Consumer Banking

Both West (Overbanked) and Rest (Underbanked)

Israel’s Colu launches Blockchain based Community Currency – “Local Pound, East London”

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Colu, a blockchain based payments app is pioneering the concept of localising cryptocurrency for a better community. Colu offers peer-to-peer payment platforms facilitating digital financial transactions at local businesses, creating a closed-loop economy to bolster the economic well-being of the community. Earlier this week they launched the “Local Pound, East London”.

Founded in 2014 by Amos Meiri, who had also founded ColouredCoins.org before then, Colu use the blockchain for various types of financial transactions – both physical and digital. They initially created local currencies for some parts of Tel Aviv, and as the community and the customer base increased, they brought them together under an umbrella currency for Tel Aviv (Florentine Shekel). They now have local currencies for Jaffa (Pishpesh Shekel) and also have created the local currency for Barbados (Barbadian Digital Dollar).

“What we did is, we developed what we call an economy in a box. A solution to manage digital currencies on top of the Blockchain”

Many British towns and cities are already familiar with the concept of a local currency, usually supported by the local council. Bristol, Brixton, Exeter, Kingston, Glasgow, Birmingham all have their local currencies. Colu have added to this list by launching their first UK based local currency for Liverpool in 2016, and now for East London.

Research by Local Multiplier 3 shows that every £1 spent with a local supplier is worth £1.76 to the local economy, and only 36 pence if it is spent out of the local area. That makes £1 spent locally worth almost 400 % more to the local economy. That’s a much better proposition than paying multinationals for the same products and services.

Colu have chosen Liverpool and East London because they believed there was a strong sense of community pride and a booming tech landscape that would help build a local digital economy. The Liverpool Pound now has about 16000 users and about 30 businesses accepting the currency. Businesses pay a £20 monthly fee to Colu. Customers then pay via the app on their phone, and Colu pays the businesses what they’re owed on a monthly basis.

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Local currencies have had challenges in sustaining the initial momentum, as its essential for local businesses and their suppliers to be using them consistently. Local currencies created in the UK so far have been supported by their councils, and when the currency loses steam, they can get behind it.

Not sure if Colu would receive such support if needed. However, they have reached 50,000 customers and $1 Million in transactions on their platform. Momentum is certainly there.

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

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International Regtech Association Launch and IBM Watson announce Regtech Apps

Regtech has for long been an underdog subcluster of Fintech. Over the last year or so, the trend has been changing, and more stakeholders in the ecosystem are taking notice of how fundamentally important Regtech is to the industry. Over the last few weeks, Regtech has been in the press for all the right reasons. The International Regtech Association (IRTA) was launched with a mission to create an ecosystem for Regtech firms to thrive. IBM have announced the launch of Watson’s RegTech capabilities, thanks to its acquisition of the Promontory Financial Group (PFG) last year.

The top banks have been spending close to about $1 Billion per year on regulatory processes and controls. Regtech firms are focusing on bringing cutting edge technology like AI and Cloud computing and add efficiencies to achieving regulatory compliance. The FCA has been a pioneer in embracing innovation through the FCA regulatory sandbox, that allowed RegTech firms to test their value proposition without fear of a regulatory breach.

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The IRTA, a non-profit, was launched recently, with a goal to bring together technology firms, banks, regulators and academicians in developing international Regtech standards, and promoting research activities.

For Fintech firms to scale globally they need a consistent approach to regulation across nations. For instance, Fintech firms in Asia have serious challenges when navigating through different regulatory regimes while looking to expand beyond their home territory. For example, Cryptocurrency exchanges are treated as money changers and regulated by the customs authority in Hong Kong but they are licensed as online shopping malls in South Korea. In Singapore, the central bank has proposed regulating bitcoin exchanges as payment firms.

Every time they want to expand into a new country, Fintechs are having to start from scratch due to incompatible, and often conflicting regulatory approaches. This not only adds operational delays, but also sometimes needs business model tweaks. In my article last week, I discussed about similar challenges that US Fintechs have in expanding across different states.

The IRTA should help resolve these inconsistencies, over a period of time. It is chaired by Subas Roy who was most recently the Global Head of RegTech at EY. His vision for the IRTA is to set global Regtech standards, lead research and help Regtech firms develop solutions that can be used by banks for regulatory compliance.

The IRTA currently has about 250 members. They hope to work with the global Regtech market that has close to about 700 companies, while about five global banks are keen to join the initiative. This is a great start, however I believe it is essential for the IRTA to work closely with regulators, especially the FCA and the MAS, as they have created a good framework to groom innovation that other regulators could follow.

