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.


 

Interview with Soul Htite of Dianrong to understand the intersection  of Supply Chain Finance and Blockchain

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Both subjects, Supply Chain Finance and Blockchain, get a lot of attention on Daily Fintech. So when we saw a solution combining them (called Chained Finance) we were intrigued. When we saw that the venture behind this initiative (Dianrong) is in China and that the Founder & CEO (Soul Htite) was a co-founder of Lending Club, we reached out to him to understand more.

I asked the questions that occurred to me. What questions should we have asked Soul? (tell us in comments).

 Soul please tell us about your professional journey and what Dianrong does?

As a technologist and entrepreneur, I’m constantly looking out for new opportunities to harness the potential of fintech to solve every day financial challenges.  This is what led me to co-found, firstly, Lending Club in the US and, more recently, Dianrong in China.

Dianrong has quickly grown into a leader in online marketplace lending in China, originating more than $300 million in monthly assets for 3.7 million retail lenders. We offer individuals and small and medium sized enterprises a comprehensive, one-stop financial platform supported by industry-leading technology, compliance and transparency.

We developed a sophisticated and flexible infrastructure that enables us to design and customize lending and borrowing products and services, based on industry-specific data and insights, all supported by online risk-management and operation tools.  Dianrong’s specific offerings include loan originations, investment products and marketplace lending solutions.

 As I understand it, Chained Finance is designed to provide financing to the vendors who are further down the supply chain. Supply Chain Finance works well today for the vendors who supply to the corporates who are investment grade. As I understand it, Chained Finance will get financing to the vendors who sell to that vendor. Can you give us an illustration about how this will work?

The complexity and scale of supply chain finance has posed major challenges in ensuring adequate funding and efficient operations.  Chained Finance creates a unique ecosystem that will provide supply chains with easier access to funding at competitive rates. In return, supply chain operators will gain greater visibility of their suppliers and the many layers of finance embedded in the process.

 Is it only one link in the chain (i.e. vendor to vendor of investment grade corporate borrower) or multiple links in the chain?

Chained Finance’s ecosystem provides a better link between supply chain operators and their vast network of suppliers.  Additionally, new loan assets generated by Chained Finance will be available to Dianrong’s 3.7 million investors, expanding the company’s portfolio of diversified investment options.

How is the credit priced? Is it based on the buyer’s credit rating (as in traditional Supply Chain Finance)? Or is it based on the seller’s credit rating as in Factoring, Receivables Financing and other SME lending?

The Chained Finance pricing model is proprietary.

 What stage is Chained Finance? Have transactions already been completed. Can you share what sort of APR % the SME companies are getting and how this compares with other SME lending?

 Chained Finance successfully completed a successful six-month pilot with FnConn, which originated US$6.5 million (RMB45 million) in high-quality loans for supply chain operators, many of whom were unable to secure needed financing in the past.

The pilot was only recently completed, so it is premature to disclose representative APR data.

Please tell us why you use blockchain technology as opposed to some other distributed database technology and a bit about the technology?

 Blockchain technology allows both lenders and borrowers to gain unprecedented control and transparency of their records.

Lenders gain greater transparency of the financial history of borrowers, enabling them to make better lending decisions. This capability enables financial institutions to lower the risk of potential bad debts and problematic financial sources.

For borrowers, the technology provides a comprehensive track record of their financial history, which increases their creditability when applying for a loan. Borrowers also have greater control over who has access to their records, because borrower data can only be obtained with their approval.  That efficiently avoids borrowers’ personal information being abused by third parties, e.g. lead generation companies.

The primary benefit of blockchain is the transparency, and thus security, of the data transacted within the system.  At Dianrong, compliance and transparency are part of our DNA. This is why we are integrating blockchain technology across our entire platform.

Is this a permissioned or permissionless system?

Permissioned.

