T-Zero sings “Love me do” to the SEC with its Blockchain Series A Preferred Shares

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Wonders are still happening in America!

Who would imagine that an online retailer who started out as an e-commerce business liquidating merchandise of failed companies, would be the first publicly traded company offering Blockchain Shares.

Let me introduce to you Overstock, a Nasdaq listed online retailer (OSTK) based in Utah and founded by Patrick Byrne.

Tee-zero (t0.com) is a majority owned subsidiary of Overstock that is focused on using blockchain technology in capital markets. Last summer, we covered the issuance of a private crypto-currency denominated bond that settled on the T0 platform. It was a symbolic move, demonstrating that it is possible to issue, trade & settle (synonymous in the future T0 world), and have very fine divisibility of a bond and fast transferability. The trading activity of this bond was not the point of the implementation.

This December an even more important symbolic implementation happened. After the SEC approved in early Fall the issuance of a blockchain public stock offering; Overtstock will go down in history as the first publicly traded company that offered blockchain shares trading on an Alternative trading system (ATS).

The historic offering: Overstock Preferred Shares

Voting Series B Preferred Shares

  • 560,333 @ $15.68 (roughly $9mil)
  • Trading on NasdaQ OTCQB

Blockchain Voting Series A Preferred Shares

  • 126,565 @ $15.68 (roughly $2mil)
  • Trading on ATS under the symbol OSTKP

The above offering (total roughly $11mil) was handled by Keystone Capital, a conventional broker-dealer that worked diligently and closely with the regulators to obtain the required approvals.

Existing shareholders had the right to participate in the offering as follows: One subscription right for each 10 shares of common stock owned. Each share of the preferred stock has a preferential right to a 1 percent cumulative annual cash dividend.

The symbolic significance of the Blockchain Series A transaction is all about the

Transparency of the transaction and the fact that it boils down to the verification of two blockchain addresses.

What’s next?

I wasn’t an Overtsock shareholder on the required date and therefore didn’t participate in the offering. The broker-dealer, Keystone Capital handled the onboarding of the buyers (existing shareholders that exercised their right to buy the Series A preferred stock) of the digital securities. They created digital wallets and accounts for them and are now continuing to onboard outside buyers who will be matched on the T0 platform to sellers (those that participated in the first placement). Any individual that qualifies under the Title III Jobs Act, can participate.

Nasdaq is watching and probably nodding its head, since a large-scale adaption of such a process is not imminent. However, it is threatening to its core business.

Stock exchanges are one of the main three categories of players involved in capital markets; Brokers and Central Securities Depositaries handling settlements, are the other two main categories. The million-dollar question here, is who of them will embrace the T-zero or some such blockchain based platform and make the other two obsolete?

T-Zero is actually a viable product that targets the capital markets B2B vertical and is out there for the first mover to embrace it. Ironically T-zero is a private blockchain. In addition, this first symbolic implementation was accomplished with the participation and collaboration of market players and intermediaries that will be directly affected should this technology prove to change the capital markets infrastructure. Broker-dealers for example, which were instrumental in obtaining approval from the SEC and effectively laying the seeds for the growth of such an ecosystem of digital assets; will be cannibalized.

At the same time,

T-zero with Keystone Capital, are bringing up to speed the SEC and holding their hand towards Full Regulatory Transparency in public markets.

For me, this symbolic transaction is the first public performance of “Love me do” from T-zero to the SEC. Right at the time that the SEC has committed to a plan to spend $1.5billion to create a consolidated audit trial (CAT), T-zero is echoing loud and clear to them “Love me do”

T-zero can offer a freemium service to the SEC, if they adopt the T-zero platform which will naturally include a Consolidated Audit Trial.

If T-zero manages to seed an ecosystem of publicly traded digital assets (even if it starts small); then I foresee Lykke, the frictionless global marketplace for digital assets, accelerating its growth. Lykke, an open source platform, has started with frictionless, transparent, immediate settlement of FX, ICOs and cryptocurrencies, but is ready to broaden its assets base (anything digital can be on boarded).

The transformation in capital markets is here. Timing is uncertain but the trend is clear.

Sources: T zero news; Nasdaq news

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Fintech moves of the cloud computing providers

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The cloud computing providers are going center stage in financial services in 2017. Some are public (all apps and data on the cloud), some are hybrid (some apps and data on private centers). We will be monitoring how these giants grab share from the financial sector as it grows (Fintech startups) and as it transforms (incumbents and their suppliers).

