Is RIP Global another death knell for small business bookkeeping?

If there is one traditional profession being heavily disrupted right now by fintech technology in the small business space, it would have to be bookkeeping. Data entry, expense tracking, invoicing and payroll – tasks traditionally associated with the profession – are becoming increasingly automated by cloud accounting platforms and their add-on partners. As a result, many bookkeepers face death by a thousand cuts, or must move up the advisory value chain to remain relevant.

There are many opportunities to do this – especially in the realm of process efficiency technology advisory – but to do this means disrupting the very own work they previously billed clients for. The old adage ‘disruption rarely comes from within’ signals that this will be a tough, if not an impossible transformation for many in the industry.

And it would seem the latest innovation in bookkeeping out of New Zealand, RIP Global, heralds another tolling bell for the death of the sector.

Forget scanning receipts and all that flash fintech bookkeeping app wizardry. RIP simply starts its expense tracking and reconciling journey the minute the purchase is made. It first sends a copy of the invoice into it’s ‘lockbox’ in the cloud, then reconciles direct with bank account statement data. How it does this last piece isn’t entirely clear – either scraping or a direct data feed. Given banks reluctance to do the latter, my guess is the former, but I could be wrong.

Companies like Receipt Bank and Xero do this together today. But the key differences seem to be bypassing the need to physically scan a receipt using your phone and use an accounting system to complete the reconciliation (this is where the bank feed data usually ends up currently). Some point of sale systems, like Vend, also push invoice data direct into cloud accounting systems, which suits larger retailers with continuous stock orders and who are looking to drive efficiencies.

And while it might seem unusual to bypass the accounting system altogether, to quote founder Mel Gollan from a recent news article, it would seem there is a ready and viable market who wouldn’t really mind this at all. “Fifty per cent of SMEs don’t use any accounting software but still need to retain and process invoices receipts and bank statements for tax compliance,” she says. “They don’t use it because they just don’t want to do it – and neither did I so I designed a solution which just gets rid of it.”

The company claims it has secured patent protection for the product and is looking for partners to help it deliver the solution ‘on a global scale’.

Seems like a good fit for the micro end of the SME market, solving a simple pain point without heavyweight accounting software. And whoever thought we’d call cloud accounting heavyweight! While not a chatbot, to me it seems like it seeks to solve a similar problem the Sage product Pegg tried to do when it launched. Could startups like this disrupt cloud accounting? That could be a tough one, but with the rise of the gig economy, it’s possible there is room in the market for the most basic of financial products for side-hustlers.

The pace of disruption is certainly picking up. Seems you can’t even get to incumbent status these days before someone is after a slice of your market.

You can see a live demo of the product here, or watch their explainer video.

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.

Fintech solutions in Quant land – Quantopian

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Quantitative trading isn’t a new idea by any stretch of imagination. Searching for the Holy Grail in quantitative trading continues to fascinate both financial professionals and all sorts of scientists (physicists, engineers, mathematicians, etc). Data scientists are used to handling data sets and modeling them, knowing that their prediction model WILL NOT affect the hypothesis or the phenomenon that they are modeling. However, this is NOT true in financial markets.

I see four types of challenges in quantitative trading in financial markets beckoning solutions that have existed forever:

  1. The amount of Subconscious biases amongst Financial professionals developing and implementing quantitative strategies, is significant.
  2. Acting as adversaries on a Survival TV show, is the modus operando?? amongst Financial professionals.
  3. Allocating capital towards quantitative strategies is a process dominated by subconscious biases.
  4. Network effects has had no place in developing superior quantitative trading strategies-products.

As you already sense, I am focused on the human-related issues of quantitative strategies-trading. Don’t forget that even if we end up overweighting quantitative strategies in the allocation of our capital resources (as individuals and as institutions), we are still depending on humans that are coding, fine-tuning, adapting, etc these algorithms.

In this post, I will revisit Quantopian, a Boston-based Fintech that I covered in the very early days of my Fintech content creation journey. Check out Quantopian – DIY open-sourced trading algorithms and a crowd-sourced hedge fund. At the time, Quantopian had received around $23mil in funding (by March 2015). Today, they have another $25mil from Point72 Ventures, Bessemer Venture Partners, Andreessen Horowitz (source:VentureScanner). More importantly, they have partnered with Point72 Ventures who has promised to allocate up to $250mil to quantitative strategies managed by Quantopian.

