Initial Coin Offerings and Increasing Participatory Flow

Not everything that counts can be counted, and not everything that can be counted counts ~ Einstein

Gearing up for Sibos in Toronto this week I took some time to revisit Don Tapscott’s four principles for the open world (2012):

  • Collaboration
  • Transparency
  • Sharing
  • Empowerment

Perhaps the most powerful point he made was “this is not an Information Age but an Age of Networked Intelligence.”

Networked intelligence is alive, adaptive and always seeking new forms to in which to emerge. Today, networked intelligence is making itself known in the form of Initial Coin Offerings (ICOs). An ICO is a ( so far) unregulated means by which funds are raised for a new cryptocurrency venture. An ICO is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies. Cryptocurrency is still not mainstream and most people think of Bitcoin when they hear about cryptocurrency. In July 2017 there were over 900 cryptocurrencies available and that number is sure to grow exponentially.

The existentialist in my wants to establish a bit more context prior to moving forward. Let’s break down the etymology of currency:

currency. 1650s, “condition of flowing,” from Latin currens, present participle of currere “to run” (see current (adj.)); the sense of a flow or course extended 1699 (by John Locke) to “circulation of money.”

Currency = to flow! Ideas need momentum. Start-ups need momentum. The predominate funding models are full of regulation and bureaucracy that are the very antithesis of flow. I remember hearing Kiva’s Premal Shah talk about “codified lending” back in 2012 where people were given loans not by their credit score but by their social score. If peers supported the endeavor and expressed confidence — one could secure a Kiva loan. That was disruptive. ICOs are disruptive in a similar way. When individuals appreciate and support an endeavor, an idea, a cause — they can in fact participate in breathing economic vitality into that endeavor, idea or cause by purchasing allocated tokens for the designated compaign. In and ICO one doesn’t just affirm an an endeavor, idea or cause — one becomes an economic engine by way of token participation. The deployment and aggregation of participation happens at an unprecidented pace and even more importantly it is distributed. The reason I selected the spider web with dew as a header for this article is the way it expresses distribution.

The ICO landscape is gaining traction which also means it is soon to be regulated. To keep up with new emerging patterns in this “flow” the voices I encourage you to track include:

Kenzi Wang, Co-Founder of Superbloom Capital

George Burke and Chandra Duggirala, Founders of Aqua Foundation

David del Ser the Director of Inclusive Fintech, and of the Catalyst Fund from BFA.

You can listen Brett King’s recent program “ICO’s are Hot! Can they include more people in investing?

What makes me most excited about the ICO wave is what is possible for the unbanked. According to Kosta Peric, our current finacial system excludes 40% of the population. I would much rather that those who are gaining economic access for the first time to be introduced to a participatory model (ICO) vs. an extractive model (VC).

What makes me the most concerned about the ICO wave is the ways in which participation can be commoditized. David del Ser and I are on the same page — we need to ensure we create scenarios for both optimism and dystopia. Every system has unintended consequences. This is a good time for Foucault: you may know what you do and why you do it, you don’t know what what you do does. Justin Timberlake was in the movie In Time which was a dystopian movie about the value of incremental time, a person was valued by seconds. There is a fundamental desire to quantify every aspect of running a platform. Not everything that counts can be counted, and not everything that can be counted counts, classic Einstein. Even with new technology — we are not allowed to buffer the intangible. The quantifiable “awe” still aludes us and for that I am happy.

In the rigor,


Fintech 2017

Next month, we will be hosting our series of Innovation Jams. The Jams are competitions which take place in 5 cities (Singapore, Miami, Abu Dhabi, London and Geneva) aimed at finding the most interesting fintech start-ups from across the globe. The two winners from each Jam then travel to the Temenos Community Forum in Lisbon to battle for the title of global Innovation Jam champion.