Our watch list includes (not limited to) the cloud computing providers below that are global and are no longer under the radar screen in terms of their strategic moves in the financial industry.

Google Cloud, Amazon Web Services, Microsoft Azure, IBM Bluemix, Aliyun

Salesforce, Accenture, Oracle, CSC, Rackspace

AWS strikes

Amazon Web services are 100% public. Pay as you go outsourced services from AWS are growing (total 100,000 customers, 10,000 new in 2016). Once you are onboard, you can shop on their marketplace for all sorts of apps and additional services. International data centers (to address data security concerns) are being planted globally as we speak.

Singapore’s DBS bank partnered with AWS as they accelerate their digitization journey (Pirates with Ties interview with Olivier Crespin of DBS Digital Bank).

What caught my attention is their recent launch of AWS Financial Services Competency which will certify technology and consulting partners that specialize in the financial industry. The current certified list of AWS Partners is:

  • Core Systems: Avoka (digital sales), Calypso (capital markets on demand), Corezoid (process mgt), EIS Group & Guidewire (cloud insurance), Mambu (cloud deposit taking & loan offering), Moven (mobile banking)
  • Risk Management: FICO, FIS-Prophet, NICE Systems
  • Data Management: IHS Markit
  • Consulting Partners: 2nd Watch, Accenture, Capgemini, Cloud Technology Partners, Cloudreach, Cognizant, Infosys, REAN Cloud, Sopra Steria, Wipro

The rest

Google Cloud has been mainly focused on consumer banking and the retail experience. Unless I have missed some enterprise level collaboration, Google Cloud is last on the Western cloud computing financial sector penetration (for now).

Microsoft Azure, a hybrid provider (i.e. clients can keep some data in their own data centers), has announced new UK data centers as part of its move to grab a share of the Fintech market. Startupbootcamp, the international accelerator with a significant Fintech component, offers its members access to a variety of cloud providers (e.g. Amazon Web Services, Microsoft Azure, and Google Cloud etc).

Cross River Bank, a leader in the digitization of banking (see post) and the first incumbent bank to be funded by a VC much like a startup, is being built on Microsoft Azure.

Bank of America Merrill Lynch and Microsoft Azure announced a collaboration at SIBOS on blockchain technology to host the Bofa transformation of trade finance transacting. The R3 consortium, hosts its lab and research center on Microsoft Azure. Seems like Microsoft Azure is the preferred provider for blockchain related projects?

IBM Bluemix is being used by incumbent banks to interact with the startups (seems like they are the preferred provider for the accelerators run by banks, for now). The largest deal is with ANZ, which has a 5year development contract with IBM Bluemix. Citi is also using the IBM Bluemix cloud services to interact with startups, Nordea Bank in the Nordica, Tangerine bank in Canada, Adelaide Bank in Australia, and Bank Sohar in Oman.

Alibaba strikes

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Aliyun, the cloud computing arm of Alibaba (hybrid), continues to open data centers in Japan, Germany and Australia. The opening of the second US data center caught my attention. 2017 will be the year that Aliyun will strike international partnerships (beyond Intel, the Singaporean Telco, and Equinix, US data center provider) and grow further in Asia as the digitization of financial services continues.

Kapronasia reports that in 2013, Alibaba verticalized their cloud with the announcement of Ali Cloud for financial services. Aliyun is the only cloud provider that developed industry specific applications in the cloud (more like Salesforce). Ant Financial developed a cloud based core banking solution, of course on Aliyun that they used and then sold to other banks. Kapronasia’s estimate is that around 40 organizations in China are using the Ali Financial Cloud including, banks, payment providers and even P2P platforms.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

 

 

 

Back to the future of P2P Lending, we interview one of those peers

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The founding idea of both Lending Club and Prosper was Peer To Peer (P2P) Lending. Along the way, professional intermediaries aka Institutions got into the act and we started referring to Market Place Lending or Altfi. P2P Lending means no other intermediaries – just Lender + Borrower + Platform. The imperative to scale fast, to keep equity investors happy, forced the platforms to get capital from professional intermediaries. Something was lost in this transition. Professional intermediaries add fees and also tend to be less loyal as they see their job as moving money around fast to protect their investors. 

