Blockchain Bitcoin & Crypto Weekly CXO Briefing for week starting 31st July 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.

For the intro to this weekly series, please go here.

News Item 1: Russian held over bitcoin laundering linked to BTC-e exchange

Decrypted: Earlier this week the Greek police arrested the main figure behind the Bitcoin exchange BTC-e, on suspicion of money laundering. Identified as Alexander Vinnik, he was the key person responsible for running a large-scale money laundering operation. Its estimated that over $4 billion worth in Bitcoin were trafficked through the BTC-e since 2011.

BTC-e is allegedly involved in a wide range of crimes that go far beyond the lack of regulation of the Bitcoin exchange, and include identity theft, drug trafficking, numerous ransomware attacks, facilitating money laundering from criminal actions of organized crime around the world and other cyber-criminal activity.

The indictment also alleges that Vinnik was involved in the infamous Mt. Gox theft, another Bitcoin exchange that was hacked in 2014 losing $450 million and eventually failing, partly due to losses from the theft.

Our take: Cryptocurrencies such as Bitcoin provide people around the world new and innovative ways of engaging in legitimate commerce. Just as new computer technologies continue to change the way we engage each other, so will criminals that use these new technologies to serve their own nefarious purposes.

As the various governments and organizations are scrambling to limit money laundering, new methods emerge. The development of electronic payment systems and virtual currencies like Bitcoins provide another way for funds to move across borders. Virtual currencies offer anonymity, which is invaluable when illegal transactions are involved.

Bitcoin is an untraceable currency, that is is not centrally controlled by any one government. Yet, Bitcoin’s transactions aren’t truly untraceable. Because of blockchain, the underlying technology behind Bitcoin, it’s possible to see the sequence of exchanges involving Bitcoin. One of the main characteristics of Bitcoin’s is that every transaction is public and anyone can follow the coins as they move between addresses. This makes it difficult to launder stolen bitcoins, but not impossible.

Bitcoin used together with the anonymity provided by the TOR network, allows anyone to order and pay anonymously for digital goods and criminal activities. In addition to the anonymity that Tor provides, anyone can get additional protection and encryption, using Tails, Bitcoin tumblers, and mixers. Bitcoin tumblers, can break up your Bitcoins, move them around and reassemble them. Repeat that process a few times and it becomes nearly impossible to track the original coins. All the pieces are there, but its hard to put them back together.

Also, technologies like Dark Wallet go even further, integrating laundering by default into every payment its users make. Its uses a technique called CoinJoin: Every time a user spends bitcoins, his or her transaction is combined with that of another user chosen at random who’s making a payment around the same time. Say, if Alice is buying socks from an online sock seller and Bob is buying cocaine on the Deep Web, Dark Wallet will combine their transactions so that the blockchain records only a single movement of funds. The bitcoins simultaneously leave Alice’s and Bob’s addresses and are paid to the sock seller and the Deep Web. The negotiation of that multi-party transaction is encrypted, so no eavesdropper on the network can easily determine whose coins went where. To mix their coins further, users can also run CoinJoin on their bitcoins when they’re not making a real payment, instead sending them to another address they own.

Cash has alway been king for criminals. For years, criminals moved suitcases full of dollar bills to trade illegal goods and services.  The FBI in 2012, published an Intelligence Assessment about Bitcoin that indicated that because of Bitcoin’s small user base, the probability of it being used for illegal activities was low. Also, according a recent report from the European Commission, virtual currencies are rarely used by criminal organizations because of the high technology required.

The landscape is changing. Cryptocurrencies are growing exponentially, so if criminals up to now didn’t have the interest or technical chops, there is no question they find them and experiment how they can move money with Bitcoin and other cryptocurrencies. Even though everything you do online leaves a digital footprint, one of the greatest dangers is greed and corruption that can enable organized crime to get a foothold and propagate their criminal activities using cryptocurrencies.

News Item 2: SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities

Decrypted: Since the inception of Bitcoin and blockchain, government organizations around the world have had difficulties understanding this technology. Until recently many were hostile, and hoped that it would go away or that somehow they could turn it off. Well, those days are over.