The Jams tell us a lot about the fintech industry. We kicked off the Jams in 2015, so this is now the third year. Obviously we will have a much better feel for the state of the fintech industry in 5 weeks’ time, but having already reviewed hundreds of entries and compared them against previous years, we are getting a sense for what is changing. Here are a few themes:

Strong regional differences

As is inevitable as fintech matures, we are starting to see some distinct clusters forming in the different regions. For example, in the UK we saw a far higher number of applications from fintechs providing payment services, perhaps not unsurprising given the historical strength of London as a payments hub, but also from AI-related fintech companies. The latter possibly owes to the strong AI expertise in the UK’s leading universities, which have helped create successful companies like DeepMind and SwiftKey, bought by Google and Microsoft, respectively. In Switzerland, we saw an outsized focus on wealth management, which makes sense given the high relative importance of this industry, but also on blockchain and big data, areas where local universities are strong and where clusters are forming. In MEA, there was a much stronger focus on financial inclusion relative to the other locations likely given the still very high levels of unbanked people, especially in Africa. In Singapore, there was stronger relative focus on security while in the US, we saw a much higher number of companies focusing on User Experience, possibly because this is an area where banks can invest even when – as most have – their processing has been outsourced.

The growth of regtech

Compared to 2016 and especially compared to 2015, we have seen a massive increase in the number of regtech applicants. We this also as a sign of maturity. The first wave of fintech companies we saw focused predominantly on those areas with low regulation/high potential margins like FX and automated investments. The next wave includes companies going deeper into middle and back office, investigating blockchain for instance, but also with a heavy focus on regtech. As an area which has been sucking up banks’ time, resources and bandwith over recent years (At JP Morgan, compliance headcount is up 87% since 2011, from 23,000 to 43,000), the opportunity for those fintech companies offering smarter, cheaper ways for banks to comply with regulation is clear. Some of the regtechs competing in this year’s Jams that caught our eye are:

  • Neuroprofiler, a French start-up which applies behaviourial science and AI to create games that ensure compliance with less cost and better customer experience. At the London Innovation Jam, they will be demoing a game for MiFID II compliance.
  • Qumram – a Swiss firm demoing at the Miami Innovation Jam, Qumram records every user session on any device – every keystroke, every button click– which can be replayed in movie quality at a moment’s notice, giving indisputable evidence of all digital interactions, in accordance with global regulatory requirements.
  • Edgelab – another Swiss company, demoing at the Geneva Innovation Jam, takes a big data approach to risk management, analyzing over 1bn data points daily to enable banks to construct portfolios that are always compliant with regulation, always optimized to maximize risk/reward and which can model for market turbulence.
  • Pushfor – which lets banks securely share content with its customers – content is ‘pushed’ without the file leaving its source destination –with customizable viewing permissions combined with real-time tracking, full audit trail and usage analytics.


Fintech 3.0

If fintech 1.0 was firms tackling the low hanging fruit and fintech 2.0 was fintechs beginning to offer more heavily regulated services and moving deeper into middle and back office, then fintech 3.0 seems to be about taking a fresh look at prevailing business models. One such model is to offer marketplaces (see below), but we also see several examples of firms launching new generation versions of what were until very recently highly disruptive models (think Spotify vs iTunes). One very interesting example is Ovamba, which is competing in the Abu Dhabi Innovation Jam. Ovamba is a marketplace lending platform with SMEs on the one side and mainly institutional money on the other. So pretty standard so far. But the twist is that as well as lending the funds for firms to buy inventory/inputs, it also orders the inventory (gaining purchasing economies of scale), holds it (gaining warehousing economies of scale) and distributes it to the borrower only as borrower makes payments, limiting the likelihood of default as well as protecting through collateral any downside risk.


Other examples include EasyEquities, which has taken some of the existing tools for democratizing investing such as fractional shares and combined with e-commerce features like recommendations, baskets and buckets to help overcome inertia about what times of investments to make, and XNotes. XNotes has created a new blockchain for managing corporate assets which has several unique and interesting properties like configurable workflows (e.g. to manage the flow of goods for supply chain finance) and configurable consensus (e.g two parties can agree on a third party to validate the existence or quantity of a good).

