” fact to my insurer even though it does change the data that was used to rate me. My BMI is now different, as is my weight, general levels of fitness and, crucially, my diet.

Of course, this is a lifestyle change that works in both directions. What if I used to spend all my time on the sofa, eating pizza and watching Jeremy Kyle re-runs? (no judgment or offence intended, just illustrating a point!) And then I changed my behavior and started to go to Body Combat and Spin classes 3 times a week? As a result, I lose 20lbs, eat better, sleep better and have changed the basis upon which my cover could be rated.

I’m not obliged to disclose this “material” fact to my insurer either!

And that’s the issue with pricing for Life and Health cover. It is all based on static data at a single point in time. Once the price point is set, this is the baseline for the full term or every renewal.

It’s a one–size fits all approach. Whilst it may be driven by complex actuarial models to achieve a high degree of granularity, the underlying principle of how the cover is priced remains the same. The premium I pay has more to do with the life expectancy and general health and wellbeing of every other male in their fifties than it does with my actual lifestyle, attitudes and changing behaviour.

But times are a-changing!

The adoption of wearables-tech by insurers is growing. A 2014 survey by Strategy Meets Action (SMA), a Boston-based research firm found that 22% of insurers are developing a strategy for wearables. Ironically, the same survey also reported that only 3% of these insurers actually wore a wearable device themselves!

BTW, when I talk about wearables in this article, I mean the collective name for miniature electronic devices that are worn on the body in some way to track health and lifestyle information. The well-known wearables include Fitbit, Jawbone and, of course, now the Apple Watch. Wearables also include such technology as Google Glass or Golden-I, but their application in the claims process is a subject for another day.

In the US, estimates vary around the 10% mark of all Americans who wear a fitness tracker, although this is going to rise dramatically in the coming years. The widespread adoption of sensors that track more than just fitness will also explode. Sensors that monitor breathing, heart rate, stress levels and the onset of chronic illness will all add to the current generation of fitness trackers that count steps and sleep patterns.

The big one is the pursuit of blood-glucose monitoring, as this is the link to an individual’s diet and eating behavior, which has a greater impact on health than simply measuring activity.

Already employers, and particularly the self-insured corporations, are buying wearables in large quantities to give to employees to both track and also encourage them to a healthier lifestyle (thereby reducing the potential cost claims burden from absenteeism and ill health).

The early pioneer in this space some 20 years ago was South African insurer, Vitality. They were the first insurer in the world to both reward and encourage healthy behavior and the first to use a USB connected pedometer (in the days before wearables were called ‘wearables’!)

We first saw Vitality in the UK around 2004 when they entered the market with PruHealth. In 2009, they teamed up with gyms in the US and are now integrated with 6,000 clubs across all 50 states. In 2010, they entered the China market with Ping An, followed in 2013 with the partnership with AIA to enter eight countries across Asia. Last year, they acquired the UK business and rebranded them to VitalityHealth and VitalityLife.

When you look at their work they have put a lot of resource into programs that educate on the benefits of healthy diets and a healthy lifestyle…for the good of the individual as well as for the insurer or employer. To me this defines corporate social responsibility far better than any go-green policy or carbon footprint reductions.

Vitality has gone further than just integrating wearables. Their relationships with the network of gyms enables them to track when policyholders go to one of them from the swipe of their membership card. Through their mobile app on the smart phone, they can then track how long you have stayed there.

And it’s not just going to the gym that earns reward points, playing a round of golf also counts towards the overall reward points tally.

The reason that this model works is because there are clear benefits to both parties. It’s a win-win with significant social consequences. The policyholder is healthier and spends less because of lower future premiums and rewards. The insurer spends less by reducing the overall cost of claims.

However, there is a price to be paid for this advance in mobile and wearable tech in the insurance industry. And this is in the area of data privacy.

To work, the policyholder must be willing to share data continuously with the insurer. This data will come from multiple sources, and not always at the explicit request of the insured. When Vitality first launched the pedometer, the insured would physically connect the pedometer to the computer via a USB cable. The policyholder knew what they were doing.