The SEC issued an investigative report that concludes that ICO tokens may be indeed securities. With this recent initial report, the SEC layed out the groundwork of what’s going to follow. The SEC concluded federal US securities laws may apply to anyone that offers and sells securities in the United States whether or not the issuing entity is a decentralized autonomous organization and regardless of whether those securities are purchased using US dollars or virtual currency.

Our take: Its about time they made their opinion public. Overall, I would say that the SEC report is positive, not negative. Let me address some of the key points:

    • ICOs are not illegal
    • “The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies.”
    • Laws may apply
    • “As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws.”
    • Encouraging innovation
    • “The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us. We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.”
    • Cryptocurrencies are money
    • “Investors in The DAO Invested Money. It is well established that cash is not the only form of contribution or investment that will create an investment contract.” 

When it comes to what happened with DAO, even though the SEC considered it unlawful, it decided not to pursue criminal charges, and only suggested caution. “Laws may apply” leaves this wide open and very ambiguous of what might happen in the future.  It sounds to me that from this point forward, no one is going to get a free pass. 

In the US., the Howey Test is the leading definition of an investment contract and what will be used used to determine what tokens are securities. Marco Santori, posted an excellent tweetstorm about the SEC report, and what tokens would be considered securities. To give an example,  if you make in investment in a gym and want to make money from the operation of the business, then its a security. If you join the gym to get in shape, then its not a security.

In an open letter to the SEC via Facebook, Tim Draper spoke about the recent SEC decision regarding DAO tokens as securities. He thanked the SEC for their decision and added his own three executive recommendations for their consideration:

1. If the purpose of a token is for investment, it must register with the SEC.

2. If the purpose of a token is for societal transformation, and all proceeds go to the support and development of the token, it need not register.

3. If the purpose of a token is to raise money for a company, and the money is used to support the company, it must register with the SEC.

Until ICOs came along, only wealthy accredited investors that met strict requirements issued by regulators could invest in private companies. With ICOs anyone can invest. The real innovation that ICOs bring to the table, is their openness, that allows anyone, anywhere, not only accredited investors, to invest in interesting companies and projects, With cryptocurrency it’s hard to track who is an accredited investor and who is not, making it difficult for any organization that wants to launch an ICO, to produce the documentation that proves only accredited investors put up money in their ICO.

The SEC wants to regulate companies that offer and sell securities in the US., but enforcing these regulations on organizations outside of the United States, might be difficult, even if the SEC has a long arm. Also, we need to keep in mind that the US Securities and Exchange Commission laws, only apply to US. companies or organizations that are doing ICOs or to individuals from the United States that want to invest in an ICO.

This report is a big deal in light of a recent ICO-mania with dozens of companies raising  millions and in some cases hundreds of millions of dollars, from small investors. It remains to be seen if the SEC ruling will have a chilling effect for the overall ICO market, drive US. companies to incorporate in other countries or if it will completely limit token sales to investors outside of the U.S.

The SEC announcement may have also caused some ripple effects to the price of Ether. After the announcement, Ether dropped 10%, but its not clear how much can be attributed to the SEC report or to the currency’s intrinsic volatility

SEC ruling may be just the beginning of more regulations to come. I wouldn’t be surprised to see other countries and regulators follow in the footsteps of the SEC. So if you’re considering an ICO be cautious, because you will need to factor in the US. securities laws and register, produce the proper investor documentation or exclude US. based investors to avoid problems in the future. The best way to move forward, is to disregard any assumptions you may have and make sure to get legal advice.

News Item 3Abra Users Can Now Buy Bitcoin With American Express Card

Decrypted: American Express integrated the American Express card with the Bitcoin wallet Abra for instant funding and remittance, for peer-to-peer transfers across the world. American Express’s integration is essentially acting like an exchange, that lets Amex users purchase Bitcoin with a credit or prepaid card and send funds immediately to any other Abra user worldwide. Funds sent are accessible within minutes. Amex customers may purchase Bitcoin in increments of up to $200 a day and $1,000 a month for a fee of 4% of the transaction.

While many other players in the payments space, like Visa and Mastercard, are also exploring blockchain, it appears that the industry is still in its early stages.