What blockchain technology do you use (e.g. Ethereum, Hyperledger). Please tell us why you chose this technology

Chained Finance was designed to be technologically (and geographically) agnostic.  That said, Dianrong is an active participant in the Hyperledger project.

 Soul, please give us your vision of where Chained Finance could go in the future.

By harnessing the power of blockchain, the Chained Finance platform is geographically agnostic. So, while Dianrong’s initial focus is on China, where 85% of SMEs have no effective access to funding, the potential for the platform goes far beyond China’s borders.

Blockchain for supply chain finance extends to any large company that has a complex supply chain and, as such, is enormous.  The electronics, garment and auto industries are a natural fit.

Chained Finance offers large multinational manufacturers unprecedented transparency and risk control capabilities for their supply chain finance ecosystems.

Thank you, Soul

What questions should we have asked Soul? (please tell us in comments).

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

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IOT Meets DLT and Blockchain meets M-Pesa in Africa

 

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Editor’s Note: Last week, Aunkumar Krishnakumar (Arun for short) wrote a great post about the effects of Demonetization on Microfinance in India. We liked it so much that we asked for more and this week Arun has found two amazing stories from Africa. Both are practical uses of leading edge technology to change the lives of millions (for example to enable crop insurance for farmers). The technology used forces one to think again about some conventional wisdom. One uses a mix of Internet Of Things (IOT) and Distributed Ledger Technology (DLT), without using any Blockchain. Another uses Blockchain but with M-Pesa (not with Bitcoin or any Altcoin). Following our theme of “first the Rest then the West” we would not be surprised to see innovation like this coming to the West soon.

From next week, Arun will join our other Authors as a regular. Please see our announcement later today.

In the last few years, every time I visited India, I have got excited looking at the number of frictions and inefficiencies in day to day transactions. There were problems that could be solved to create huge impact to large communities of people. Of course, when executed with a good business model, those could be great stories creating social and monetary value. When I was talking about this to my friend from Nigeria a few days back, he mentioned that he had the similar thoughts about Africa, the continent with 54 countries, truly a land of infinite possibilities. Over the last few years, financial services driven by mobile penetration have created a few “leap frog” initiatives in Africa.

M-Pesa completed its 10th anniversary this month. It is the firm that revolutionised financial services by providing a simple way of transferring money, and has crossed 30 Million users across 10 African nations (only 10). But the impact it has created has already highlighted it as a model to be used for the emerging world.  In 2016, according to Vodafone, M-Pesa was used in six billion transactions. Research by Digital Frontiers found a 22% drop in female-headed households living in poverty in areas with access to M-Pesa. The same study noted that the source of income for almost 200,000 women in rural areas shifted from the low-income, labour intensive agricultural sector to more prosperous small business creation. However, there is a lot more to be done through financial inclusion and I believe Blockchain will be a key catalyst in unlocking the potential of this great continent.

Micro-Insurance for Farmers:

In my previous post, I discussed the challenges Microfinance had in improving farmers’ lifes in India. While researching for that, I came across instances where farmers who had insured their crops and lost them to drought had serious challenges in claiming money from their insurance providers. This was primarily due to lack of understanding of complexities around what triggered their insurance claims and also due to the bureaucracy and corruption that existed in the system. Crop insurance is one of the most underserved industries in the developing world.

Typically Blockchain firms have two different exploratory routes to address pain points in the Insurance value chain. The first set of firms which are the more common one try to add efficiencies around instant reconciliation using distributed ledgers. The second set of Blockchain firms, re-imagine the whole structure of the business from scratch, and in some cases intend to create a new structure altogether. A Blockchain company Etherisc is working on crop insurance in Africa and across the developing world. They are trying to solve the problem using a methodology called “Parametric Insurance”. In this model, the insurance pay-out is triggered by pre-agreed set of simple triggers, which do not involve any middle men. The data that triggers the pay-out would be sourced automatically by the system which will disburse payments according to pre-programmed rules. The other advantage is that this model offers crop insurance for one or two dollars a month, which is typically not economically viable for a traditional insurance provider.