Earlier this week, IBM Watson announced the launch of its new anti-money laundering (AML) and know-your-customer (KYC) capability. This includes Financial Crimes Insight with Watson, which applies cognitive computing, intelligent robotic process automation, identity resolution, network analysis, machine learning, and other advanced analytics capabilities to help banks spot financial crime.

At the end of last year, IBM acquired Promontory Financial Group (PFG), a consultancy firm specialising in financial regulations. PFG have been training IBM Watson on regulatory compliance.

The aim of the new financial crime solution is to reduce the amount of false positives generated by today’s transaction monitoring systems. Banks have a false positive rate of 98% and spend about £2.7 Billion per year in chasing false leads. About 55% of these costs could be saved by Regtech solutions using AI, as per IBM. This would make the transaction monitoring process very efficient.

Its good to see that government agencies (FCA, MAS), non-profits (IRTA) and Technology firms are waking up to the fact that Regtech is no longer the underdog. Its a massively untapped market that might have just reached the tipping point and 2018 could be the year of Regtech.

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

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IRS Subpoena to Coinbase and the broken US Fintech regulatory regime

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There is nothing certain in life except death and taxes! In March 2004 the IRS issued guidance on taxation of crypto-currencies. The gist of the message to consumers and corporates were the following:

  • Digital currency payments must be reported to IRS.
  • Gains from the sale of digital currencies are treated like those from a real estate investment.
  • Wages paid to employees in digital currencies are taxable and must be reported.

In November 2016, the IRS sent a “John Doe” Summons to Coinbase, asking for a complete dump of all transactions that happened on the platform from 2013 to 2015. Now, this sets a bad precedent when governing agencies demand such data that hurts data privacy of consumers. This could be because, the IRS has no clue what the taxation on crypto-currencies should be. And the intention behind the blanket data request is perhaps to understand what the thresholds for taxation should be.

Fintechs in the US have generally struggled with the regulatory landscape, primarily because of structural challenges and overlapping regulations. Unlike the UK where the regulations are pretty centralised, the US has state and federal agencies coming up with regulations that can be painful for startups to navigate through. There is little coordination between these regulatory bodies. Also, the regulations are very rules based and not considered as principles, which means they are inflexible.

'We heard that laughter is the best medicine, so beginning Monday we'll be regulating it.'

Moreover serious criminal penalties may be imposed on an entrepreneur who chooses to take a liberal interpretation of when an activity is a money transmission. There can also be serious implications under the Bank Secrecy Act if an entrepreneur naively chooses to seek forgiveness rather than permission. This liability regime also extends to investors, managers and employees in some cases.

At the moment, crypto-currency transactions are treated like property transactions, irrespective of the size of the transaction. The taxation policy on foreign exchange is slightly better where there is a threshold on gains(of $200) above which one needs to report the transaction. However, if I bought a cup of coffee using bitcoins it is a taxable event. And if I managed a gain between the time I acquired a Satoshi and spent it, I must report it to the IRS irrespective of the size of the gain.

The coinbase summon from IRS has triggered some republican congressmen to lobby for better tax laws around crypto-currencies. Coincenter, a non-profit is leading the efforts on getting better clarity on taxation of crypto-currency transactions and has seen positive responses from some members of the congress. With bitcoins starting to get recognised across various government bodies in developed economies, some clarity from Washington DC would be more than welcome.

While taxation on crypto-currencies seem to be one area where the rules are still unclear, Fintech/Payments regulations in the US need ground up thinking too. Earlier this week, Coincenter sent out a letter to the “Office of the Comptroller of the Currency” (OCC) asking for an innovation friendly regulatory regime.

In the letter they praised the UK’s Financial Conduct Authority (FCA) for making it easy and quick for innovative startups and entrepreneurs to comply with consumer protection regulations. They have recommended that the US replicate the UK regulatory regime to promote innovation.

'Well, the boss told us to launder the money, didn't he?!'

There is the other issue of governance of crypto-transactions to avoid terrorism financing. A recent assessment by the Center for a New American Security acknowledges that there is only anecdotal evidence that terrorism is being financed by crypto-currencies. This is primarily because the financial crime and money laundering controls at banks are still incomplete or insufficient to stop terrorist financing. However, congress may soon commission a study in this regard which will further influence the regulatory landscape of crypto-currencies in the US.

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.