In 2015, American Express’ venture capital arm invested in Abra, as part of its $12m Series A round. Also this past January, American Express joined blockchain consortium Hyperledger, which is exploring ways to capitalize on the technology without cryptocurrency at all.

Our take: Payments companies can see the threat from distributed ledger technology and have been making Bitcoin and blockchain part of their overall strategy. A permissionless public ledger could remove the need for a central clearing house in the form of Visa and MasterCard. Blockchain could disrupt the processing ecosystem and one day change how consumer card payments are verified.

Over the last couple of years, payment giants have understood the importance of blockchain and have been looking closely at the technology and its potential to transform the world of payments. Financial services companies are on the hunt for more growth opportunities and exploring blockchain for instant payment processing and real-time fraud prevention. From American Express to Visa and Mastercard, major firms across the financial services landscape have made investments in Bitcoin and blockchain startups.

Visa recently released Visa B2B Connect, a pilot that is the result of the partnership between Visa and Visa B2B Connect offers financial institutions a simple, fast and secure way to process B2B payments globally, through Visa’s standard practices. Back in 2015, Visa, Citi, Nasdaq and other large financial institutions invested in, an enterprise blockchain services provider.

In late 2015, Visa revealed a proof-of-concept that leveraged Bitcoin’s blockchain for record keeping. The project set out to digitize the car rental process, using Bitcoin transactions to create a digital fingerprint for each vehicle on the blockchain.

Last November, MasterCard filed with the US Patent Office four applications related to its work with blockchain and distributed ledger technology. The proposed patents suggest that MasterCard is at least weighing the question of how blockchain-based digital currencies could be integrated into its own systems. The applications focus on methods and systems for authorizing, processing and securing blockchain-based transactions, with MasterCard arguing that a combination of blockchain and its existing payment technology could be a boon for those making digital payments. Also, MasterCard was one of 11 investors in Barry Silbert’s Digital Currency Group’s (DCG).

However, even though there’s been a steady flow of new payments innovations that are important for growth of the industry, most have not disruptive, at least not yet.

Companies everywhere who deal with global payments should feel positive to see change coming at larger scale. Blockchain represents an opportunity to improve customer experience for companies dealing with international payments.

OpinionBitcoin Should Be Regulated to Go Mainstream: Bank of America Official

Despite the increase in trading prices and volume since the beginning of the year, Bitcoin and other cryptocurrencies have found it difficult to go mainstream and the debate, whether Bitcoin is a legitimate currency or not, continues. Yet, we’ve seen a lot of news about banks supporting Bitcoin, Ethereum and blockchain, even if they are only testing and exploring things.

A recent report by Merry Lynch, stated that Bitcoin could take the next big step and become an established world currency. But, it would need to overcome three hurdles: safety, liquidity and return, as these are cornerstones for other reserve currencies like the dollar or euro. In an article by Merril Lynch’s Francisco Blanch, he noted the similarities between digital currencies and gold and went on to talk about the value of salt in the world and how salt was mined and used as money. But its durability wasn’t strong enough, so people switched to gold and copper and later on to silver and paper money.

The primary reason that Bitcoin so far has not gone mainstream, is the lack of support from well-established financial institutions. Banks are against the use of cryptocurrencies, at least right now. Banks like Morgan Stanley have expressed that they recognize Bitcoin’s use as a value-holding asset, but are hesitant to call it a true currency. Their position is understandable, given the fact that Bitcoin and cryptocurrencies could jeopardize their business today. Banks are in the process of getting all of their ducks in a row, before they join the blockchain revolution. Even though bankers are expressing that may not want Bitcoin or think it will never go fully mainstream, they clearly believe in blockchain and that is why they’ve been filing all kinds of patents over the last few years.

Volatility is key parameter to understand the concept of safety in a reserve currency. Bitcoin’s price fluctuations are driven by many factors. Price is dependent on the intensity of supply and demand. The demand for Bitcoin, like anything is affected by what goes on around us, which can create negative sentiment and drive down demand. The whole scaling debate has been a serious thorn, causing uncertainty and lack in confidence in Bitcoin. The recent nose-dive in July was testament of the fear that Bitcoin might split into two coins. Also, in the minds of most people the absence of a central governing authority, not only makes the digital currency more vulnerable to chaos, but also susceptible to hacking, identity theft and fraud. But regulations and initiatives that have been popping up in countries around the world, are positive note and can only contribute to more widespread adoption. Also its important to note that twice last year, Bitcoin’s volatility fell below silver, which was the world’s currency for 400 years.