Hector Nunez is a good example of those original P2P retail investors. He has been investing in notes on Prosper since the early days. In an ironic twist that tells a lot about Fintech in the capital markets, Hector also has a job as a doorman at 75 Wall Street in New York City, which used to house trading rooms and now has been turned into apartments (in the new FiDi or Financial District of Manhattan). Hector was one of the early investors in Prosper loan notes and turned his $5k original stake into $138k over 10 years. This is a track record that most professionals would envy. See later for how this translates to IRR.

So it made sense to get Hector’s take on some of the big shifts in this market.

What is the difference between retail and institutional investors?

Our thesis is that three things separate the retail investor from the institutional/professional investor:

  1. Access to tools, techniques and data. Fintech is democratizing the tools, techniques and data that used to only be available to professional intermediaries. This is a work in process. Some tools are still only available to professional intermediaries, simply due to how they are priced, but this will change as new players come into the market. Techniques can come from books, blogs, forums and online courses. Platforms give access to data to encourage investors. So it is only tools that are lacking and entrepreneurs who build these tools know that this is primarily a pricing decision and that selling to 100 retail investors at 1c is the same as selling to one Institution for $1 and may be easier. We asked Hector about some of these tools.
  1. OPM (Other People’s Money). Institutions invest OPM. Retail investors invest their own money. To invest well you have to be a) contrarian and b) right. It is hard to be contrarian when you invest OPM – you have explanation risk. Retail investors have no explanation risk. When they are contrarian and wrong, they only have to explain it to the mirror and learn from why they lost.
  1. Concentration. One Institution can lend a lot of money and that is a quicker way to scale a platform than persuading lots of retail investors to use the platform. One retail investor might be able to deploy $300k while an Institution can easily do 100x that i.e $30m (but that $30m can also disappear equally fast as Institutions tend to be more trigger-happy). Getting 100 retail investors to deploy $300k or 1,000 to deploy $30k certainly takes longer, but it gives the platforms more long-term capital. One way to think about the retail investor is like a bank depositor who takes more risk and does more work for a much higher return.

Hector explains how he invests

I asked Hector to explain his investing approach:

Prosper gives borrowers credit grades (“AA,” “A,” “B,” “C,” “D,” “E” and “HR”) in which the investor sees and gets to invest in the loan the way she/he sees fit. In my case, I’m investing in only 2 grades (“B” and “E”). I have other grades but those are the ones that are in beta mode or that I ceased to invest in. Because there are only 3 or 5 years terms, it takes that long to purge the grades that I’m no longer interested in investing. Now one can argue that this is the disadvantage in retail P2P lending in that once something goes wrong, there’s no essential bail out. I would argue that this is actually beneficial because it teaches me to stay away from certain kind of loans with certain kind of attributes. As opposed to “jumping ship” early and probably not learning exactly why the loan went south. So I set a fixed amount of notes in 3 credit grades that I’m going to invest in and that number is 200. diversification is key and that by having 100 loans (notes), the investor is almost guaranteed to have a gain.

Agile Investing and IRR

Institutional/professional investors focus on IRR (Internal Rate of Return). It is a metric that shows performance. Hector, like most retail investors, does not obsess about IRR because he is not selling to investors.

What Hector is doing – and other retail investors work in a similar way – is what I call agile investing. Like agile programming, you start small and add more and refine the approach as you get market feedback (what you win and what you lose).

In Hector’s words:

Here’s what I started with: 5K which 10 years later (this upcoming March) is currently @ ~$138K. Please note that this includes both my trial and error loans as well as my lower interest loans. I started with 5K, then I put in an additional 10K, then 15K, another 30K and then another $20K. Throughout this process I’ve taken out then put some funds back in so overall, my principle is ~$80K and the rest is in excess of principle.

If Hector was running a Fund and pitching OPM for money, he would track all of those inputs and outputs to calculate IRR. That is how intermediaries work and IRR is a useful tool. However, what Hector is describing is how individual investors work which is to experiment and put more into what works. This is what I call “agile investing”. Note that “individual investors” could mean people with a lot of money to invest – think of Family Offices and Prop Traders.  So this maybe the new mode of investing that the micro asset managers use (see later for follow/copy/mirror model investing).

Ceiling?

I asked Hector what kind of “ceiling” he sees for this way of investing.