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For instance, a farmer can insure his crops against lack of rainfall for a particular year. Etherisc would have a rule that if the rainfall for that region in Africa doesn’t cross a particular threshold, the pay-out to the farmer would happen automatically. From that point, Etherisc would source rainfall information automatically from the weather data base, and if the threshold is breached, the pay-out happens. There is no need for human intervention to assess claims or damages, there by keeping the process simple, transparent and efficient. More importantly, the farmer receives timely help, without having to go through the trauma of dealing with corrupt bureaucrats to get the payment. Etherisc are also working at integrating their product with M-Pesa to plug into the existing payments infrastructure in Africa.

Micropayments Ecosystem:

In most developing nations penetration of mobile phones and internet has been better than penetration of traditional financial services and the underlying infrastructure. The main reason that there is so little private or public effort to extend financial services infrastructure into these remote and often impoverished areas is that the cost and benefits don’t add up positively. This leads to hundreds of millions of people scattered across Africa with almost no infrastructure and thus little opportunity of changing their circumstances. The solution is to take a decentralised approach that the traditional financial services infrastructure hasn’t managed to achieve.

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IOTA is a lightweight crypto-token that is designed to facilitate micropayments. IOTA is derived from the acronym IoT which means Internet-of-Things. IOTA could be connected to millions of devices and could facilitate micro transactions between the devices by paying miniscule amounts to each other in a frictionless manner. IOTA is a completely new distributed ledger innovated from scratch. Unlike the Blockchain, it contains no blocks. They instead have developed something called a Tangle, which is a form of directed acyclic graph. Here a user sending a transaction verifies previous transactions through a small amount of proof-of-Work. This means that the verification of the network is not decoupled from the network’s users, as is the case in blockchains. Hence there are no external parties to be compensated, which means that IOTA got absolutely zero fees on transactions. I have painfully resisted the temptation to get too technical about IOTA’s tangle, but for those who like a good technical read, their whitepaper is here.

Due to this architecture, IOTA can be used for most business models that require a scalable ledger with no-fees. And this is especially interesting for micro payments that flow through an ecosystem of connected devices. The IOTA-Tangle infrastructure doesn’t need internet and can operate on Bluetooth as well.

A simple example highlighted by IOTA:  Business A set up a solar electricity instalment and sell it per watt in real time to business B, which is a company that saw the potential in selling sensor data to be used to optimize agriculture, so now business B is selling soil and weather data to business C which is an analytics company that turn the data into useful information that it sells to business D which is a farming company that use the info to optimize their crops. Of course, all of these companies buy their bandwidth from business E which saw the need for connectivity between these other businesses. A completely self-sustaining and scaling business ecosystem that might previously have been impossible because the profit margin was non-existent due to fees. A micro insurance model could work like a dream on such an ecosystem, a friction-free economy of things.

Unfortunately, expansion of such business models in Africa, is not going to be as friction free. Between 2010 and 2017 internet penetration in Africa grew from 10% to a mind boggling 27%. And in model countries like Kenya, this has reflected in the GDP growing as a result. However, there are challenges around how security of these Blockchain infrastructures are going to hold and how regulations would evolve around these disruptive initiatives. The other key challenge is awareness, where most people still struggle to understand what the value of a Blockchain based financial eco system is. However all is not doom and gloom, as there are quite a few initiatives across the continent educating people about bitcoin and Blockchain, and the demand for such programmes has never been higher. Onwards and Upwards!!

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Arun is a thought-leader specializing in how technology is changing consumer financial services around the world.

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.

Briefing on Colored Coins – IPO, ICO, IEO

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The new kid on the block is IEO (Initial Equity Offering). I coined that phrase because neither IPO or ICO fits.

– IPO (Initial Public Offering) implies listing shares on a regulated Stock Market such as NYSE, Nasdaq, LSE, SIX etc. 