At the lunch organized by the Swiss FinteCH association, the Director of Academia of Quantopian Delaney Mackenzie, said that Quantopian is now allocating to 17 strategies that are benefiting from the first batch of capital from Point72. This is crowd-sourcing quantitative strategies not crowdfunding, in action.

The lunch gave me the opportunity to understand the kind of people Quantopian is looking for, the kind of strategies they seek, and the way their business works.

Quantopian has currently, around 130,000 users from which they crowdsource strategies. This is a platform that can give the opportunity to non-professionals to validate a hypothesis that is coded into strategy. Quantopian is avoiding subconscious selection hiring biases, by giving the power of algorithm filtering to a machine. Quantopian has automated the process of creating a short-list of algorithms and authors-coders. Their platform at this stage is

Acting as a Discovery platform for Talent that is left unexploited for various reasons.

This may include academic staff that may have one-off brilliant strategies, data scientists that have no access to high quality financial data, young techies that are unbiased from the traditional financial modeling frameworks. From the current 130,000 user base, Quantopian has detected concertation of talent: (a) geographically, in 5 countries; (b) educationally, with tech related backgrounds; (c) in gender, men rather than women. The gender imbalance is actually an area that Quantopian, whose role is at the same time educational, wants to improve. They are currently, exploring various initiatives that can improve that split as they genuinely believe that that kind of diversity can improve the quality of the diversification they are looking for.

The kind of strategies that Quantopian is looking for, are Alpha-generating algorithms.

They have been concentrating in the US market due to the maturity and the availability of data for back-testing, live-testing and validating.

Quantopian offers a 10% payout to the “author-coder” that is selected and allocated capital. This is 10% of the net performance of the author’s algorithm; a rate probably above the average “bonus” of a proprietary trader but lower than most hedge funds (which come with other kinds of risks and responsibilities).

Quantopian is fairly open-source for the most part of the journey of its users. So, any user, for example, can build on top another user’s code (permission from the other user needed). Users own their own IP during the phase of coding, tweaking, and back-testing. Naturally, there is an inherent trust towards Quantopian who would not jeopardize its brand name, by stealing the IP from any user. This kind of relationship (based purely on trust and with the user-coder in the driving seat), comes to a halt once the code-algo is selected and ready for capital deployment. At that point, there is a boat-load of legal agreements that coders-users and Quantopian sign to license the IP to Quantopian. This is the point that Quantopian shares profitability of the strategy and reaps the benefits of creating an alpha-generating crowdsourced quantitative investment firm. What is important here to bear in mind, is that Quantopian has to keep up the game of “feeding algorithms” that continue to generate alpha, in a financial world that is affected by the trading patterns themselves.

Quantopian is addressing two out of the four challenges, I mentioned earlier. It is addressing both subconscious biases 1 and 4, traders themselves and those allocating capital to traders.

Stay tuned for a totally different approach to generating value using quantitative methods.  Next Tuesday.

Efi Pylarinou is a Fintech thought-leader, consultant, and investor. 

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Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 29th May 2017

The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.

This is week 7. For the index and the intro, please go here.

News Item 1: Bitcoin Establishment Declare Civil War is over.

Digital Currency Group published a proposal for scaling that was supported “by more than 50 companies and 83% of the network’s miners”. Basically the proposal called for a governance change where Segwit would be implemented with 80% of the network’s mining power. In what looks like a blow to this group, Blockstream formally declined to participate.

Decrypted: Yes, I made up that headline. This was reported on CoinDesk which has this disclosure: “CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Abra, BitGo, BitPay, Blockstream, Bloq, Circle, RSK Labs, ShapeShift and Xapo”. Those are the key companies referenced in the Press Release.

Our take:   It ain’t over till the fat lady sings. This week was a tale of two Bitcoin Cities. In one, we hit record price highs yet again. In another we had people planning for a hard fork.  I believe a hard fork will be technically like a stock split i.e. no big deal but it will be a massive blow to confidence and sentiment. Explaining Bitcoin is hard enough, explaining two Bitcoin will be too hard. Bitcoin could be a 10x or 100x investment from here or a total loss. That is quite a delta. My best guess is the price drops back to around $1,000 and after some period of doom and gloom it will go back up again.