I cap off 200 loans for each grade that I’m investing, because I believe there is a point where too much diversity negates gains and losses. Also, years ago, Prosper imposed a percentage limit on both retail and institutional investors which affects the monetary amount that I could invest in. Currently it is @ 10% for the 1st 24 hours. In other words, when a borrower posts his/her loan on Prosper, any investor could only contribute (invest) to 10% of the borrower’s total loan within the 1st 24 hours of the borrower’s loan. After that, the cap is lifted and the investor could invest any monetary amount. I only invest to the 10% limit so monetary wise I’m also capped. So my overall monetary ceiling is currently @ ~$400K and my overall note ceiling is currently @ a little over 500 which includes my beta loans. Once, I reach those goals, I will then have to branch out into other platforms i.e Folio and apply my tried tested and proven strategy on that platform.

Hold to maturity or trade on secondary market?

Prosper announced in September 2016 that they were Closing Down Their Secondary Market for Retail Investors. Prosper had been running a secondary market via FOLIOfn since 2009.

This is the sort of tool that Institutions have taken for granted for a long time.

The old fashioned idea of a bond was to hold it to maturity, collecting interest along the way and many Institutions still like to work this way.

I asked Hector for his take on this:

“Personally I’m not affected by this move as I never had plans on selling my notes on Folio. Remember, we had Folio as an option to sell and I knew it and I never bothered to look at Folio to sell my notes. And in that aspect, I believe I was a typical investor and part of the reason why I think Prosper and Folio parted ways. Remember, if loans default, there’s still a chance we can recoup our losses via the collection agency which work on our behalf (as opposed to losses in the stock where there is no chance of recouping). With Prosper there’s a chance that the collection agency can recoup some if not all your principal with the interest (all for a small fee of course which the agency automatically takes from the funds recovered). I did create a Folio account but that was as a security blanket which I would have put in use had the majority of my investment soured. As the story went, it never did.”

Cross platform investing

Institutional investors are strong on diversification. Hector agrees, but has a slightly different take:

“I believe in that old cliche that you should not put too many eggs in one basket. I am all about cross platform investing. Should one platform go south, you have another to pick you right up; however I only believe that to a point. My belief is that too many investments would cancel themselves out leaving the investor with little financial movement either way (gain or loss).”

Hector is referring is what Institutional Investors call “closet indexing”, when investors diversify so much that the end result is very close to an index (which you can buy for very little from somebody like Vanguard).

One way to diversify is to go global. I asked Hector whether he would consider investing outside America, via platforms in those countries. Hector was clear on this front and his logic was interesting:

No and as of now I don’t have any plans on doing so. There are a couple of reasons why. First, I must complete my investment goal on Prosper before I step on to a new Market. I will make an exception with Folio because I already have an account and I’ve been doing my research with them for quite some time. Second, I trust the American market more than international markets because I feel that I have a better pulse on the US market than that of another country. Probably this is because I live in the US. My strategy relies much on understanding their personal financial background in the context of some event that makes them need a loan. Example: A person could be asking for a loan because he/she may have psychological issues and need their medical expenses paid off and the borrower has a pretty decent financial history while another person may be asking for a loan for a vacation and have a questionable financial history. I would lend to the person in medical need not because of what the borrower is going to use my funds for but rather because of their proven financial track history.

Hector ends with what all good investors have – humility and a learn it all attitude rather than a know it all attitude:

Believe it or not I’m still learning on Prosper and still letting my “beta” notes play.

Can I follow/copy/mirror Hector?

One theme that we have been exploring on Daily Fintech is the emergence of Micro Asset Managers enabled by the follow/copy/mirror model:

  • Copy and mirror trading platforms like eToro, Zulu Trade, Darwinex.
  • Thematic investing marketplaces that allow new micro-managers to emerge by creating their own financial product (equity based), and actively manage it; like Motif Investing, and Wikifolios.
  • Even social research platforms like StockTwits are stepping into this space by offering Follow functions and rankings of the subscriber micro-managers.

This is an alternative to either passive low cost index tracking or high cost active hedge funds. The idea is simply to follow/copy/mirror an investor who is investing their own money. This allows a passive investor (who does not want to work hard at the investing game) to follow/copy/mirror the active investor (somebody like Hector) who gets some share of the upside. That active investor does not need to gather or manage investor’s assets, so they do not need to charge an AUM fee. This is a game-changer in the massive asset management business.

Hector was eloquent that IRR % was more important than total funds under management:

I believe that the amount of money one has in investment is not the sign or bar of performance rather it is the rate of return. A person can have a million dollars in stocks and come out at years end with 1.1 million and another investor could have 100K and turn a profit of $20k and it is the latter investor that I would be most impressed with and try to emulate.