– ICO (Initial Currency Offering) implies issuing a new Alt Coin. The problem is that Alt Coin are not getting any serious market capitalization. For students of exotica, here is the market cap of the top Alt Coins. The last thing the world needs right now is another AltCoin.

If it is broke, do fix it

A regulated Stock Market is how the market works today. The old saw is if it ain’t broke, don’t fix it. The corollary is if it is broke, do fix it.  Here are the 4 big flaws with these legacy Stock Markets: 

  • legacy listing processes: post Enron, the SEC (followed by other Exchanges) layered on lots of expensive process to protect investors from scams, all of which were based on manual processes (which later got automated but they were still not native digital ie they were expensive and inefficient).
  • national boundaries: it is too hard to discover stocks on exchanges in local markets, so they either suffer a valuation discount or seek a listing on one of the global exchanges (where only mega-sized companies can do an IPO). (See here for our other coverage of this issue).  
  • declining revenue line from listing fees: Stock Exchanges increasingly make their money from selling data, co-located servers for HFT and payment for order flow. This leads to misalignment of interest with the two customers who matter – issuers and long term investors.    

This post, earlier this week by Efi, describes how things went wrong at traditional regulated stock exchanges.

Why Microsoft did an IPO

They did not need to raise money – they were already profitable. They wanted liquidity and price discovery so that they could motivate employees with stock. That is the function of a public market. Any public market 2.0 initiative has to bear that in mind. Investors want to buy shares of profitable business. Uber’s $66 billion valuation in private markets is being questioned because investors cannot figure out how they still lose money after having got to such scale. Then consider a bootstrapped business such as Microsoft at their IPO 25 years ago or a Mittlestand company in Germany. As an investor, which do you prefer to own? That is what the Innovation Capital business should be serving and is not.

Colored Coins 101 for business people

Part of our mission at Daily Fintech is to demystify jargon that obfuscates. We translate Fin for Tech and Tech for Fin. In this case we are translating Tech for Fin. There is so much innovation around Blockchain that it is hard for business executives to keep up to date. Our job is to find the stuff that matters and bring it to your attention.

We think Colored Coins is an important development in the Blockchain world. We will parse the tag line on their front page to explain why: 

The Open Source Protocol for Creating Digital Assets On The Bitcoin Blockchain

  • Open Source Protocol. This is like TCP/IP or HTML. No company controls it or makes money directly from Colored Coins. You make money by adding value on top.
  • Creating Digital Assets. You don’t buy an Alt Coin. Let me repeat that. You don’t buy an Alt Coin. You “color” an existing Bitcoin ( % of a Bitcoin or number of Satoshi, which is the smallest divisible unit of a Bitcoin) to represent an asset (stock in a company, a house or car or painting or whatever). Then you can buy and sell those assets frictionlessly across borders. 
  • Bitcoin Blockchain. This is about the public Blockchain. You can also use Colored Coins on Ethereum (another popular public Blockchain). If you believe that all Blockchains will be private, this is not for you. Using the analogy with the development of the Internet, this is about the Internet not a collection of Intranets. Open Coin transactions are validated by a consensus network (either Proof Of Work by Bitcoin Miners or Proof Of Stake or whatever Ethereum uses). 

Of course, an open source protocol is only as good as the use cases created by entrepreneurs. That is the subject of a future research note.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Ripple may become real competition for SWIFT in cross border payments

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Next week, 8,000 bankers and their vendors fly into Geneva for 4 days of talking about FinTech. Last year I had to fly to Singapore. This year, I can just hop on a train from Bern (sayonara jet lag).

Last year Emergent Fintech started to move onto the main stage at SIBOS and this year it really is center stage in a way that resonates with the people who come to SIBOS; there is less talk about disruptive business models replacing incumbent banks and more about how disruptive technology can help Banks make a quantum leap in processing efficiency.

