22

Aug

2018

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I will attend Money 20/20 in Las Vegas this coming 21-24 October. By my count, this will be my 7thattendance (European events included). My lack of enthusiasm about Las Vegas (I am not a gambler) is perfectly balanced with my exuberance when it comes to learning and networking for 4 days around payments, banking and all things fintech. Recently I have moderated M2020 panels on bank as a service or platform banking – both in Las Vegas and in Europe.

This time around I am mixing things a bit and interviewing Scott Mullins, one of AWS’ executives in charge of the financial services industry, in a keynote fireside format. I am quite excited with this interview as I strongly believe the bedrock of future financial services is cloud computing. Without cloud computing a financial institution cannot truly become flexible with its technology architecture. Not being flexible means being unable to re-invent core systems & how products/services need to be delivered? Without core systems re-invention financial institutions will not be able to take advantage of the sea of data they swim in. Basically cloud computing is it and in cloud computing AWS is it. The keynote fireside chat will be very interesting, I promise, especially as many in the financial services industry lose many nights thinking about how Amazon could enter their businesses and obliterate them. We will try to debunk these myths too and focus on how AWS can enable and help financial firms – be they banks or insurers or asset managers. The only part that chagrins me is that the good folk at M2020 have limited this fireside chat to only 25 minutes. As such, if you want to hear more about this subject, please lobby your M2020 representative immediately and demand that my AWS fireside chat be extended to at least 40 minutes. That should do the trick!

Talking about the good folk at M2020, they also approached me for my good looks and general gregarious demeanor, suggesting I co-host, alongside other individuals, a revamped poolside soiree on October 21. I happily answered by the affirmative before they changed their minds. So, in addition to attending the AWS fireside chat, please make an appearance to the poolside reception to say hello as all of your closest friends will attend. Fun will be had by all I promise – further, unlike this graphic suggests, I will not wear a bathing suit at the party.

Much has happened since last year’s M2020 in Las Vegas, much of it geopolitical or political in nature. In no particular order, trade wars as a political weapon, tariffs, currency wars, challenges to the post WWII economic order, further repercussions off of Brexit, accelerated cyber warfare, pressure on the EU, a general climate of deregulation in the US, China’s “new” Silk Road drive progress, inflation making a comeback, tax rates competition, economic growth in the US, the end of the love affair the public has had with technology in general and social media in particular, a changing sentiment towards tech platforms, the weaponization of news and data…

I posited, in a blog post published at the end of 2017, that the 2018 fintech trends could very well be impacted by geopolitical events. I believe this prediction has proven to be on point to a certain degree. What I will track and try to decipher during this upcoming M2020 event is how all the above turbulences and changes are being digested by the industry at large and by several constituencies in particular – startups, bankers, payment companies, cross border payment businesses, trade finance folk, VC investors, CVCs, thought leaders. Based on the assumption that the era of “technology is neutral and can do no wrong” is over and that a new era of “national politics is back front and center” the fintech world has to be impacted too.

Here are a few thoughts I will want to test during these four M2020 days of intense networking:

  • How are Chinese investors, operators, big tech and financial actors acting and reacting?
  • Are the Chinese models (WeChat, AliPay…) really the future of financial services in a new geopolitical era? How will Chinese regulators impact Chinese fintech models?
  • Will US banks have a spring in their step given the deregulatory noises and actions so far?
  • Are investors (early stage and late stage, corporate and private) already adapting to a lengthy national economics era where cross border investments will be more difficult to execute?
  • Will financial regulation diverge further between trading blocks and how will fintech be impacted as a result?
  • How will cyber warfare evolve as a threat vector applied to financial services? What will be financial institutions actions & reactions over and above what is already a healthy cybersecurity spend across the board.
  • Will fintech activity, payments tech activity cool off further trans-border in 2019? What are the expectations?
  • Will technology and innovation suffer from national economics, or thrive in different ways? If thrive in different ways, how so?
  • In the face of a resurgent national economic era, how will the crypto world evolve – given that crypto technology is by essence transnational?