The follow/copy/mirror model is working today in VC (Angel List) and in Public Equities and in FX, but I am not aware of anybody doing it in Fixed Income/Lending. Hector is the sort of investor I would like to follow/copy/mirror. I asked Hector for his take on this:

I welcome you and any potential retail Prosper investor to follow my lead. I could give you or anyone nice fundamental tips in getting started as well as giving you warnings and recommendations. If you or anyone wishes to get started, please let me know.

It will be interesting to see if the Lending platforms start to offer this or if some other platform specific to the follow/copy/mirror model offer a cross-platform capability.

If you want to see these insights before your competitors, join over 15,600 of your global peers who subscribe by email and see these trends reported every day. Its free and all we need is your email.

 

 

Fintech solutions to problems of #GAFA people

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Happy New year to all. We are all #GAFA (Google Amazon Facebook Apple) people with different passports and IDs.

Our predictions “2017 Tech, Strategic, and Investment trends in WealthTech” are already out there for testing. In this first post of the year, I want to focus on a complicated topic that concerns all #GAFA people (and please stand out, if you are from another planet).

Personal data monetization is the GAFA business backbone and I foresee that in 2017 we will be hearing more about the ethics of monetizing our data in Fintech too.

I also have a wish list that includes seeing more Fintechs focused on “gating” our data, empowering us with a choice, and sharing subsequently revenues with us.

Three picks for a 2017 watch list

I picked three companies that are worth watching because they recongize our problems as #GAFA people and intend to help us.

A Telco

In September 2016, Spain’s Telefonica announced that in 2017 they will roll out a platform to enable their users to manage the use of their personal data from Google and Facebook and WhatsApp. Users will be able to block or require compensation through the OTT platform.

The Spanish carrier Telefonica is involved in many ways in the 4th industrial revolution. Telefonica owns a startup incubator based in the UK, Wayra, focused on digital business ventures since 2012 and offering the potential to access the 300million Telefónica customers globally.

Telefonica Germany (a subsidiary of the Spanish Telco) is launching O2 Bank, a digital bank, in partnership with Fidor Bank. This will allow German clients in a few minutes to open an O2 bank account (Fidor has the banking license which is valid all over Europe). The identity check will be done via a video on the customer’s smartphone. To transfer money, customers have to enter the mobile phone number of the recipient in the address book and select it for a transaction. The O2 Banking MasterCard can be activated or deactivated directly at any time via the app, and the card details can be presented for online shopping, without having the physical card in hand. A financial planning tool provides an overview of their spending and on request they can be notified in real-time of transactions and events by app push messages sent to their smartphone. Smaller consumer loans will be available directly via the app. O2 banking phone contract holders will “also benefit from a variety of perks and add-ons” when using O2 Banking, such as increased 3G or 4G data allowances (Source).  

In 2017 we all need to watch how the OTT platform that empowers users with the monetization of their personal data, will be combined with the O2 Banking services.

A true digital bank

September 2016 was also when SeccoAura started accepting registrations on their alternative way of monetizing personal data. SeccoAura launched in the fashion industry, allowing customers, to earn Tokens if other users “Like” what they are wearing. If “Likes” on SeccoAura lead to a “Buy”, then the SeccoAura customer who wore the “Liked” item, will earn a referral bonus. The concept could be applied to any retail purchase and wealth can be created through these tokens.

We covered the concepts behind this breakthrough business model in Secco Bank and the Future World of MyDigitalAssets.

A chatbot Fintech

Novastone Media is a UK-based tech firm in the space of information security (similar in a way to the space that Symphony, the Wall Street darling, operates in). Novastone Media’s financial services offerings are targeting private banks, financials advisors, robo-advisors, retail banking and corporate banking.

Solutions include secure messaging platforms that empower conversations, increase engagement, offer security and compliance accountability. Novastone Media prospect clients can choose to use their messaging, chatbot, WhatsApp-like solutions, in a more conventional way. That would result in simply offering finserv end-customers protection from #GAFA using personal data.

In 2017, we will be watching whether any Novastone Media finserv client will choose to monetize their customer data securely collected through these solutions and share revenue with the end users.

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Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

2017 Tech, Strategic, and Investment trends in WealthTech

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Watson helped me write this post. I fed him all Daily Fintech posts from last year and all the conversations on the Fintech Genome and gave him access to all my Tweets, Quote Tweets and Replies (he said he couldn’t access my Linkedin interactions; are they gated?).