However, today, there are no cables required. Whether the insured is swiping their gym membership card, blue-toothing their Fitbit or simply carrying their mobile in their pocket, the insurer is continuously collecting data on them.

Ironically, given the amount of personal information that has been written on forms for decades when applying for insurance, we are now in an age when sensitivities about personal data run very high. In some quarters, the use of wearables and mobile tech to track and collect personal data is an intrusion that must be stopped, or at least curtailed.

I’m not in that camp. I’m down with the millenials on this one, who seem completely bemused by the debate on privacy.

Having said all of this, the fact is that the wearable insurance model is still at a rudimentary stage in its evolution. The data collected is assessed and aggregated, but only to create a points system. These points are simply exchanged for a future discount or rebate on the policy in the form of amazon gift vouchers. The underlying underwriting process hasn’t changed!

So, this might not yet be the giant leap for mankind, but it is certainly one small step towards the nirvana of personalized and dynamic premiums. Where premiums will adjust over the term of the policy to reflect a policyholder’s efforts to reduce the risk of ill-health or a chronic illness on an on-going basis.

To do that requires a seismic shift in the approach to underwriting risk and represents one of the biggest areas for disruption in the insurance industry.

When this happens, I will be able to take my personal data collected across multiple sources, aggregated it together on Nudge, and upload this data to an underwriting marketplace where insurers will bid for my cover based on my profile. And I will be healthier and wealthier as a result!

Blockchain vs Xapo is early adopter trustless vs mainstream trusted institution

To research the Bitcoin ecosystem healthcheck post yesterday, I immersed myself in the numbers on Blockchain.info

Bitcoin is only one subject that we cover on Daily Fintech – albeit an important one – so I had not planned to do two Bitcoin related posts in a row.

However I was curious to see who was behind all the high quality data presented on Blockchain.info. I don’t trust a source until I understand who is paying the source – thanks to my History Professor for that insight.

What I see is an open source model. Blockchain.info is the free and open part. Blockchain.com is the commercial part. I am comfortable with that model. It has been proven many times (and it is the model we use at Daily Fintech – free content plus paid advisory services).

Blockchain.com is a Bitcoin wallet.

We recently looked at another Bitcoin wallet – Xapo – that looks like a winner. Blockchain.com also looks like a winner, but with a fundamentally different proposition.

Xapo is the kind of proposition that appeals to people who are approaching Bitcoin carefully such as wealthy investors looking for inflation protection. Xapo has vaults and insurance and top tier investors that says: “do your diligence, this is an institution that you can trust”.

Blockchain.com has a different type of proposition. First, here is Jeremy Liew of Lightspeed Venture Partners (who led a $30m investment into Blockchain in October 2014) on why wallets are important:

“Wallets own the relationship with the consumer and every transaction begins and ends with a wallet.”

He calls Blockchain a “user controlled architecture” to contrast it wIth a custodian model.

In Bitcoin terms, Blockchain lets you control your private keys. In gold terms, this is like keeping gold in your safe at home vs storing it in the bank’s vault.

The reason for not giving your private keys to any institution is that all the power of Moore’s Law is also at the disposal of criminals.

As Liew puts it:

“The more successful a wallet becomes, the greater the prize available to a successful attacker”

Or, to quote Will Sutton on why he robbed banks:

“Because that is where the money is”.

What is truly impressive about Blockchain.com is that they reached 2.3 million wallets before raising a dime of outside capital.

That is not just an impressive management achievement, it indicates a compelling value proposition.

It is possible that Blockchain has cracked the code that combines security with ease of use. As Techrunch explains:

“The company only stores encrypted files on its servers as a backup, but it doesn’t actually hold your bitcoins. When you log into a Blockchain wallet, the wallet fetches that file and decrypts it. It means that Blockchain is immune to hacker attacks and can’t take transaction fees.”

This is “in crypto we trust”.

Blockchain’s revenue comes from ads on their content sites – that is how they bootstrapped. It is unclear how they will monetize their wallet, but at scale they will have plenty of options.

Bitcoin Ecosystem Health check up

When you get a physical check up, you want to know the numbers. You also need to know what the numbers mean. What is good v.s. bad cholesterol and does cholesterol even matter?