 

Silicon Valley VCs rush to Brazil Fintech- Millennial Nubank and Neon share spotlight

For a country that’s been struggling with political and economic turmoil for the last 4 years, Brazil has found some hope with Fintech. Brazil has the most number of Fintech startups in Latin America, closely followed by Mexico. Fintech investments in LATAM rose by 31% in 2016 and it was the most popular sector within technology investments. With top Silicon Valley VCs making their first investments in LATAM, firms like Nubank and Neon have made great strides in the last couple of years.

Brazil is the largest Latin American economy with a GDP of $1.8 Trillion. The country has been in recession and political turmoil since 2014. The central bank interest rate was at one point 14.25% and with the economy recovering it has come down to 11.25%. While the economy is just about recovering from recession, Fintech is already thriving in Brazil. There are about 230 startups in Brazil cutting across various clusters of Fintech.

Why is Fintech Brazil special? Well, Nubank and Neon have managed to address a genuine gap in the market in a very millennial way, however, its not just their use case or execution that sets them apart. Its the context in which they operate.

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In a recent Goldman Sachs report, Brazil’s banking system was described as susceptible to Fintech primarily because of an “Oligopolistic Market Structure”. Brazil’s top 5 banks held about 84% of loans and 90% of branches. In the US these numbers are around the 20% and in India about 30%. Fintech’s growth could mean that these banks that currently charge high fees and interests from their customers, will need to make their offering more competitive. The concentrated market is a huge opportunity for Fintechs to go after.

The other factor that makes these startups special is just that, they have thrived through a recession. While the VC/PE investment in LATAM has been falling overall, Fintech has been the beacon of hope amidst the doom and gloom, with investments in the sector showing a consistent rise over the last two years.

Nubank was founded in Sao Paulo in 2013, and launched a mobile controlled credit card service in September 2014. Due to the quality of the offering Nubank have managed to reach 3 Million users. Nubank customers can block and unblock their credit cards, change their credit limits, pay their bills and have access to all their purchases in real time all through a mobile app. They provide 24/7 customer support through digital channels and clear and simple communication. All of this was unheard of in Brazil, and has seen an extremely positive reaction from customers. With investors like Goldman Sachs, Peter Thiel and Sequoia, Nubank is certainly one of the best Fintech stories from LATAM.nubank

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Nubank was the first LATAM company to win the “Marketers that Matter” award in 2016. The previous winners of the award include Google, Visa and Netflix. A look at Nubank’s Instagram feed shows how good an approach they have to win over millennials. In Dec 2016, Nubank raised $80 Million from Moscow based VC firm DST Global. DST’s other investments include Alibaba, Slack, Twitter, Facebook and Spotify. Nubank are DST’s first LATAM investment. They have raised about $235 Million in about three and a half years, with many rounds being the first for top Silicon Valley VCs in LATAM.

Neon is the first 100% digital bank in Brazil. Neon take customer experience quite seriously as they have been the first LATAM bank to use facial recognition through Selfies to authenticate users. They have recently partnered with Visa to leverage their facial bio-metrics technology to confirm identities for online purchases. During the process of opening a bank account customers would provide a numeric password, finger print identification and a selfie. At the time of making a transaction the customer is asked for a selfie. Once the selfie is taken and submitted, it is matched to the selfie taken during the opening of the account to approve the transaction.

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In November 2016, Gemalto the world’s leader in digital security partnered with Neon to come up with a one-of-a-kind Visa Quick Read design debit card. The Visa Quick Read design provides essential purchasing information conveniently on the front of the card.

In a recent interview Monzo’s Tom Bloomfield mentioned that he was particularly pleased with innovation coming out of two challenger banks, N26 in Germany and Neon from Brazil. Neon have managed to onboard 1.5 million customers in less than two years. Most customer acquisitions have come from word of mouth and referrals with very little spent on marketing.

Innovation when taken out of context can sometimes look ordinary. While both Nubank and Neon have similar use cases to their peer Fintechs in the UK and the US, the ecosystem in which they operate and excel makes them super special.

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.

 

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. 

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.

 

Softbank leads Improbable $502 Million round – Boost for Virtual reality in Fintech?

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When Facebook acquired Oculus for $2 Billion in 2014, it almost sparked the VR trend. While google did move first with Google cardboard offering VR, it was more of a proof of concept. Last year, about $2 Billion was invested in VR making it one of the hot trends along side AI and Blockchain. Earlier this week, Improbable announced an investment round of $502 Million, led by Softbank, in which Andreessen Horowitz and Horizons ventures (existing investors) also followed up. This puts Improbable’s valuation at $2 Billion. Improbable specializes in using cloud-based distributed computing for VR that can be used not just for gaming but other real-world simulations, and of course fintech.