News Item 2: Bank Of Canada Backs Off Blockchain

Bank of Canada (BOC) announced today that blockchain technology is currently incompatible with its central banking system.

Decrypted: BOC had experimented with settling bank transactions on a blockchain using CAD-Coin, a digital alternative to the Canadian dollar. The problem they discovered was that fixing issues such as scalability and privacy led to single point of failure dangers.

Our take: This will be the first of many announcements like this. This is what will happen to all those news items saying “Central Bank X Studies Blockchain”. The concept of a permissionless, decentralized monetary system is fundamentally at odds with how central banks work and no amount of studies will square that circle.

News Item 3:  Coinbase has a FailWhale moment

Yes, I also made up that headline.

The news is that Coinbase suffered an outage on May 25, 2017, claiming “unprecedented traffic and trading volume this week.”

Decrypted: FailWhale was what we called Twitter’s technical scaling problems and outages. Coinbase did not have enough server capacity to handle the load.

Our Take: Like Twitter’s technical scaling problems the Coinbase news can be read two ways:

  • unprecedented traffic and trading volume is a good thing and they will fix the server problems. That was the Twitter story.
  • Bitcoin is a decentralised market with crazy volatility and huge spreads and centralized businesses will always struggle in that environment.

I incline to the latter view. By 2017, a well-funded company should know how to handle peak traffic loads and an outage is more reputation damaging where money is concerned than losing a tweetable moment. A representative tweet by @callux: “You have money. Your fees are astronomical. Buy better infrastructure.” Coinbase is a broker and we saw what happened to FX brokers when the Swiss Central Bank dropped the peg with the Euro (which we reported on here). A centralized broker model like Coinbase and a decentralized network may not mix well.

Opinion: A gloomy technical view of Bitcoin’s scaling challenge

The analyst has an overall optimistic view, that the scaling issues will be fixed, which I concur with. However he also makes one critical point which is that Bitcoin’s network effects work at a marketing level but at a technical level there are negative network effects. Each new user adds to the load, compared to a network like Skype where each new user makes the network run better.

Bernard Lunn is a Fintech thought-leader and deal-maker. 

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Wrap of Week #20: BlockchainBitcoinCrypto, Melonport, Zuper, Lemonade, Root, Slice, Cyber Attacks

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Cyber Attacks in Cashless India – Ransomware just the start

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In November last year India went through a demonetization drive when the government banned the Rupees 500 and 1000 notes. It caused a lot of near term pain with some serious liquidity crisis in a primarily cash driven economy. However, sanity returned in a few months with various private and public sector initiatives driving the move to a cashless economy. But the lack of governance and awareness on cyber has left the consumers and banks exposed to large scale cyber attacks. The recent ransomware attacks were very successful in India, and that feels like just the start.

Attacks by Country

Wannacry Ransomware attacks were reported across about 48000 computers in India with 60% of targeted victims being institutions and 40% being consumers. On investigation, it was revealed that the weak link that allowed many of the attacks was Windows XP and unpatched Windows operating systems used by institutions. However, about 70% of the country’s ATMs run on these operating systems and largely remain unpatched, hence posing a huge risk to consumer banking credentials.

During the attacks, Cyber Peace Foundation (CPF), which is running a research project monitoring cyber attacks, saw nearly a 56-fold increase in breach attempts at sensors installed across eight states in the country. Computer Emergency Response Team (CERT-In) asked the Reserve Bank of India (RBI), stock exchanges, the National Payments Corporation of India (NPCI) and other vital institutions to safeguard their systems against the ransomware.

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Just a few weeks after the demonetization announcement, Prime Minister Mr.Narendra Modi announced the BHarat Interface for Money (BHIM) mobile application, which was downloaded 17 Million times within two months of launch. PayTM, India’s leading mobile payments service crossed the 200 Million users mark earlier this year, and have most recently launched PayTM bank with about $1.4 Billion raised from Softbank valuing the firm at $7 Billion. The “Jan Dhan Yojna” scheme successfully brought about 200 Million unbanked consumers into banking. Post demonetization, bitcoin has started to be more widely used.