Open Banking/Marketplaces

The other clear area of business model innovation is around open banking marketplaces (where APIs are used to allow third parties to build apps for or sell their services to/through banks). The arrival of new legislation in Europe, such as PSD 2, which obliges banks to share customer data with third-parties, makes these kinds of models more viable, while we observe a general shift in banks’ attitudes, seeing open banking as more of an opportunity than a threat. A lot of the new challenger bank models, such as N26 or Starling Bank, work on such a basis. Here are some of the interesting examples taking part in this year’s jams:

  • Younify which offers an aggregation platform for banks, but with a suite of tools to manage the administrative tasks of their clients, such as automatically collecting and organizing digital documents, one click payment of invoices, one click digital signature of documents.
  • SMEx, presenting at the Geneva innovation jam, has built an open marketplace for foreign currency exchange where participants can propose a currency exchange at no cost or match instantly the best bid/offer for 0.25% fee
  • Sizeup: a platform – which can be licensed by banks – which allows SMEs to benchmark themselves against their peers across a range of areas such as revenues, salaries, etc. The data collected is then used to help the companies to make smarter decisions e.g about where to advertise, but can also be used to target them with the most relevant financial products and to inform lending and other decisions.


Another area where we have seen a big increase in activity is security. A report last year from the Economist Intelligence Unit, commissioned by Temenos, found that 48% of retail bankers believe that by 2020 at least one major bank will disappear as a result of a cyberattack. So this is clearly top of mind for banks and a fruitful area for fintechs to exploit. In addition, one largely overlooked aspect of open banking is the need to invest in security since banks will be sharing data across a much broader range of intermediaries, which will increase disproportionately the scope for cybercrime.

Entersekt, competing in the Abu Dhabi Innovation Jam, turns mobile phones into a trusted second factor of authentication. Its patented technology creates an isolated communication channel between phone and financial institution that ensures that no communications can be decrypted or spoofed by anyone at any point between the device and the bank.

Chekk, competing in Singapore, is a mobile solution that provides users with a secure wallet of their personal information that allows them to share information that is current and only the information required for a given transaction, putting the user in control over their own privacy.

Sthaler, whose product Fingpay reads the vein structure within people’s fingers (totally unique to every individual) to authenticate them so they can securely pay for goods and services, to gain entry to events and to manage payments online.


There have been big advancements in AI over just a short number years owing to better algorithms, much larger datasets for training them, cheaper and faster cloud-based infrastructure and new computing techniques like parallel computing. On the back of this, we are seeing many more AI-related fintechs entering the jams, especially compared to two years ago.

An interesting example from the UK is Crowdprocess whose product James leverages machine learning algorithms to create high-performing predictive models and scorecards for credit risk management.

We have also seen lots of chatbot entrants such as from the Canada, which is competing in the Miami Jam, and, which stands out on the basis of using deep learning to constantly improve the quality of its conversation, having contextual memory to understand what has been discussed before, and an algorithm that determines the right content to serve up to each individual.

Ben Robinson is Chief Strategy Officer at Temenos. The Innovation Jams are taking place on 7 March in Abu Dhabi, 16 March in Miami, 22 March in London, 23 March in Singapore and 28 March in Geneva.


Visa and Fundamo up the stakes in the Mobile Wallet battle

The announcement today of Visa’s acquisition of Fundamo signals the drawing of the battle lines in the face off between Mastercard and Visa in the mobile payments stakes. While I understand that a wallet is much more than just an NFC enabler, the announcement of Google’s NFC trial around their ‘wallet’ last month put some pressure on Visa to make a strong competitive statement against the Android positioning. But what does this mean for the mobile payments landscape?

There’s only room for a few wallet standards
While everyone would like to ‘own’ mobile payments and the mythical m-wallet, the fact is that the recent failure of ISIS to successfully launch a competing payments backbone means that in all likelihood the current card issuer networks will remain at the core of the mobile payments infrastructure for the time being. This gives Visa and Mastercard a fairly significant advantage in owning the plug-in or API that enables access to the backbone. The wallet effectively acts as that plug-in functionality.