However one Emergent Fintech venture that is active at SIBOS could give SWIFT (which owns SIBOS) some cause for agita. Ripple is emerging as a real contender in cross border payments, which is a business that SWIFT has dominated for decades.

Ripple Basics and Recent Momentum

To quote from Ripple information on SIBOS (Stand F60):

“As bank-grade distributed financial technology, Ripple delivers instant, certain, and low-cost settlement for all banks via a global network of banks and market makers.

 Ripple offers a real-time cross currency settlement solution and a FX market making solution, both available for license. These solutions enable you to settle cross-currency payments efficiently, by connecting your bank directly to other banks around the globe for direct bank-to-bank settlement.”

Ripple recently closed a $55m Series B and in today’s market, a Series B is a good proxy for momentum. The investors are mainly banks, which makes sense as they will be the users.

More importantly, they are making the first live payments on the network, talking about transactions completing in 20 seconds.

The recent problems with Ethereum play into Ripple’s hands. For a long time, many people said that Ripple might be easy to implement but that it was a commercially controlled currency. The Ethereum problems show that all new digital currencies have their issues.

Visa has also just thrown in its hat into the cross border SWIFT alternatives.

The cybersecurity challenges that SWIFT suffered earlier this year must be making banks more willing to look seriously at alternatives.

Whether cross border payments use Ripple, Ethereum or Bitcoin Sidechains remains to be seen, but it seems clear that we can expect cross border payments completed within seconds in the not too distant future. It is pretty clear where the puck is headed.

SWIFT’s own Blockchain initiative 

SWIFT announced they were looking at Blockchain almost a year ago. Since then there has not been a lot of news. SWIFT can certainly buy whoever gets traction, but will face a cannibalization challenge as new entrants will be cheaper as well as faster. Cheaper payments will increase volumes so I envisage a future where SWIFT still dominates cross border payments but using Blockchain technology, with lower prices and increased volumes.

The back office guys are getting ready

In my core banking days, the SWIFT module was critical. It still is. However we can see the vendors, consultants and oursourcers getting ready for payments via Blockchain. This announcement by Ripple, Deloitte and Temenos is an example of an industry positioning around a possible new value chain.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Secco Bank and the Future World of MyDigitalAssets

During a webinar focused on Digital Wealth Management for one of our clients, I thought that I would poke the audience by discussing a Future World in which we all create wealth by investing in our Digital Assets. I started by referring to MyCreditScore, as a Digital asset, only because it is not that utopian as a concept especially in the US. In aSpring post, “Who’ll help Small Business get Credit Score fit?”, we looked at Fintechs that are focused on helping SMEs to monetize their Credit Score.

The second digital asset that came to mind was MyReputation. Twitter could claim to be a “Bank” that caters to this asset. Twitter users can get a Klout Score that can put them in lead tables of their specialty and that can compete head to head to other qualifications, from education diplomas to professional experiences. It can be monetized directly through speaker fees or consulting engagements. If Twitter, gave rebates to high Klout Score members, to use for the paid Twitter services, then they would start qualifying. Prosper could give rebates on their loans; to high Klout score members too.

Sentifi, the sentiment-based Fintech, offers MyScore, which measures online and offline behavior to get a measure of one’s relevance in global financial markets.

As such digital assets, dynamic measures of reputation in broad or specific areas, start competing; then they could become mainstream for recruitment and for entrepreneurial mandates.

RiskAnalyze, offers one number, MyRisk (Risk Number) so that financial advisors can use it to create customzie investment solutions for their clients.

Once the Transparency movement gains traction, we could each have a MyInvestment score that reflects our investment choice track record from discretionary choices to non-discretionary.

We are far away from an integration of our digital personality which in an ideal world should not be seen as separate form our offline persona.

In the current world, other companies are taking advantage of our own data, to create consumer products or services that we will want to buy. Our data is being monetized by businesses and we only benefit by being offered “suitable, maybe customized products”. We are far away from being able to use our own data, to gain insights that can be monetized.