Blockchain.info has the numbers.

The question is – what numbers really matter?

Bitcoin is like an animal with three parts – brain, heart and gut – that all need to be healthy. In the case of Bitcoin:

  1. Currency to pay for stuff (lets call this the heart).
  1. Asset to invest in/trade with (lets call this the brain)
  1. Payment rail working in background (lets call this the gut)

For the currency use case, the most important number to track is merchant transaction volume. This is not the same as number of merchants accepting payments. There were lots of press releases during 2014 about merchants accepting Bitcoin. Transaction volume tells us whether Bitcoin is moving the needle for these merchants. Transaction volume means consumer traction.

I prefer to look at Estimated Transaction Volume in Bitcoin (rather than looking at in USD as this is distorted by Bitcoin exchange price). What does this chart tell us? If this were a stock market chart, the pundits would be talking about a “sideways drift market”. A school report would say, “could do better”. The doctor might advise making some dietary changes but would not pushing pills or operations. IOW, Ok but not great.

For the asset to invest in/trade with, the chart is very simple – the price chart. As in any market, it depends on your time horizon:

  • Short (30 days, recovering a bit).
  • Medium (12 months, looks ugly, trader talk is “don’t catch a falling knife”).
  • Long (since the first Bitcoin – a moving average looks good but is meaningless to investors/traders because very few people bought in the 2009-2012 period. It would be like a moving average of Yahoo stock since their IPO, meaningless to a decision on whether to buy their stock today).

No matter which way you cut it, the price chart looks bad. To invest in Bitcoin, you need to believe in it as a hedge against inflation, as an alternative to gold. Like gold bugs, Bitcoin hoarders want nasty things like hyperinflation, Eurozone break up and governments stealing money from citizens. These are the drivers of long term Bitcoin price appreciation. Of course, none of us know if these things will happen and certainly not when they will happen; if you encounter somebody telling you they are certain they maybe selling you something or be “true believers” who won’t let facts get in the way.

This is the problem for the Bitcoin ecosystem, the heart and brain are working against each other. For the currency use case to work we need people with Bitcoin to spend them. For the asset use case to work, we need people to buy but not sell (aka “hoard”) and that will weaken transaction volume which is the key health indicator.

For the payment rail use case, it is hard to figure out what metric matters. This is where one sees heated debate around block size, sidechains and Bitcoin maximalism. The question is, if we have an interim token of value that the customer never sees, should this be Bitcoin or some altcoin? Remember that the customer never sees this interim token of value, so the things we track for the Currency and Asset use cases don’t matter.

I think that two things matter for this interim token of value – the usual “time and money”

  1. Time. How long does it take to confirm a transaction?
  1. Money. How much does it cost to confirm a transaction?

I went onto Blockchain.info searching for the answer.

First, cost per transaction. In this chart, a falling line indicates health. At first it looks like it is falling merrily in line with Moore’s Law, but then it appears to flatline in 2015. The problem is that this chart is in USD, so the exchange price gets in the way. What we need is cost per transaction in Bitcoin (just like we use transaction volume in Bitcoin). If anybody knows where to find this, please tell me. Maybe one could compute this from a mix of things like Hash Rate and Difficulty.

Secondly, time to confirm a transaction. The Average Transaction Confirmation Time shows this. There is nothing dramatic about this chart, it looks stable as one would expect unless there had been a significant change to the protocol. The problem is simply the numerator, which is in minutes. Alternatives such as Ripple and Ethereum are measured in seconds. Of course, speed and money are not everything. In payments, security trumps time and money; if it costs 1c and takes 10 seconds to send $100, it is not much good if the payment rail loses my $100. The altcoin that offers faster + cheaper + as secure as Bitcoin will be an effective alternative to Bitcoin as a payment rail use case. None of the altcoin candidates are proven, but a couple look promising.

The debate over increasing the block size is really a debate about the health of the Bitcoin ecosystem. Is it seriously sick and needs an operation (increase block size)? Or is it suffering a temporary malaise that time will cure (do nothing)? I do not intend to offer an opinion as a) the data is inconclusive and b) this is a debate where neither side appears interested in an opinion (it is like a political debate i.e a dialogue of the deaf).