I am sure to be missing a few salient points here, so please chime in, and do not hesitate to do your own research too. Further, what I like about the above is how different of an approach to the future of fintech it forces you to think. Namely, I am not focusing on the development and application of a specific technology, be it AI or blockchain. Rather, I focus on governance and political actions and how the fintech world will be impacted.

ps: I probably will blog further about M2020 in the coming weeks, so stay tuned.

pps: I do look like a crazed human marmot in these M2020 graphics

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27

Mar

2018

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It was the best of customer service, it was the worst of customer service, it was the age of legacy thinking, it was the age innovation. Charles Dickens did not have the opportunity to live in both London and Paris. That did not stop him from writing about Paris. I have the misfortune of having experienced legacy and startup customer service. This compels me to share my experience via this short post.

Convinced by the solid arguments for privacy and security which Facebook, Google, Cambridge Analytica et al. have pushed forth into the public arena recently, I embarked on a quest to find an email service more fitting of the quiet, introspective and private life I yearn for. After much searching, my gaze rested on a particular service which I longed for in a manner similar to Chimene’s eyes when conveying their love for Don Rodrigue. I promptly signed up for the new email service, firmly hoping my new epistolary tool would not tragically betray me the way Don Rodrigue ended betraying Chimene.

Armed with a newly functioning email address, now was the time for me to start switching the plethora of newsletters, digital newspaper subscriptions and other services of importance which I patronize and which held my old email address – the one whose provider scans and reads all I send and receive. Having not undertaken such an exercise in many years, I was immediately struck by how extremely diverse the workflow involved in changing an email address associated with an account is. My friends, let me be clear, the experience can be positively scarring and scary. May I dare say, in the grand scheme of things, changing an email address runs from the most picayune to the most anti-picayune, and that both extremes brings one one step closer to how it may feel upon returning from the heart of darkness, barely unscathed.

It is decidedly rather scary to change an email address after having logged into one’s account without being asked to prove one is oneself at all (this did happen more than once). It is decidedly rather frustrating to attempt changing an email address and try as one might want to, with all the preternaturally placid energy nature as bestowed upon oneself, to barely complete the task in less time than it would take to read Jules Romains’ Men of Good Will, all 27 volumes. Several days and many more gray hair later, I can declare the state of identity management to be barely better than that of fallow land. Fertile, maybe. Productive, no. Further, the state of customer experience and service may lead one to utter madness.

I selected two experiences for your edification and entertainment. One while interacting with an incumbent bank of Gallic disposition (“the Bank”). The other while interacting with a fast growing fintech startup specialized in cross border payments (the “Startup”).

I was expecting a rigorous process when changing my email address with the Bank. I was not to be disappointed. I first logged into my account, which I had done so to check my balance just a fortnight ago. Alas, I was denied on my first try. Not knowing which of my password or username was incorrect, I prudently typed both anew. No dice on the second try, or the third or the fourth. No message either, alerting me to my mad ways and brandishing the menace of freezing my account after a certain number of errors. I was left on my own, trying to navigate the Bank’s web site, which I did post haste. After wasting several hours, I finally located a page the promised me a swift and online procurement of a new password. I  filled all the fields but was thwarted by the last one, the “phone number” field, which to my greatest astonishment only accepted Gallic formatted numbers. Being a US resident, I found this narrow formatting fiat particularly galling and try as I might, could not complete the task.

I then chose the next best option, that of chatting live with a customer service employee. I quickly realized the errors of my ways as, after having clicked on the chat link, I was redirected to the the log in page. Yes, indeed, one can only chat with customer service to resolve login issues if one is logged in. Brilliant. Lest I be accused of not searching the Bank’s site thoroughly, I spent more time hunting down other points of contact, or nuggets of knowledge the benevolent Bank ux luminaries may have left for us poor users. Alas, lady luck did not fancy me and all I could find was a few toll free phone numbers only usable when located in Gaul. My blood was boiling and I clearly enunciated several swear words which Captain Archibald Haddock would have approved of had he found himself in similar circumstances. Stubbornly denying defeat its due, I trucked along and wondered if I could find a more welcoming experience on Twitter. Three Gallic Bank twitter accounts later (this Bank has over a dozen Twitter accounts I believe) I had found someone who provided me with a customer service phone number which I could use while in the US. The help desk was closed for the day when I called – the 35 hours work week is a cruel mistress.