The first major commercial moment for VR happened when Oculus Rift launched in 2016. This was quickly followed by HTC Vive. However nascent the VR industry is, the initial feedback from hardcore VR fans is that HTC Vive beats the competition (Oculus, Samsung’s Gear VR, Sony’s playstation VR and of course Google’s cardboard) hands down. However, sales of most of these headsets have been really poor compared to analysts’ estimates almost feeding the argument that VR could be a fad.

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Most of the time I hear VR, I hear about headsets but the software and developer community almost take a back seat. But one can’t grow without the other. Improbable are focusing on building an ecosystem of applications for VR, through their Operating system – SpatialOS. While most of their apps are currently focused on Gaming, Softbank would steer build out of use cases for real life problems.

“Improbable’s technology will help us explore disease, improve cities, understand economies and solve complex problems on a previously unimaginable scale. Along with machine learning and the internet of things (IoT), Improbable’s distributed computation technology represents a critical next frontier in computing.” – Deep Nishar, SoftBank

Earlier this year, SwissQuote launched their trading platform on VR, where users make trades with a glance. The virtual dealing platform feeds real-time Swiss Market Index data, currency pairs and the main indices to users. Eye-tracking technology enables users to bring up more information about a specific stock and execute trades to a pre-configured value by focusing their eyes on the symbol.

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So, can VR provide main stream financial services? Some of the challenges I see are the following,

Cost of VR: HTC Vive, that apparently provides the best VR experience costs about £750. While Gear VR that focuses on Mobile based VR instead of Desktop VR is affordable, the experience is not quite there, and it also depends on how good your mobile is. For example, a seamless retail banking experience on VR might be hard to achieve in a mobile VR environment.

Clunky Hardware: The current designs of VR headsets make it hard for consumer adoption. This is a key problem to solve if VR has to go main stream. Also, for most good VR experiences, motion sensors and base stations are needed. This adds to the inertia when one wants to use VR for anything other than entertainment.

Non-Standard Software: VR hardware providers have taken different approaches to their ecosystem. HTC has taken an open approach, where as Oculus ecosystem is closed for competition. A standard operating system with rich applications, open to all VR devices would be Nirvana. Improbable are headed that way.

Use Case Evolution: Gear VR is the most successful VR headset so far because, it has tied itself to mobile rather than desktop. But application of VR also needs to change direction. At the moment VR apps are very entertainment focused, and in order for VR to go main stream, I believe, they have to be communication focused. IPhone may not have taken off so well, without the Phone functionality.

Many of the above challenges may not all apply if one used VR as an employee of a bank that has the infrastructure to provide financial services in a B2B context. However, in the consumer banking space, the uptake would be slower.

If I had a sleek, not too expensive VR device to talk to family back in India, and can receive rich day to day VR experiences from a standardized VR app store, there is no reason why I wouldn’t use VR to talk to my banker. Improbable could be the software platform of choice for all VR devices, however someone still needs to solve the hardware barriers. Because at the moment, atleast on my head, VR is just a more sophisticated Nintendo Wii. There are some ambitious projections for VR headsets from 15 Million in 2016 to 39 Million in 2018, but many VR projections in the past have not been met.

How nice would it be if I could VR my banker to discuss a mortgage as soon as I have viewed a property in Spain without leaving my lounge in London?

How nice would it be if I could VR my insurance provider when I need to make a claim on a car accident?

How nice would it be if VR went mainstream for Financial Services? Let’s dream on!!

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.

 

BanQu – Financial Network on Blockchain creating Economic Identity for the unbanked

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In one of my previous posts, I discussed how startups in the Nordics were working with their governments to help refugees get on the social and economic ladder. With due respect to the work being done there, use cases of providing banking and payments capabilities to refugees, is a tactical short term fix almost. The real problem is that refugees do not have an economic identity. BanQu, led by Ashish Ghadnis and Hamse Warfa (an ex-refugee from Kenya) are trying to solve this problem. They are using proprietary blockchain technology to drive financial and social inclusion through economic identity for about £2.7 Billion unbanked people globally.

Between the two founders at BanQu, they have various stories to tell on why they embarked on this journey. Hamse Warfa was refugee himself from Kenya when he was 12. He lost his identity (not just a name), when he had to flee his country with his family. After twenty years, he now has a doctorate in public administration at Hamline University, left a job with Margaret A. Cargill Foundation to start BanQu. However the experience of being a refugee in the process made him realise the criticality of economic and social identity.