Cryptocurrencies have scaled rapidly and liquidity is increasing all the time. Interest in digital currencies has soared with daily trading volume jumping to $2 billion, from $400 million in 2012. Also compared to a few years ago, its a lot easier to turn your Bitcoin into a fiat currency and cryptocurrencies now are accepted as a means of payment by many companies and individuals. Now you can sell millions of dollars worth of Bitcoin over the counter, use a card like Xapo to access your Bitcoin through ATMs or pay merchants in dollars, euros and other fiat currencies.

In terms of returns, Bitcoin doesn’t have an interest rate attached to it, so it’s difficult to quantify returns. But, Bitcoin has been phenomenal in terms of absolute value, something that very few assets are able to match.

The ultimate test for Bitcoin will be when banks start accepting it as collateral. When we start seeing banks accepting Bitcoin as a collateral, so you can get a loan to start a business, buy a car or to go to school. That’s when Bitcoin will be a legitimate global asset and you will know that it has reached the tipping point.

Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.

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Wrap of Week #29: Bitcoin, digital wallets, agile auditing, Zhong An IPO, AI Fraud Detection

Monday –  The Blockchain Bitcoin & Crypto Weekly CXO Briefing – South Korea Officially Legalizes Bitcoin, $7 Million Lost in CoinDash ICO Hack, Interview with Vinny Lingham of Civic.

Tuesday – Wealthtech – are digital wallets fashion accessories or platforms for innovation?

Wednesday – SME Finance – Michelle Moffatt the agile fintech auditor from Australia

Thursday – Insurtech – Will Zhong An follow the same post ipo trajectory as lending club

Friday – Consumer Banking/Finance – Fraud detection using AI and Mastercards acquisition spree

The 10 most active conversations on the Fintech Genome platform

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Fraud Detection using AI and Mastercard’s acquisition spree

“Progress is made by the improvement of people, not the improvement of machines.”


Image Source

As more consumers turn to digital banking for their everyday transactions they will generate huge amounts of data that banks can use to identify trends and highlight suspicious behavior.

As digital transaction volumes increase, and real-time payments become the norm, banking solutions to identify frauds are often inadequate. In most cases these systems will need to determine if a transaction is genuine or not in a fraction of a second. Thanks to the AI wave, as fraudsters get better, machines spotting them get better too.

Cybercrime is estimated to cost the global economy 400 billion dollars. Credit card fraud accounts for a large proportion of this cost. Artificial Intelligence (AI) can provide faster, cheaper and more accurate fraud detection.

Some of the key considerations of a payments infrastructure (using AI) while solving the fraud detection problem are,

  1. Initiate the payments safely
  2. Handle billions of transactions
  3. Identify relationships through graph maps
  4. Social media integration and Sentiment analysis
  5. Behavioural analysis
  6. Adapt quickly as fraudsters evolve their modus operandi

An AI system can use thousands of data points in every transaction and do a fuzzy lookup to billions of other transactions to identify patterns, coincidences and anomalies.

Most payment giants are increasingly turning to AI and Mastercard is no exception. They have been acquiring firms focusing on fraud detection as AI deal activity hit all time highs in Q1 2017. In March 2017 Mastercard announced the acquisition of NuData Security to deliver online and mobile anti-fraud solutions using session and biometric indicators.


“Our unprecedented use of artificial intelligence on our network is already proving successful. With the acquisition of Brighterion, we will further extend our capabilities to support the consumer experience.”

– Ajay Bhalla, President of Enterprise risk and security for Mastercard


Earlier this month, Mastercard announced the acquisition of Brighterion. Brighterion’s portfolio of AI and machine learning technologies provide real-time intelligence from all data sources regardless of type, complexity and volume. Its smart agent technology will be added to Mastercard’s suite of security products already using AI.

“Progress is made by the improvement of people through the improvement of machines.”

Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.



zhong an





















所有的事情等于正白,逆风和顺风推动价值。但是,一个新的超音速飞机将改变结果和新的平板可能需要不同类型的试点再培训或至少。超音速飞机将削减行车时间约NYLON 3小时。超音速飞机的保险相当于将使用blockchain(魁我们讨论了很多次,这里一个例子)几乎实时结算。

中安清楚地认识这一点,并在Blockchain进行投资。所以,我不希望被傻了眼中安blockchain。当这两个高科技和调节准备好了,我希望中安将准备。最关键的是,这两个技术和监管需要做好准备 – 就像用超音速飞机。这是一个领域,我相信,中安将得到它的权利,因为在中国连大公司和政府一起工作étroitement。


借贷俱乐部DID年IPO $ 15,飞涨近$ 20,然后坠毁于$ 3.51的历史低点(如果我很幸运后,发布该买)。现在大约是$ 5.20,我卖我的股票(贷款俱乐部是一个伟大的公司,目标估值现在比其他的机会较少引人注目的)。

我没有贷款克伦在IPO投资,因为我的水平基本夸我张贴在这里有保留。在$ 15,有没有错误的余地。在$ 3.51的价格隐含阙乐型号全死了,球队被无能,既不夸的是真实的。






Will Zhong An follow the same post IPO trajectory as Lending Club?

zhong an

In December 2014 we hailed the Lending Club IPO as “the netscape moment for Fintech”. In February of this year, we described the rumoured Zhong An IPO as the Netscape moment for InsurTech.

The Lending Club trajectory, with the stock well below their IPO price, does not augur well for Zhong An. That is the question we address as investors start to think about the Zhong An IPO in Hong Kong.

We start with what we call our Wind Socket Analysis.

Wind Socket Analysis

The flight time from New York to London is about 7.5 hours, vs about 8.5 hours going the other way.

The one hour difference is due to tailwinds and headwinds. Whether you are on an Airbus or Boeing makes little difference. The Pilot cannot make much difference. Translated into company value, the market matters a lot more than the organisation or the management team. A base level is essential- don’t try flying the Atlantic in a small plane and don’t leave a transatlantic plane in the hands of an untrained pilot. In a crisis a great Pilot makes the difference. However all things being equal, what matters are tailwinds and headwinds.

Tailwinds for Zhong An

This is simple. China is a massive blue ocean market. A growing middle class is buying Insurance for the first time. It is a once in a lifetime land grab opportunity and the incumbents are not strong. Compare that to US or European Insurtech ventures selling to consumers who already have a lot of insurance from big, smart insurance companies.

Zhong An has a good plane & crew

You can see this tailwind in the numbers. ZhongAn offers more than 300 insurance products and has written more than 7.56 billion policies for more than 535 million customers. They are clearly executing well. Having raised $900m there is every reason to believe they will continue to do so.

Possible Headwinds

The Chinese economy is in transition, from manufacturing and export led to a more broadly diversified economy driven by consumption and higher value services. The bull case is this is like betting on America a century ago. China bears point to all kinds of issues, such as excess debt, non-performing loans and massive construction over building. If this is your view of the China economy you will avoid the Zhong An IPO. I incline to the bull case but there will be much volatility and there maybe a 1929 type event along the way in China. Nobody knows. Anybody who says they know probably has something to sell you.

Another issue, raised by a Fintech Genome member is about innovators dilemma faced by Ping An insurance, which is a major shareholder of Zhong An but may also could be a competitor down the road. As @EricForgy put it, writing from Hong Kong with a deep knowledge of the insurance business:

“As interesting as Zhong An is, I actually think Ping An is more interesting and is likely to have an even bigger impact on the rest of the world. I think Lufax is just the beginning of their outward expansion. Zhong An itself is struggling to make profit. If you note the numbers imply many small policies (per customer). They are trying to branch into more profitable lines of insurance, but as they do, they will start competing with their parent Ping An. I’m interested to see how that dynamic plays out. I think Ping An wins in terms of technology and Zhong An is no doubt using a lot of Ping An’s technology. Ping An is also trying to export a lot of their AI tech.”

The numbers that Eric Forgy refers to show rapid growth in revenue but declining profitability. Investors can take two different points of view on this:

Either: this shows the whole proposition is flawed.