The challenge that Visa and Mastercard have at this point is not technology, but getting partner banks enthused enough to start aggressively rolling out solutions around mobile payments with their proprietary “wallets” plugged-in. The problem is that today you can count on just two hands the total number of banks globally who’ve enabled broader P2P payments as part of their mobile App strategy – such as Chase, Hana, ING Direct and ANZ – and that is an appalling legacy mindset hurdle to get over.

The fact that banks have been so slow to embrace mobile P2P enablement does not bode well for broader bank-led adoption of the mobile wallet. It means that Fundamo and Visa will have to rely on consumer take-up, or integration at the handset level for broader adoption. In this respect, the Google Wallet still probably has an advantage here, but if Visa gets a deal with MSFT/NOKIA or with APPL then all bets are off.

The other opportunity and challenge here is the pre-paid debit card market. With some 50 million+ underbanked in the US alone, with the increasingly strong debit card market in the EU and with China and India ramping up rapidly in respect to smartphone adoption, perhaps the greatest opportunity to be tapped will be integrating pre-paid mobile accounts and pre-paid debit cards in the same handset. It makes sense doesn’t it? What’s the difference between a pre-paid debit card enabled via a mobile wallet, and a pre-paid phone account? They are both value stores…

In that environment, Visa could do with some independence from the issuing banks – perhaps issuing their own pre-paid debit cards as part of the wallet proposition. Given their relationship with the banking community, however, I don’t expect a rapid independent solution to this problem.

The good news is, that Fundamo already has a strong financial inclusion play, so my view is that overall this move is going to be very positive, especially in emerging markets.

Visa’s acquisition of Fundamo is a smart move in the battle for the Mobile Wallet

Circumventing the backbone might still be possible
The dark horse here could still be Apple (or someone else – PayPal perhaps), leading with a P2P solution that circumvents the traditional networks. Apple has just taken a shot across the bow at Telcos with their iMessage component of iOS 5, which circumvents traditional short-message-system networks, so they’ve shown their willingness to use their broadly adopted platform to challenge services that are redundant in the cloud world. In the world of payments, you only need large-scale adoption of IP-enabled handsets to start challenging this space and creating a new service framework. ISIS couldn’t do this because they didn’t have a way to get their service ubiquitous. Apple already has 250 million cardholders plugged-in to iTunes, so they have massive momentum already. Could they turn that into a P2P backbone?

Sure. Apple will still need to plug in at the back-end in someway, but a cloud-based competitive backbone to the traditional payment networks would be even more pressure on the current interchange environment.

Long-shot? Maybe, but it won’t be long before the pressure on interchange fees, modality of payments around mobile wallets and the changing role of the POS (mobile becomes the POS ala Square and NFC) makes cloud-based alternatives viable. Certainly within the next 5 years this is likely to happen.

It’s still about context
While owning a wallet that has a rapid path to NFC and P2P enablement is a great start, I still believe the real trick with mobile payments is around the context of a payment. The big difference between mag-stripe/Chip and PIN interaction and that of a mobile NFC payment is that I can contextualize the interaction before, during and after the payment. That might be as simple as updating your account balance in real-time, or it might be about integrating offers and loyalty into the payment experience. Square is obviously counting on that as a driver for cardcase.

The challenge Visa faces right now is building context. The wallet is just a plug-in for payments. Where Google (Offers), Apple (iAd), Groupon, Foursquare and others are threatening is the context of those payments.

That’s where I can influence a payment based on location or a trigger.

That’s where I can steal you away using a competitor’s wallet.

That’s where I can circumvent a traditional payment interaction and avoid using the traditional POS all together.

That’s where I OWN the customer.

Visa has made a great start with their acquisition of some very solid tech in the form of Fundamo, but they’re not there yet. My greatest concern is they’ll wait for banks to add the context, and banks are even slower at doing this stuff than visa is…

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