The average stay for a refugee in a camp is 17 years. This long duration of economic exclusion is compounded by high poverty settings that refugees live in, given that 90% of refugees come from regions considered economically less developed.

Ashish Ghadnis the CEO and Co-Founder of BanQu, is a serial entrepreneur. He sold his previous business in 2012, and started volunteering in Africa. During his charitable endeavours in Africa, he identified problems that many Africans face.

A woman farmer feeding a family of eight people at $300 a year, who has an acre of land on which she has been growing corn, and using the income to run her family for thirty years. This lady has no identity or financial history. But it is just common sense that she deserves financial inclusion and would be highly credit worthy. This is true for many women in countries like Myanmar, Bangladesh, Syria, Congo, Somalia, CAR, Burundi, Colombia, El Salvador.

True transformation, true inclusion, and true fairness and 100% worldwide inclusion in the global economy can ONLY come from a massive shakeup; a massive redesign that fundamentally changes the foundation of the world’s economy.

So how does BanQu provide economic identity using blockchain? In four simple steps.

  1. Create an identity for the unbanked on BanQu’s Distributed Ledger platform
  2. Onboard the banked, financial institutions and other financial stakeholders to BanQu
  3. Allow connections between the parties (banked and the unbanked) to build a mini financial network
  4. Create history of transactions on the platform, which would eventually become the economic identity of the unbanked, using which they can scale their access to various financial avenues.

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The integrated approach of using principles of Social Media and DLT in a financial context seems quite powerful. Some use cases BanQu are addressing are,

Remote Purchase: Say, A is banked and B is a unbanked friend/family living elsewhere. B can connect to A on BanQu.  This allows A to provide funding to B, which B can use to purchase goods from say C.

Funded Wallet: A could also remotely add funds to B’s wallet, and B can use this to purchase goods from C

Term Purchase: B purchasing goods from C could happen on pre-agreed terms, where payments can be spread over a period of time.

Remittance: Remittances can also happen using remote funding of wallets where, A can fund B’s wallet for a particular amount, and B can receive cash from C (instead of goods in the above case).

Credit Worthiness: All the above scenarios provide a track record for B to move from Unbanked to Banked. And over a period of time this could help B establish credit worthiness in the financial world.

Wearing my investor hat on, that’s too many use cases for a startup to handle so early in the game. And I often get sceptical and fear for the entrepreneur who starts with “I am going to change the world”.  But BanQu somehow feels right, honestly.

The real challenge is setting up the financial network infrastructure and bringing onboard a good mix of credible unbanked and helpful banked. Once this happens growth could be viral and the financial network could be used for endless purposes.

A case study as described by Ashish: If you’re a poor female farmer on the Tanzania-Rwanda border, feeding a family of eight or ten on $300 a year, which is less than $2 a day. At harvest, the broker says to her that unless she sells her corn to him at a price it will get wasted. The mother is forced to sell the corn because she has no access to information. She has no identity. But if she has a piece of land and has been harvesting crops for thirty years, she should be able to produce 100 kilos of corn. Then the U.N. has orchestrated buyer contracts for that 100 kilos of corn.

Using BanQu, this mother/farmer has three things which she never had before.

One: On her phone, through the blockchain and BanQu, she gets to know that her one acre land can help her produce 100 kilos of corn for which she has a buyer (the U.N.), even if the harvest is a few months away.

Two: If you dry the corn to 13 percent moisture content, the price of corn doubles. With BanQu’s technology, the mother has an identity, she owns a piece of land, has a produce forecast and a buyer. And that buyer is now going to allow her to get collateral to get a dryer so she can dry her corn. All that becomes part of her history.

Three: The blockchain has given her an identity created by her transaction history. She can now borrow as lenders can see  that she has a piece of land, a microloan, a harvest, a dryer and that she is selling them at market price.  If that Rwandan woman farmer has her identity in the blockchain and she has gone through three farming cycles, the lender would not charge her 30 percent on $100, but would charge her 4 percent on $100 because she has history.

This makes me wonder if the current financial system needs some very fundamental changes. So many products, with very high barriers to entry, which effectively ignore 2.5 Billion consumers. Surely, its time to go back to the drawing board, and may be, that’s what Banqu are doing.

Like most Fintech use cases of blockchain, this is still in pilot mode, and is yet to be proven as a viable business model. However, once/if it takes off, there is no reason, why this can’t become mainstream and create yet another leapfrog moment.

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.