This is all great news, but it feels like the country is doing it all too fast, without the right governance, and more importantly consumer awareness on cyber risks. Over the last few years, India has consistently been identified as one of the most vulnerable countries to cyber attacks as the digital infrastructure was growing at a crazy pace without the necessary controls in place. The country has about 300 Million internet users of which about 150 Million are only using mobile internet. However many of these phones use vulnerable operating systems and are easily hacked.

One of the common modes of cyber attacks in the country happens through malicious applications on smart phones. This occurs when users download mobile applications that come with some online offers, and allow access levels to the applications that in turn allow the hacker to ask the users’ contacts to make payments using mobile wallets. With a booming e-commerce industry projected to reach $64 Billion by 2021, banks and payments providers lack the capability to keep Cyber attackers at bay.

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Challenges in handling cyber attacks are different depending on if the victim was a bank/firm or a consumer. The problem with banks is the secrecy they maintain about cyber attacks on their systems. A few months ago, data of about 3.2 million debit cards was lost in what is claimed to the India’s biggest breaches. SBI, HDFC Bank, ICICI, YES Bank and Axis were all hit by the breach of debit cards. RBI has hence mandated banks to reveal any cyber attacks that banks have had to suffer. Cyber attacks cost Indian businesses about $4 Billion every year as per latest estimates.

Banks in India have also managed to set up shadow or decoy systems which resemble the actual systems and have developed honey pots to trap such hack attempts. However, they still lag behind their western counterparts in sophisticated techniques and forensics needed to counter cyber attacks.

Still, banks are much more prepared to handle cyber attacks than consumers who are easily manipulated. This is primarily because consumers lack awareness of cyber attacks and social engineering techniques by the hackers are getting more and more sophisticated. There are measures from the government (unlike old times) to bring awareness to people on Cyber risks. 90% of the consumers are unaware that the government runs a 24X7 TV channel “Digi-Shala” that focuses on digital payments.

When Demonetization was announced, the Modi supporter in me felt super thrilled about the possibilities as the economy accelerated towards a cashless state. Even the near term pains faced by the common man felt justified in some ways, but it feels like India is ill-prepared to take on cyber risks inspite of efforts from the government and central bank. Watch this space.


Arunkumar Krishnakumar is a Fintech thought-leader and an investor. 

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Lemonade, Root and Slice and Asian Insurtech go for full stack

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The accepted wisdom in InsurTech is that it is all about partnerships rather than disruption. New ventures offering a new digital experience work on top of a platform provided by a Reinsurance company that provides the data and models for underwriting risk. This is what we call Reinsurance As A Service and we have reported on it many times.

Some companies are bucking this trend. They still believe that they can offer a full stack solution and compete head on with the incumbents.

In recent news, both Lemonade and Slice started offering products in California.

Root is also going State by State, starting in Arizona.

Doing this in America is tough as it is a replacement market with tough incumbent competitors. This is only for deep-pocketed startups and all these have raised significant rounds. It remains to be seen whether it is enough to compete head on in multiple states let alone multiple countries. The cost of both regulation and marketing is very steep. We may see a lot of M&A action soon as incumbents buy the ventures that get traction.

It is easier to do this in Asia, as it is more of a greenfield market. This is where we see action from companies such as PolicyPal and Inzsure as reported here. In Singapore, we see action from Singapore Life and CXA Group (who we profiled here). In China there is Zhong An.

The battle will all be about data. It is similar to banking (where the front lines of the data battle are around PSD2). If Insurance incumbents control the data, they will add digital user experience (buy or build). If that data can be aggregated online, the startups will win. This is where the data rich behemoths we calll GAFAM (Google Amazon Facebook Apple Microsoft) may hold the best cards.

Image Source.

Bernard Lunn is a Fintech thought-leader, investor and deal-maker. 

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Fintech Zuper to tap into $2 trillion superannuation opportunity in Australia

This week I’m deviating from my usual small business themed post to bring you exciting news about a new fintech venture I’ve joined.