Or: this is like Amazon and in a market opportunity as big as Insurance in China, it pays to invest for growth.

Which it is will be revealed by a deeper dive into the financials, which we do not have yet. If you have any insights, please share them on this thread on Fintech Genome.

Disruption from a supersonic plane.

All things being equal, headwinds and tailwinds drive value. But a new supersonic plane will change the outcome and that new plane may need a different type of pilot or at least some retraining. A supersonic plane will cut the NYLON journey time to about 3 hours. The equivalent of a supersonic plane in Insurance will be almost real time settlement using blockchain (which we covered many times, one example here).

Zhong An clearly sees this and is investing in Blockchain. So I do not expect Zhong An to be blindsided by blockchain. When both tech and regulation is ready, I expect Zhong An will be ready. The key is that both tech and regulation need to be ready – just like with supersonic planes. This is one area where I would be confident that Zhong An will get it right, because in China big connected companies and government work closely together.

The Lending Club trajectory since IPO

Lending Club did an IPO at $15, rocketed up past $20 and then crashed to an all time low of $3.51 (where I was fortunate enough to buy after posting this). It is now around $5.20. I sold my shares (Lending Club is still a great company, but valuation now is less compelling than other opportunities).

I did not invest in Lending Clun at IPO, because I had reservations at a fundamental level which I posted here. At $15 there was no room for error. At $3.51, the price implied that the whole model was dead and the team was incompetent, neither of which was true.

Many stocks never give you this opportunity. You never get a chance to buy in below the IPO price. Think of Facebook and Salesforce; the price goes down a bit occasionally but not for long.

If you have any insights, please share them on this thread on Fintech Genome.

Image Source.

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

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Michelle Moffatt – the agile fintech auditor

Regulatory pressure, new regulatory models, cyber security, big data, small data, new payments platforms and standards, digital identity – there is no question the risk landscape is increasingly mottled with potholes for both traditional financial institutions and fintech startups. Potholes big enough to cause a business a serious flat tire, or at least make the ride somewhat uncomfortable.

This week I spoke at the International Auditors Conference in Sydney, Australia, sharing the stage with a friend and ex-colleague of mine, Michelle Moffatt. We took attendees on a mobile payments discovery journey – from where we are today to the new emerging voice activated platforms and forays into virtual reality payments. The message we had for the audience was simple. To effectively audit these sorts of innovations you have to be across the fundamentals of the technology and be part of the product journey – from inception to launch.

Michelle previously headed up the internal audit function at Tyro – an SME neobank/challenger bank in Australia, Michelle now holds the title of Chief Risk Officer at a fintech startup Spaceship.

Michelle has long been a practitioner and advocate of ‘agile auditing’. She, like a growing number of auditors in the fintech space, is acutely aware of the rapidly changing risk landscape, not to mention the increasing pace of change.

There is nothing worse for an organization when one agile arm (often the development side of the house) comes up against a non-agile one. This has huge implications on the traditional internal auditors role – a function which historically is only introduced at the end of the project.

However there is a growing need for more auditors like Michelle in the space. Auditors that are willing to come on the journey with the team, yet retain their independence. While this type of cultural shift will be notoriously difficult for an incumbent, there is no reason why a startup can’t adopt this approach with their internal audit function from day one. This is one more way the incumbents’ benefit of scale can be eroded by smart technology and alternative cultural thinking.

After the conference I asked Michelle for some feedback on a number of themes that cropped up throughout her presentation. Here are her high level take-away’s.

Audit processes must mirror startup processes – so agile is key

Starts ups are moving quickly so to keep pace internal audit has to mirror the way they work. Agile audit allows you to give feedback early in the product creation piece so that what matters most is taken into account.

Audit culture in startup land verses big financial institutions has fundamental differences

Starts ups are generally more nimble, flexible and have a greater need for pragmatism and commerciality. They are typically flatter structures, and easy access to key decision makers ensures audit feedback & findings are implemented faster.

On the flipside, larger organizations have the corporate support and access to resources that startups typically don’t have.

Both cultures can learn from one another, or find leverage.