Open APIs are linking businesses not end-users. Data brokers are serving businesses not end-users.

Of course, they are using end-user data, which is given for free to the businesses innovating in monetizing our data. Shifting from Data Ownership to Data usage for the end user, has not been the mission of financial institutions, either incumbents or insurgents. With the exception of Secco Bank.

Outside financial markets, there is more going on in terms of Data usage that benefit end users and. Telefonica Spain is a recent example of a Telco that wants to help its customers choose what data they share with the internet companies (Google, Facebook, WhatsApp etc) and moreso to give them a platform to monetize their personal data (a platform to be launched by year end).

“According to the operator, these data belong to the customer and must be the user who ultimately decides what to do with that information.The company has decided not to sell because it believes that such data are valuable and because the customer already pays every month.” Auto-translated Excpert from here.

Personal data marketplaces are a subsector on their own. An example of a Big Data startup targeting personal data is Datacoup which is in partnership with Stripe. Currently they are running a beta version, where they offer users $8 a month in return for their data (operating only in the US).

Handshake is a European company that also looks to disrupt Data Brokers and their clients. Their opening statement includes “Did you know that companies spend over $2 billion* a year in the US alone to buy personal data from data brokers?”. They are out there to challenge business like Experian, Irish based, focused on MyCreditScore, Digital asset.

According to a survey from TRUSTe, a privacy management firm, the percentage of US adults opting out of online behaviouraladvertising increased from 27% to 50%. There is a trend going on that consumers want more control in who has access to their data and what can organisations do with that data.” Excpert: From Data Ownership to Data Usage: How Consumers Will Monetize Their Personal Data

Back to Fintech world; Secco Bank, the blockchain-inspired alternative bank is the one that stands out as a platform positioned to be the Vault of MyMoney and MyData; and the place to create wealth out of both traditional financial assets and Digital assets. Devie Mohan spoke with Chris Gledhill, CEO and co-founder of Secco Bank, and described the alternative positioning of Secco Bank which aims to offer clients their personal programmable interface.

Secco Bank isn’t looking to join the Open API movement, they are a step ahead of the game.

They want the customer to be in control of their money and data; they want the customer to decide what to share and most importantly to chose how to realize the value of their own money and data.

Their first product SeccoAura, is accepting now pre-registration on this alternative way of monetizing personal data. SeccoAura has launched in the fashion industry. SeccoAura customers, can 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.

Will you choose to play PokemonGo as you commute; or SeccoAura. At the airport, on the weekend, while shopping, will SeccoAura catch on? Will you switch between Facebook & Instagram and SeccoAura?

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Will women take the proof of concept and jump start SeccoAura, a crowd-sourced alternative to the broken advertising model?

Will this become the next generation royalty payment program? SeccoAura is aiming to be an enabler of Data usage for end-users but also a creator of more data, more relationships, more insights; all leading to the creation of wealth through our digital assets, from the people to the people.

The P2P Fintech knowledge platform, Fintech Genome, has recently opened up a category “Neon Banks”. Check out the existing conversations or open a new topic in this evolving space.

Fintech Genome itself is a disruptor platform to the broken model of content marketing in financial innovation via paid media.

Read more here. Check out the existing convesations; Like the ones you find valuable; Start a new topic and earn Likes.

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.

Blockchain catastrophe swaps and the unbundling of Insurance

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I struggled with the headline for this post because the news connects to so many different themes we cover on Daily Fintech:

  • Real use cases for Blockchain.
  • Catastrophe Insurance and Climate Change.
  • Financial Inclusion.
  • Innovation by Incumbent Financial Services.
  • The new global back office.
  • The unbundling of vertically integrated Insurance.

We will explore how the story illustrates all those themes.

The story is that Allianz and Nephila Capital recently completed a pilot catastrophe swap using Blockchain technology from Symbiont.

What is a Catastrophe Swap?