Paolo Sironi and Susan Visser, would welcome such a use-case of Watson’s capabilities; but for now it is only in my dreams that this happened which I dare to share with you today since it is “Charles Dickens season”. I don’t qualify as poor in the conventional social understanding but I am poor in cognitive tech resources for my Fintech thought leadership.

Last year in December we issued a Warning (just before the traditional year-end predictions)

The truncated message from the myth of Icarus, is that it is dangerous to fly high; but the forgotten message is more important for Wealth management: “It is equally dangerous to fly low”.

It is Not Safe anymore to continue “business as usual”. This is a Warning.

The warning is still very valid and the only clarification I’d like to add is that when we talk about “Wealth Management” don’t just think we are referring to services offered to mid to higher end clientele. This category extends to any level of “wealth creation” that can be derived from small amounts of conventional currency savings, or a low digital credit score. It also encompasses the Capital Markets infrastructure and the regulatory environment which sets the rules of the game of wealth creation at a wholesale level.

End-users continue to push the transformation boundaries. Fintech startups, incumbent institutions in financial services, Financial software vendors, Telcos, and Cloud service providers, are responding to this unstoppable trend. The old adage “If it aint broke, don’t fix it” isn’t anymore valid. The Icarus warning “It is equally dangerous to fly low” encapsulates the reality of our era that is breathing down our neck “Danger to become obsolete”.

For our smartphone readers, I am confining myself to an outline of themes in Wealth Management and Capital Markets for 2017:

The 2017 technology-led trends

  • AI and ML will be the technology that will be “a must have” shifting from “nice to have” and “transactional only”. AL and ML will be leading the movement towards Invisible and Contextual wealth management services. For those that have been investing in AI for many years and have yet to be compensated for being early; 2017 will provide them with great signs of relief. This era will be the AI& ML Walk and Talk starting 2017.
  • The macro environment will continue to be challenging and will result in a genuine shift in wealth creation. For years, it has been Buffet vs. Soros (fundamental vs. macro) and passive vs. active. 2017 will be the year that we will increasingly entrust wealth creation to AI & ML guided processes (mostly actively managing passive financial products (like ETFs) and customization towards goal-base investing).
  • 2017 will be the year that it becomes clear that an API offering will leapfrog a White Label offering. For those that have both and are agile, it will be work out very well.
  • 2017 will be the year that the ISDA agreements in the Swap market give way to Smart contracts.
  • There will be more digital wallets opened in 2017, than any other adaptation of a Fintech service (payment service, digital bank account, robo-advisor etc). Looking at new financial assets for 2017, there are two possibilities to consider. The P2P loans as part of our fixed income allocation and cryptocurrencies as part of either our FX exposure or to include in the commodities allocation or the inflation protection risk buckets. Both have significant regulatory hurdles to face, however, the rate of adaptation of these new assets (not yet recognized as such) will favor significantly cryptocurrencies. P2P loans as an new asset class will not gain significant traction in 2017.

The 2017 strategic trends

  • We will be seeing more of the “Sell-side empowers the Buy-side” shifts mainly out of the US.
  • We will be seeing more cross-selling innovations in wealth creation launched by the incumbents and partnerships of Fitnechs; the US and China will lead.
  • The Transparency movement in wealth management will pick up speed. 2017 will be about Transparency rather than Disintermediation, which became “out of vogue” already in 2016 with more collaboration between startups and incumbents than genuine disruptive moves.
  • 2017 will be the year that IBM, Microsoft, Amazon etc, the Big cloud computing providers will no longer be the Gorillas on the Fintech stage that go unnoticed.
  • 2017 will be the year that Asset managers wake-up and shift from asset-gathering mode and the traditional way of managing the entire investment cycle process. From all parts of the ecosystem they have been by far the laggards. Brokers have been the leaders on the transformation highway.
  • 2017 will also be the year that private bankers and independent Financial advisors are brought further up to speed. The incumbents for which private bankers work for and the affiliated incumbents that the IFAs collaborate with (for custody or execution etc) will empower them.
  • European regulators will continue to lead. PSD2 will influence all other continent regulatory thinking. The FCA will focus more on international collaborations. The Global Innovate Finance summit will become more of a genuine global summit.