The following morning, having forgotten my Quixotic adventures of the previous day, I called the help desk again, and was greeted with an array of options, explained in the modern Gallic language but lacking in the clarity one expects from modern businesses. It took me six tries until I finally reached the right option – the system hung up on me twice, I chose the wrong option three times as I misunderstood the instructions and the UPS man interrupted me with an Amazon delivery the fifth time around. (By then I needed a shot of bourbon to steady my nerves and stiffen my resolve.) Have no fear, I had finally reached my destination and was soon to unite in Hegelian discourse with a human being on the subject of my login credentials. (We are not even talking about changing my email address at this time, let’s be modest with our goals here.) A robotic voice, mellifluously tinged with anthropomorphic tones, informed me many other users were calling at the same time and to expect a lengthy delay. I was given the option to leave my name and phone number so someone would call me later. I wised up and I declined the option while musing about the reasons all other users had in calling the help desk. Were they all properly worked up with how Gallic quality of customer service, were they secret shoppers testing the system to improve it? My musings were interrupted by the same robotic voice which informed me the wait would be 3 minutes. Victory at last! 3 hours and one cat nap later, I finally was talking to someone.

The conversation was short and pleasant. I was informed not to worry as my account was still active – a relief. I was also informed the software system did sometimes “hiccup” and in so doing would fail to recognize proper credentials. I wondered for a second if this was a feature rather than a bug. All one had to do, the customer service rep told me, was to wait a day or so and try to log in again. I felt validated, at least, my case was not one of user error. I gently pointed out the incongruity of such state of affairs. What if one was facing an emergency such as paying for the subscription renewal of Crypto-Soldier of Fortune to avoid interruption of service? My query was met with soothing approval. Yes, of course, such things are an inconvenience, but time will help, have patience, and we will solve the issue eventually. After reading through her notes the customer service rep informed me the only way out of my misery was for the bank to initiate a new password which would be sent via express snail mail – I humbly ventured other options such as changing the email address over the phone but was quickly and gently denied and chided for my straightforward and simplistic ways.

As of today, I expect receipt of said mail within 5 business days, at which point I will, if all goes to plan, be able to log into my account and change my email address. I am in the hands of the Gods, or those of the Bank’s mail delivery group, whoever is more omnipotent.

The Startup experience could not have been more different. First, this is not your garden variety startup. This startup has experienced strong growth, survived the slings and arrows of outrageous entrepreneurial fortune and is now a vibrant and, one can assume, well structured startup. I logged into my account – no system hiccups – found my account profile and was instructed to call the help desk for a change of email address. I called, waited for two minutes, talked to a customer service rep gave my credentials, answered a few identity questions, gave my old and new email address, received an email to my new address which asked me to verify said address, clicked, verified and logged back into my account. All in all, the entire process took no more than 5 minutes. Wait for it, wait for it, the rep called me back 15 minutes later to make sure everything was ok. A marked improvement compared with the Bank experience. Here is a startup, raised on free-range digital land, weaned off digital milk, knowledgable and nimble enough to create sensical customer experiences. The identity management paradigm is still imperfect mind you, what with talking to someone and answering various questions to ascertain if Pascal is indeed Pascal. Still, an experience which I came out of rejuvenated, with faith in my fellow woman restored.

Prior to this episode, I had recently interacted with various bankers game fully employed with other incumbent banks. The great majority of them are convinced innovation and disruption are oversold and over-hyped and that their august organizations know how to get the right answers to address change in an internal fashion. On the face of my recent customer experience, it is the right questions one should be more preoccupied with.

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01

Mar

2018

European fintech startups: March 5th is last chance to apply to valuable fintech investment program

I decided to sit on the advisory board of an upcoming Fintech Europe 2018 program, and I’d like to tell you why I’m excited about it and why I think you should apply (besides the chance to get to meet me): Fintech Europe 2018

Fintech Europe is based out of Luxembourg and has three main sponsors, Village Capital, PayPal and MiddleGame Ventures.  The LHoFT is also our invaluable local partner in Luxembourg.