A catastrophe swap is a financial instrument traded in the over-the-counter derivatives market. Insurers need protection after a large natural disaster because numerous policyholders will file claims within a short time frame. A catastrophe swap helps insurance companies transfer some of the risk they’ve assumed through policy issuance and provides an alternative to purchasing reinsurance or issuing a catastrophe bond.

In a catastrophe swap, two parties, an insurer (Allianz in this case) and an investor (Nephila Capital in this case), exchange streams of periodic payments. The insurer’s payments are based on a portfolio of the investor’s securities, and the investor’s payments are based on potential catastrophe losses as predicted by a catastrophe loss index (created by third party firms to quantify the magnitude of insurance claims expected from major disasters).

Real use cases for Blockchain.

To avoid getting caught up in the Blockchain hype cycle, we use this handy decision tree to evaluate whether a use case really warrants Blockchain technology.

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Catastrophe Swaps seem like a good fit.

Catastrophe Insurance and Climate Change.

A few months ago we looked at Big Data ventures working on catastrophe modelling and Meteo which is focused on weather related risk. Risk modelling is key to Insurance. Risk modelling gets a lot more complex if Climate Change is real – the historic models simply don’t apply any more.

Financial Inclusion.

For the billions living on $1 or $2 per day, Climate Change is not just an inconvenience, it is life threatening if their crops fail. Anything that makes crop insurance easier and cheaper will change the lives of billions. Any innovation at the risk modelling and financing level that helps is to be greatly welcomed.

Innovation by Incumbent Financial Services.

This story has a traditional Insurance Company (Allianz) and a traditional investment firm (Nephila Capital) using radical new technology for breakthrough innovation. It is possible that Insurance companies were able to spot disruption coming sooner than their banking colleagues because the banking disruption came first. As the famous book by Lou Gerstner about the transformation of IBM asks – Who Says Elephants Can’t Dance?

The new global back office.

The BPO (Business Process Outsourcing) industry turned India into the back office of the world by taking basic clerical jobs and shifting them to a cheaper location and applying a rigorous approach to process optimization.

Call that global back office version 1.

Version 2 is much more radical. This is when business processes are not optimized – they are eliminated. Call this Business Process Elimination (BPE). Blockchain is critical to this. We looked at this in the context of Real Time Equities Settlement. When that goes mainstream, whole swathes of processes that we now call Post Trade Processing will be eliminated.

Delaware clearly wants to be the new Global Back Office based on Blockchain. It makes sense if they can address the thorny jurisdictional issues around Smart Contracts.

The unbundling of vertically integrated Insurance.

In the end, we used this theme for our headline. Unbundling is what digitization does to Incumbents. This has been going on for some time in Banking, but is only now starting to happen in Insurance. We move from vertical integration to a stack with different companies offering different services and combining through partnerships.

The insurance industry works through a 3 layer stack:

  • Layer # 1: Brokers. Their job is to gather premiums from customers.
  • Layer # 2: Insurance Companies. Their primary job is claims processing. They take in premiums via brokers, invest the cash flow and pay out claims when needed.
  • Layer # 3: Reinsurance Companies. They are the payers of last resort. They insure the insurance companies. Their job is to have enough capital to pay out claims, even if the models did not predict the volume of claims.

This Catastrophe Swap using  Blockchain technology unbundles the link between Insurance Companies and Reinsurance Companies. Now any investor can be a Reinsurer.

The company providing the technology for this Catastrophe Swap, Symbiont, raised a $7m Series A in January. Blockchain often starts by mimicking existing processes – in this case an Industry Loss Warranty (ILW) using an industry-loss trigger. It is possible that Symbiont technology will enable a more sophisticated alternative using a parametric trigger (explained here). This is what could facilitate microinsurance type policies such as crop insurance.

At the investor end of the stack, Symbiont technology can transform insurance risk into a security, thus making it simpler for investors. This is what will drive the unbundling of Insurance and the democratisation of Reinsurance.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.