The 2017 investment trends

In this part, I share my predictions and also pose a few questions (I don’t have the answers on their timing) because they are important considerations to keep in mind.

  • Alternative wealth creation in 2017 will only refer to what Secco bank is aiming at (i.e. create wealth from digital assets like reputation and monetizing our own data) and cryptocurrency investing.
  • In 2017 I will be writing more about emerging cryptocurrencies investment managers rather than Vanguard, Betterment, and Fidelity and their investment performance. In 2016, we only watched cryptocurrency exchanges and brokers.
  • The cash piles that are sitting around the world wont be reduced significantly in 2017, simply because those chasing them (from Fintechs to incumbents) are in their second phase of innovation and users (like myself) still have to consider three dozen apps to cover all financial needs from Fintechs.
  • The ICO unstoppable trend will continue but will remain predominantly for blockchain related ventures. In 2016, the first steps in shedding light in the very opaque private markets were taken (Title III in the US, ICOs, Stock exchange innovations for private companies to prepare their IPO). This trend will be slow in penetration but will continue with the East joining.
  • Will 2017 be the year for the huge market opportunity of Chinese robo-advisors to create and offer an investment portfolio that can truly match the risk profile and goals of the Asian end-users; rather than being constrained from the very limited local investment pallet?
  • Will 2017 be the year that we all start considering investments in the Goldmans’ or the Alibabas’ because of their strides in Fintech innovation? This I foresee, is two years down the road.

Have a great holiday, for all our readers taking a digital break starting this week.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Capital Markets and IDs

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In theory, we have been able to design Digital Identity solutions for a while now. However, the costs were prohibitive and interoperability issues needed to be solved.

Today, we can implement technology (hardware) that is cheap and this allows us to experiment and target opportunities that couldn’t be exploited before.

It is cloud computing, cryptography, public key encryption and peer-to-peer networking protocols that are the critical “cooking ingredients” for recipes that can solve costly and basic problems in Capital markets, like provenance, authentication and reconciliation.

In this post, we zoom into the Digital identity issue (whether for an end-user or a corporate entity) in Capital Markets. In traditional financial lingo, this is coined as KYC and it shifted on the very top of the stack of issues that keep up managers at night, mainly after Sep 11.

Currently in Capital Markets we are looking for the following qualities in a Killer Digital Identity solution:

  • Cheap
  • Ability to be accurately updated
  • Accessible and Granular = Interoperability and Granularity
  • Immutable

The last two qualities are critical and encapsulate the practical difficulties of such a service. A Killer Digital Identity solution should offer both individuals and organizations the ability to authorize actions on their behalf. This can range from settling a trade, to registering for a financial product or service like an investment product or a loan.

At the same time, it has to be granular so that only the pertinent bits of the Digital Identity are used.

This is what Pascal Bouvier has been pointed out for a while. It is critical because it enables individuals and corporates to choose how to interact with a merchant or a supplier or a client. Being able to have a secure way to divulge only the granular bits of information is the key. It is also the enabler to be used in different contexts without having to go through the whole process again.

Imagine a world that any individual can open a bank account for their consumer banking needs, a telco account, an investment account, a brokerage account …. with different institutions securely, with all updated info, without having to repeat the whole process (e.g. they all need a copy of passport or a digital picture but the telco account needs much less information than a brokerage account that allows me to trade options and futures and buy stocks on margin). In addition, in order to register a corporate entity for a business, imagine a world where one can avoid repeating the process that overlaps with all the above, the registry is able to obtain accurate Social KYC information around the shareholders and directors of the company (updated real time), and have access to any particular cross-border information necessary.

There is one Fintech based on the Isle of Man that has been focused on developing such apps using blockchain technology. Credits, has been working with the government on the Isle of Man to develop “The Federated Know your Customer” app that was demoed at the recent Misys World Trade Symposium. This sits on the cloud and has the four elements mentioned above. Credits is also in conversations with the UK government for use cases in regulatory reporting and healthcare. Credits has not been at all focused on creating some cryptocurrency or some decentralized app. They have been thinking differently, in that they are focused on solving specific problems in the infrastructure of capital markets. Digital ID has been their first use case.

We are in the very early stages leading towards an invisible ID for individuals and corporates for the variety of functions in Capital Markets.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.

Fast and Cheap IPO on SGX: Ayondo

ayondo

Are you preparing a roadshow, the conventional way of accessing public markets by selling shares? Are you using an investment bank to take care of the messaging, positioning and pricing of the deal?