If you’ve been following some of my recent rants, there have been a number of recent changes in regulations that have the potential to redefine the financial landscape in Europe. Blockchain and AI are advancing to the point where they may upend the entire industry. Brexit opens up some fundamental questions about the future of regulation and trade, especially around how MiFID II and PSD2 affect the power dynamic between banks and payment service providers. The new standards created around digital identities and data ownership may transform the way people bank online, transfer money, pay for goods and services, and manage their digital IDs.

What does it all mean for the average person? Part of the reason I invest in fintech space is because I believe that individual innovations in financial services can make life better for millions of everyday people, as well as making life very good for a few extremely wealthy people. We’re at an inflection point, and these big changes have the potential to make the system fairer, more transparent and more efficient for consumers, SMEs and families.

But it’s not as easy a snap of the fingers. These changes will be difficult and expensive for financial institutions and SMEs alike. The magnitude of these changes means that in spite of the raft of Fintech advances over the last decade, both providers and consumers of financial services will need to spend time, effort and money to adapt.

This creates an enormous opportunity for entrepreneurs and innovators to create and scale solutions that help address everything from reducing compliance costs to improving banking data security, ultimately paving the way for a healthier financial system. Regulators and supervisors themselves can benefit from these changes and Fintech.

There are incredible startups out there looking to take advantage of these changes to improve financial health – and we need to make sure they have the best chance to succeed.

I’ll copy a plug for the program here, but if you want to dig deeper into this world with me, join us and meet other people exploring this unique space in history and time. We stop accepting applications on March 5th.

Village Capital, PayPal, and Middlegame Ventures are collaborating to launch Fintech Europe 2018, a venture development program for entrepreneurs creating technological solutions that help financial institutions, financial markets, regulators and consumers interact with financial products and services in the digital age. Fintech Europe’s goal is to foster a new generation of fully compliant financial solutions tailored for the digital age centered on the financial health of institutions, consumers, and businesses.

The program is focused on companies using one or more of the following strategies in Europe:

  • Apply innovative technologies including blockchain, cloud computing, artificial intelligence, IoT, biometric tech, and machine learning to problems facing the financial system
  • Leverage 3rd party data sources to increase financial services and distribute benefits
  • Enable financial institutions to improve their compliance functions (e.g., KYC or AML)  or help institutions build more inclusive digital identities
  • Promote financial stability by empowering financial institutions to better comply and governments to better monitor European and/or global

Apply here by March 5th

(https://vilcap.com/program/fintech-europe-2018/)

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10

Feb

2018

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Two spheres cohabit within every society or group within societies: the Sacred, and the profane. The sacred sphere, being esoteric, wields control over mysterious powers, only accessed and enjoyed by the initiated. It is imperative these happy few restrict access and keep the mystery alive as it is the key to their power. The profane, by contrast, is enjoyed and available to all. As long as the profane sphere does not threaten the sacred sphere, it is left alone to prosper as it wants, under the watchful eye and rules of the sacred.

In the Middle Ages, the Catholic church held a monopoly on the sacred; divinity was the sacred sphere. Mass was celebrated in Latin, the Bible was written and copied by monks in Latin. Knowledge and power accrued to the Catholic Church based on esoteric frameworks and strict rules for the dissemination of that knowledge. Indeed, it was illegal, even dangerous to challenge the Catholic Church with fanciful ideas such as the translation of the Bible into the vernacular. Be that as it may, a few fearless souls undertook this endeavor in the 13th and 14th centuries, and translated the sacred text into English, French or Czech, as a political act of defiance and a direct challenge to the Church’s authority. These transgressive souls might be banned, excommunicated, or burned at the stake for their trouble.