Adopting a learning mindset to emerging technologies is critical to the risk and audit function in fintech

Apart from key technical skills and a base level of proficiency yourself, whatever niche you operate in, you can’t afford to sit back and not engage or understand the technologies you are auditing. This includes potential competitive technologies.

Aside from emerging technologies, you need to understand the emerging micro-cultures of the teams you are auditing. I strongly suggest internal auditors attend meet-ups in their space and network internally. It’s a constant education process with the subject matter experts. What is great about this is it builds your own sphere of influence.

What advice would you give to other auditors working at challengers/neobanks, given your time working at Tyro?

1) Don’t freak out, figure it out.

2) Have an open learning mindset

3) Go back to basics – auditing 101

4) Apply common sense, be part of the solution and trust your gut.

What is the internal auditor doing differently 5 or 10 years from now?

Much of the routine work is already being replaced by scripts, with auditors providing the valuable analysis of the results in a commercial solutions orientated way. All internal auditors will have both commercial and technology as technical skills and will be able to plug and play into any audit, any time anywhere with the freelance model on the rise.

Digital Wallets: accessories or innovation

Wallets, purses, and handbags, have been female accessories and there is no sign of change on the horizon. Physical procession of IDs, credit cards, and cash, has been centralized in these accessories for ages. Men have been resisting the wrappers and filling front, back pockets of trousers or inside pockets of jackets. There is no adult that hasn’t been tormented by a misplaced, forgotten, or stolen “pack of personal” stuff (IDs, plastic, cash). Being able to take care of these possessions is a sign of maturity that any parent trains their teenager and delegates when it seems kind of safe.

The 24/7 mobile world seems to have moved part of the “pack of personal” stuff (IDs, plastic, cash) onto our smartphones. Digital wallets from Google, Apple, M-Pesa, and the likes are gaining traction and offering consumer banking kind of conveniences instead of cash and/or plastic. This is no shortage of mobile digital wallets even though end-users don’t seem to be spreading the word. I have yet to meet someone that looks at me in the eye and says “You cannot not have a mobile digital wallet! How can you live without that kind of accessory?”.

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Some are counting on the fact that they are centralizing the multiple credit cards or store cards for us. Others are marketing loyalty programs either from our banking service providers or credit card providers or e-commerce stores. More recently, mobile digital wallets that aggregate and exchange value across various loyalty programs market themselves as creating more value with such interoperability.

All these kinds of Digital wallets are simply a digital interface to access centrally managed accounts through a mobile phone. There is no genuine innovation in these kinds of services since security issues inherent to centrally managed accounts remain and the cyber vulnerability of such third-party trust mechanism is not mitigated. The costs that these third-parties incur in order to handle the promises of maintaining deposits and accounts, keep increasing.

True wallets are those that enable each of us to hold bearer assets (like cash or cryptoassets) without needing a central third party to hold and possess these assets, and at the same time be able to transact with these. The true innovation here is removing institutional risk.

The finance future that is being built right now is offering the ability to hold any digital bearer instrument directly.

A user’s wallet will be able to hold a variety of financial instruments; cash, equity in a company, commodities, or even non-monetary instruments such as identification documents, school records, and driver’s licenses.

This world is the one that Monetas, Lykke, Jaxx, Shapeshift are shaping up. Their wallets aren’t just an interface to a bank. Their wallets are not just another account with an institutional provider. They aim to offer control directly to us and we can choose to trust our smartphone, our hardware wallets (Trezor, Ledger etc), or our hard copies etc.

Once they manage to scale, they will become the darlings of the regulators because who doesn’t dream of a world with reduced cyber institutional risk. The world of this next decade, will get rid of the need for reconciliation between financial service providers, a complex, and expensive process.

Fintech innovation started as a war between start-ups and financial institutions. This culture is clearly not the flavor of the day anymore.

Today we are seeing the emergence of another type of race. Will it be some branch of AI that solves the complex problems around legacy financial processes (like reconciliation between financial providers or vulnerabilities of accounts etc)? Or will it be cryptography that replaces centrally managed processes all the way from central banks to financial service providers?

We will be watching the number of genuine Digital wallets (not the interfaces to centralized accounts) as it rises. The size and the activity in these wallets are the basic indicators to monitor at this stage of innovation.

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

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