This capital raising route typically means aiming for a listing on one stock exchange, which is typically in the home base of the company and the region out of which it scaled up. Foreign listings in the equity market have been mostly successful at a second stage (i.e. after successfully listing in the home origin market). All this is especially true for businesses that are B2C or B2B2C.

Pre-IPO pipeline wanting to be dressed as Fintech

We have covered the trend of declining IPOs in tech and in Fintech and the reasons companies choose to stay private for a prolonged period.

In our Daily Fintech global index, we have been tracking publicly traded incumbents and startups that qualify (based on our criteria) to have a strong Fintech component.

In this post, we are more interested in pre-IPO companies that are looking to and would desire to be seen as candidates in the Daily Fintech global index. We want to interpret their under-the-radar screen steps, even before they engage in a formal roadshow.

The Ayondo pre-IPO Fintech journey

Ayondo is a Swiss broker with headquarters in Germany, London and Singapore founded in 2008. Its customer base has grown to 200,000+ users in 195 countries with a heavy tilt towards social trading.

Ayondo was listed on Berne stock exchange under the name of Next Generation Finance Invest AG as an investment holding company in the early years. Ayondo has been accelerating its business positioning and offering. Its brokerage offering includes extra insurance in case of adverse conditions.

The company has an Asian footprint and has received funding from a Singapore-based private equity group Luminor Capital. Ayondo has entered into partnerships with KGI Fraser Securities, a Singaporean brokerage.

Since 2013, Ayondo has received three awards in the Fintech space. It has restructured its operational side to align with its changing strategic positioning.

Two facts caught my attention this month, the acquisition of Tradehero by Ayondo and the soon to-be-completed listing of Ayondo on the SGX via an RTO. Social trading has been around more than 5yrs and in What was your first impression with Social Trading?, the Fintech Genome community has been discussing about this vertical. Is Social trading, rather a form of Signal providing and Social analyzing; as per Filippo Ucchino of Investingoal? Is it simply to complement Charting tools, as Henry Schwab of TradeIt points out? Is it the digital trading floor to bread micro-managers, as I like to think of the potential of Social trading and as Marek Trepa of t-financials broadens the space, by including Motif investing?

The acquisition of Tradehero, a Singaporean Fintech mobile app for gamified trading, on the Ayondo platform gives a strong positioning to the company to tap into the beginner social trading market segment. It makes the training phase required on any social trading platform (e.g. eToro, Zulutrade etc) less intimidating and aims to reduce conversion time and rate (from a registered user to a paying user). Virtual trading and academy training on the Tradehero platform, increases customer engagement. The TradeHero weekly awards are one of the ways to award prizes.

An acquisition before listing however, doesn’t qualify as an alternative approach.

The first Social trading Fintech listing

Starland is a Singaporean property developer that will enter into an RTO with Ayondo. The consolidated group will carry Ayondo’s name. Starland will pay $157.5 million for Ayondo and this will be done through the issuance of new shares priced at 18.7 cents.

Reverse mergers are a cheap and fast way to get listed. RTO, reverse takeover offering, can be used if the regulatory environment allows it. Essentially, an active private company (like Ayondo) takes over a dormant public company (Starland).

Through this transactions the time to market and the costs are reduced to close to half or more. The consolidated Ayondo group will have a market capitalisation of S$210 million (US$155 million) with Ayondo shareholders owning 75 per cent of the new consolidated group. Ayondo gets an injection of new capital.

RTOs are a cheap and fast way to raise capital in the public markets, especially for small size companies that have a 2C type of business. It also allows the owners to maintain significant control of the company.

Will the RTO route become trendier in Singapore, as Western companies look for fast ways to tap into the large Asian market potential?

I researched the SGX RTO market for other Fintech or tech with social tilt type of deals. I found Yuuzoo a Singaporean social media firm that listed on SGX in 2014 via an RTO with W corp an electronic equipment manufacturer (market cap of RTO deal was around S$400mil; roughly double the Ayondo size but still small). Yuuzoo maintained 80% ownership through the RTO.

Will Zulutrade and eToro, accelerate plans to tap into the public markets? Both leaders in the social trading Fintech vertical, have been growing by broadening their product offering (from FX, CFDs, to indices, and equities). Rumors about an EToro IPO were floating around 2 years ago but have not revived recently.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network.  Efi Pylarinou is a Digital Wealth Management thought leader.