Even then, the heretics’ reach was limited as, even if the Bible were translated into the vernacular, it could  not reach the masses as handwritten reproduction was slow and expensive. That is, of course, until a little-known German inventor birthed the printing press in the mid 15th century, upon which  one of the first books printed was the Bible. This technological revolution was one of the reasons that led to the democratization of knowledge and the Catholic Church’s loss of its monopoly of “sacred power”. Many schisms later, we now have a very varied Christian landscape, and more importantly, a political and legal subordination of Church to State in all industrialized countries. [NOTE: Church and state are not “separated” as such in most of Europe, many countries of which (Italy, Greece, UK) have established religions. The religious apparatus is however subordinate to the secular political apparatus]

Modern society too has its own interlocking sacred spheres. One deals with the creation of money by central banks and large commercial banks. This sphere is indeed sacred and rules over the health of our economy, over the money we use in our daily lives, over the sacrosanct macroeconomic black magic governing of economic growth, inflation and employment. Central bankers are the new Catholic Church and the color of the smoke emanating from their periodic conclaves is scrutinized by many, understood by few, and praised by the initiated.

In my line of work, a most profane one, I deal with fintech, that is financial technology. Fintech busies itself with efficiency. Fintech has pedestrian goals: cheaper, faster, better service, more transparent, more insightful. Fintech is utilitarian. Indeed, some fintech startups only a few years old are increasingly finding themselves challenging large banks or insurers for dominance over users and customers. Others will challenge incumbent service providers in servicing the banks and insurers of tomorrow. Most of these activities are, currently, profane;  Central Bankers and large banks alike will lend a distracted eye towards the proceedings, sometimes making solemn pronunciations about “the need for a level playing field” and “adequate regulation and consumer protection.” Be that as it may, no one in control of the sacred sphere has lost sleep over fintech in its aggregate form or at the margin. Not yet.

Fintech is catholic in its own way. I hold a “big church” view of the space, and as such include the entire “blockchain” ecosystem and its unruly  twin, the “crypto-assets” ecosystem, within it. For the purposes of this post, I use the term blockchain to include all flavors and stripes of blockchains and distributed ledgers and will narrow “crypto-assets” to only include cryptocurrencies. Simply put, cryptocurrencies can be supported by permissoned and permission less blockchains or distributed ledgers and other types of crypto-assets – crypto-equities, crypto-securities, tokens… are rather profane.

Now that we’re all speaking the same language, it is my belief that cryptocurrencies have the potential to challenge the current sacred sphere of money creation, and that viewed from this vantage point, the borderline hysteria exhibited by most if not all central banks, financial regulators and various governments is a very normal and expected reaction. A reaction borne out of fear on the one hand, and outrage at what is perceived, rightly so, as an existential challenge.

To be clear, to date, the hysteria has hidden itself behind a justifiable criticism of the numerous alleged nefarious activities which bad actors have undertaken in the cryptocurrencies space. More sober criticism has centered around the limitations of the underlying technologies powering these cryptocurrencies as balanced against the marketing used to sell them. Both the promoters and the cynics are in their own way correct, yet do not be fooled for one second that the sacred sphere has not seen the threat and is actively building up its defenses in the hope of definitively crushing it.

Accordingly, we are treated with the threats of bans in some countries, actual bans in others, the threat of litigation and prosecution for bad actors in all, the threat of heavy handed regulation in many. Most within the sacred sphere are quick to point how they do believe in the positive aspects of blockchain technology, but not its current applications. This is further proof that the profane is seldom seen as a threat.

Nation states enjoy a monopoly over violence and over money creation. Money creation is backstopped by taxes on the people and the state monopoly on violence ensures a more or less orderly collection of taxes. Remove the monopoly over money creation and the nation state starts to vacillate on its pedestal. As such cryptocurrencies that challenge fiat currencies are an existential threat that cannot be allowed to propagate. Many pundits will rightly point out that all cryptocurrencies suffer from congenital malformations and do not pass the test of a means of exchange or a store of value as they are either too volatile, too expensive to create, too expensive to exchange or all of the above. They too are correct and these criticisms are a reflection of the current level of maturity of the various technologies underpinning cryptocurrencies. If there is one thing we can count on, it is human ingenuity, and the crypto field will find solutions and solve these defects over time. What we all hear is the sound of inevitability in the form of fitter cryptocurrencies to come.