If I had to choose only one metric to track, this would be merchant transaction volume in Bitcoin. If Bitcoin does not work as a currency, none of the other use cases will work. Market price is a lagging indicator. Merchant transaction volume is a leading indicator.



Fintechs chasing the Unadvised assets that are up for grabs

By Efi Pylarinou

billion dollars…

hundred billion dollars…

Eight hundred billion dollars…

One TRILLION dollars…

The last time I was hassling in my head with trillions, was when blogging about yet another US debt ceiling rise in 2011. If you are a visual thinker there are dollar stacked images of the one million millions, so you get a sense of a trillion.

Switzerland had 2 trillion of assets under management (AUM) by the end of last year. Holding the first place worldwide and followed by the UK and the US. Deloitte’s recent report states:

“The market volume growth is driven mainly by capital market performance, not net new client assets. Overall, international wealth management centers experienced an outflow of 23% client assets, while Switzerland lost 7% of assets. And there are further challenging news: The overall profit margin for Switzerland has decreased to an estimated level of 24 bps in 2014 (against 40 bps in 2008). Daniel Kobler comments: “Swiss providers face some challenges on both revenue realization and sustainable cost management.”

Around the main stage, newcomers are threatening to grab a piece of the pie: robo-advisors of all sorts, generation 1.0, 2.0, or 3.0; passive or active; purely automated or hybrid; investment advisors or financial planners; from those targeting unbanked retailers to those working with independent advisors.

How large is the pie? Which pie? What are the revenues and profit margin specs? Don’t get me wrong, I am not thinking of launching some type of robo-service but simply thinking out loud with back of the envelope calculations that “show and tell” about this business.

Pick a napkin and start sketching, use squares for billions and balloons for trillions for AUM with wealth managers.

So, 2 balloons for entire Switzerland. One balloon and 4 squares for the US.

Assuming the profit margin proposed by Deloitte of 24bps for Switzerland, that means profits of nearly 5 squares (4.8bil).

I am not sure what profit margin applies to the US, but you get the idea for the pie of “assets that are taken care of from a wealth manager”. These are like the kids that go to private schools.

Now, lets look at the kids that go to public school (which of course is the large part of the market). Those are the assets that are invested, probably in some mutual fund, but are unadvised. Figures from the US are reported to be close to 13 Balloons (13 trillion)!

And then the kids that don’t go to school. Those are the assets that sit around in cash – looking for a number.

What I am wondering on this long long day of summer solstice, is who will win this “up for grabs” pack of balloons. In the US alone, it is close to 15 Balloons and 13 of them are really “up for grabs”.

Those salivating are not the traditional wealth managers but the Fintechs that are being funded handsomely from the VCs. Wealthfront, Betterment, and Personal Capital – just to name a few – have already gotten $100million (100 Dots lets say, a Dot for $1 million) in funding each. Wealthfront has accumulated in 3 years, 2 squares AUM ($2billion). How to get to a balloon at least? Because, with 2 squares under the roof and fees of 25bps, you can only show revenues of 5 Dots. How are you going to produce some meaningful revenues (per year)? Lets say, at least the quarterly revenues of Lending Club, which are close to 70 Dots. You need to accumulate 28 Squares (x14 of AUM). And to reach and match the projected annual revenues of Lending Club, you would need 112 squares AUM.

Personal Capital, who is a hybrid robo-advisor, manages 1 square AUM but with a considerably higher fee of 89bps. So, revenues are close to 9 Dots.

Vanguard who manages 3 balloons in total, has already 17 Squares under the roof of their hybrid Robo advisor. 10 Squares were moved from their old business and 7 were new monies. With 30bps fees, they can show 51 squares of revenues from their robo-advisor business.

More than 15 Balloons are floating around the US and are “up for grabs”

I see one or two “Vanguards” and two-three Fintechs sharing the Balloons. Consolidation will come. The Fintechs that will emerge as standalone robo-advisors will have 2-3 Balloons AUM (2-3 Trillion each) and their models will become hybrid so that their fees are not flat across the board at 25-30bps. I foresee a weighted average of fees settling around 75bps.