After 6+ amazing years working at Australia’s flagship fintech Tyro, across business development, marketing and product, I’ve decided to jump into startup land, taking on the role of co-founder and CEO at a superannuation startup called Zuper.

What is superannuation?

For those of you further afield than Australia, superannuation is the equivalent of the UK’s pension scheme, or 401K in the US. Since it’s inception in 1992, the industry has amassed a phenomenal $2 trillion under management. I say ‘under management’, because despite growing evidence passive investment strategies, not active, are possibly the cheapest and most effective mechanism for long term investing for the masses, not many Australian super funds (or their armies of well paid fund managers) seem to agree.

As early as 2015, Sunsuper was one of the few super funds to buck the active trend, partnering with Vanguard to reduce its reliance on stock pickers. A more recent blow to active managers across the broader funds management industry was an announcement in May this year by the Future Fund, Australia’s biggest investor, that it too would rejig its portfolio towards passive vehicles.

The opportunity and problems to solve

We think superannuation as we know it in Australia needs to be retired. Alongside a massive digital overhaul, we want to use Zuper to empower Australians to align their values with how their money is invested, for a future they care about. We’ll also be using passive investment vehicles to do this.

To give you some idea of the opportunity in the space, here are a few startling superannuation stats.

High costs for little real value 

  • According to the Productivity Commission, in 2014-15, Australians paid about $12 billion in fees to APRA-regulated funds. Just over $2 billion of this is attributed to investment fees alone.
  • For FY14, a Rice Warner report estimated fees averaged out for members across the industry at 1.10% (110 bps). And while fees should never be looked at in isolation from performance and value, the lack of product differentiation across the sector makes for slim pickings on the value front.
  • According to the Association of Superannuation Funds of Australia (ASFA) March 2017 Superannuation Statistics report, the average 5 year investment return for the industry is 5.2 percent. Compare that with the Vanguard Australian Shares Index ETF, which tracks the S&P/ASX 300 Index, and managed to return just over double that, 10.61 percent, over a similar period for 14 bps. As a result, the industry is facing churn from members with $250K balances and above into Self Managed Super Funds (SMSFs) that invest in products like this.

Systemic implementation problems make it hard for average Australians to build wealth

  • According to the Productivity Commission report, 40 percent of Australians hold more than one super fund, paying multiple sets of investment fees and insurance premiums (life insurance, income protection and total permanent disability insurance is often wrapped into superannuation products). This dramatically reduces the effect of compounding. There has been a lack of will and coordination by the industry as a whole to tackle this consolidation problem.
  • Despite it being 2017, Australian women retire with half the balance of men. In 2013/2014 men, on average, retired with $292,500 while women ended up with $138,150. This can be attributed in part to a gender pay gap of 16%, time out of the workforce to raise children, and no superannuation payments on the unpaid portion of maternity leave. The disparity exists today for younger Australians, suggesting the trend will continue without intervention. Oh, and need I remind you women live longer than men? Double whammy.
  • Of the 176 retail and super funds, roughly 10 have a mobile app, resulting in disengagement and apathy.
  • Each year an estimated $3.6 billion in superannuation payments aren’t even made by employers (mainly small businesses), leaving 30 percent of the Australian workforce out of pocket to the tune of $1,489 each year.

Housing used to be most Australians retirement stop gap. But even in a low interest rate environment owning a home in Australia’s major cities is now almost completely out of reach for the millennial generation . The median house price in most centres is over $1M.

And, due to over-leverage during an individual’s working life, many retirees will be forced to use their super to actually finish paying off their mortgage. Those who own no property at retirement will also still need to pay rent. Deloitte estimates that the projected retirement balances of millennials of $1.1M will fall short by around $500-$600K – with rental added this could be even higher.

Superannuation is an awesome idea. We are incredibly fortunate to have it in Australia. But how it is executed has room for improvement, and only the whole industry can benefit as a result of increased digitally minded competition.

I’ve written more about why I joined Zuper in the post below. I’d love you to read it, share with me your thoughts and if you believe in what my co-founders and I are doing, help us spread the good Zuper word!

https://www.linkedin.com/pulse/why-i-started-superannuation-fintech-business-jessica-ellerm

 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.