Other pundits will also point out that even if technologies issues are fixed, cryptocurrencies will always suffer from a lack of backstop properties. That is, they are not, will not be backed by taxes. This is true. A currency cannot be stable if it does not enjoy such backstop. It is also true that money is what individual decide to use amongst themselves. As such, a backstop with a currency that loses the “trust” of the individuals that have access to it is as vulnerable and maybe even weaker than a currency that lacks a backstop. I will even venture to state that once the proper “trust” in the form of a usability/monetary policy paradigm has been programmed into a protocol, a cryptocurrency may prove vastly superior.

The first cryptocurrencies have shown several important points, some new, some we may have forgotten:

  • Money can be programmed
  • Money is a social construct that comes to life when individuals believe in it, equally so for programmable money
  • Programmable money (cryptocurrencies) is cheap to develop
  • Programmable money is cheap to fork
  • Censorship resistance is worth promoting

Cryptocurrencies have yet to show the following:

  • appropriate scalability, adequate latency
  • appropriate monetary protocols for wide usability
  • appropriate fiscal protocols for wide usability
  • appropriate fungibility
  • appropriate privacy & bearer qualities
  • appropriate energy usage

Cryptocurrencies hold the promise of:

  • a more efficient means of exchange
  • a more efficient store of value
  • infinite customization
  • novel ways to conduct monetary policy
  • democratization of payment transactions, decentralization and dis-intermediation of the financial services industry
  • at the margin, accruing more power to individuals instead of more power to the state

The threat for the current dominant sacred sphere is that of being dis-intermediated its oblivion, or of seeing its power gradually blunted and diminished over time.

It is difficult to envision a complete dis-intermediation whereby central banks and large banks, as central agents of money creation would completely disappear and be replaced by pure p2p interactions. After all, the Catholic Church did survive the democratization of knowledge, the loss of latin as an instrument of esoteric power and the printing press and its offspring. The Catholic Church is indeed alive and many other religions have successfully “forked”. It is just not as powerful as it used to be.

The Catholic Church’s actions starting with the 13th century also show us that full or partial bans do not work. There is no reason to believe that a full or partial ban on cryptocurrencies will work better than one on translating or printing the bible into the vernacular (the US prohibition also ended in failure).

It is easier to predict that central banks will embrace cryptocurrencies by issuing their own “fiatcoins”. We know several central banks are studying such an endeavor. These fiatcoins may be used as a means of exchange and unit of value between financial institutions and central banks, between a central bank and individuals, and between individuals. In any of these examples, fractional reserve banking may be irremediably changed and the losers will be large commercial banks. Indeed, central banks may find it easier to borrow directly from individuals and lessen the money creation role of banks. Individuals may themselves take on the role of lenders and money creators by aggregating supply and demand in a decentralized way – maybe with the help of central agents whose roles would be that of a new age credit bureau for example.

Further, once the current hysteria is over, it is not inconceivable that fiatcoins would co-exist with private cryptocurrencies, whether issued in pure p2p form or issued by private institutions. This would presuppose a new regulatory landscape, both national and transnational, in order to solve for endemic fraud, illegal transactions, scams, ponzi schemes, while promoting genuine economic activity.

I do realize the above may appear like pure science fiction given the current state of affairs. What makes me intrigued and hopeful for a future where cryptocurrencies will play a central part in our lives is the fact that we seem to be nearing the end of the current economic paradigm that has ruled since the end of Bretton Woods. It is clear that hyper-globalization, floating currencies (for the most part), the $ as a reserve currency, and free capital flows have led to a series of financial shocks. More voices are now calling for a new system, coincidentally so as the world of blockchain and cryptocurrencies, after having been unleashed by Satoshi Nakamoto, has ascended (the recent correction in prices withstanding).

 

Incidentally, we still do not know if Satoshi is one or several persons. I for one believe he may be the sum of modern day John Wycliffe, Jan Hus and Johannes Gutenberg. A trinity of democratization of the language of money (translation in the vernacular), re-thinking of the theology of money (white paper as a political act) and programming of the language of money (printing at scale in the vernacular).

ps:  I would like to thank Preston J Byrne for his editorial help with this post.

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