The Finanser Interviews: Jeffrey Robinson, Author of "Bitcon, the naked truth about bitcoin"

Following our regular weekly interview, the Finanser talks this week with best-sellng author Jeffrey Robinson.

Jeffrey Robinson

Jeffrey Robinson is a native New Yorker and an international bestselling author of 26 books.  He is a recognised expert on organised crime, fraud and money laundering, and has been labelled by the British Bankers’ Association as “the world’s most important financial crime journalist”.  After my recent coverage of bitcoin, the blockchain and cryptocurrencies, he got in touch to provide the other view of this world.  As his most recent book is a year long investigation into the other side of bitcoin – “Bitcon, the naked truth about bitcoin” – the conversation proved fascinating. 

What is your background with bitcoin and how did you find some of the activities with bitcoin rather suspicious?

A few years ago, someone told me that bitcoins were good for money laundering. And after books like The Laundrymen, The Merger, The Sink and The Takedown, serious books about the serious business of dirty money, I was interested. So, I looked into it and eventually came to the conclusion, as I say in BitCon – The Naked Truth About Bitcoin, that it is, in fact, not good for money laundering. The system moves it but doesn’t inherently disguise the origins of illegal funds or helps them reappear as legally obtained funds. However, bitcoin is great for capital flight, terror finance, tax evasion, extortion and criminal finance. But, for money laundering, it basically sucks.

Still, I wanted to know more so I went to one of these Bitcoin meetings.  One of these big convention type things that they hold all the time. I was awestruck at the general level of naïve stupidity. These were pre-pubescent kids. It felt like a bad high school reunion. Everyone was keenly intent on convincing me that the dollar is dead; that Bitcoin was about to take over the world; that all the central bankers should be thrown in jail.

I said to myself: “If this is what the Bitcoin movement is all about, it has no chance whatsoever.” But, over lunch at that meeting, I spoke with one of the few grown-ups in the room about the technology. It dawned on me that maybe there is something here when it comes to the transferring of assets. 

The way I see it, and the way he saw it, too, was that with greater development of asset transfer there will be greater emphasis on valuing those assets in dollars and pounds and euros. That means the pretend currency will become increasingly useless and eventually disappear.

By the way, I call it a pretend currency because it doesn’t satisfy any of the three main criteria for modern currency. Furthermore, it is traded like a pretend commodity on what I have come to believe is a pump and a dump market; where very few people control the market and the gullible lose money.  Only the few people who control the market make money.

The more I got into this the more evident it became to me that, if you could separate out the lunatics, the delusionals, the pump and dump schemes, the pretend currency and all of that, and get to the core blockchain, you might actually have something interesting. It was with that in mind that I went and spent a year running around Planet Bitcoin, talking to a lot of people and asking the kinds of questions that I didn’t see anybody else asking.

I find it intriguing, in your book ‘BitCon’ that you quite clearly lay out the idea that the currency has no future. And yet, when you talk to the fundamentalists in the community of the Bitcoin world, they believe you can’t have a blockchain without bitcoin.  The two are integrally tied together. Do you agree with that view?

No, not at all. This is the old argument of: “The Catholic Church is the only church, and everything else is heresy.” It simply isn’t true. Preston Byrne in Eris is working on a blockchain that has nothing at all to do with bitcoin. Ripple has nothing to do with bitcoin. People don’t want to know about bitcoin because it is surrounded by so much hype, spin, misinformation and outright fantasy, and it’s too clumsy.  On the other hand, if you have a bank or a group of banks that could operate a centralized or closed blockchain just among themselves, for the transfer of assets back and forth, that could work.  This bank or group of banks could, say, send money from the US to London and back and forth, and if it was just these banks working on these settlements, you wouldn’t need bitcoin. You wouldn’t need the miners as you don’t need any mining. It’s a closed ledger that the banks control, and the banks essentially are inventing their own blockchain.

Of course, that’s seen as heresy by the bitcoin faithful. But look at the concept of decentralization. It’s a political ideology. “I don’t want the government involved”.  That makes it non-commercial. How about if the banks don’t want to turn over their money for the ten minutes that it takes the miners to verify each transaction, which means they  temporarily lose control of the money. A couple of months ago, transactions were taking an hour and a half or almost two hours. No bank is going to give up control of $100 million for two hours, especially when you consider that much of it will be verified by miners in China. It’s not going to happen. The decentralisation political ideology does not conform with what the banks want. They want a commercial solution.  What they’re looking for is a centralized, or closed, blockchain.

Now, the faithful will say, “You can’t have a centralised blockchain, it’s just a database”. Well, decentralized blockchains are just a database. There are efficiencies and inefficiencies in that database, so you take the great efficiency of the decentralised blockchain, you centralize it, close it, and you can say bye-bye bitcoin because no one needs it.

I can see both sides of the argument in some ways and right now we are seeing a lot of the banks on Wall Street starting to play. For example, UBS recently announced that they’re incorporating laboratories to develop blockchain technologies to reduce cost.

That’s right, but they don’t say they’re getting into bitcoin, the pretend currency.

No.

You see this is part of a hype and spin and why we need to separate  the pretend currency from the blockchain”.  Every time someone speaks of the technological advancements, the bitcoin faithful immediately equate it to a success for the pretend currency. But it’s not. As a matter of fact, there are no bitcoin pretend-currency successes. I can’t find even one of them. You talk about the VCs in Silicon Valley and London and Canada, especially the big ones who have invested upwards of a half a billion dollars. The investment is not in bitcoin the pretend currency; it’s in the concept of blockchain technology.

I think Marc Andreessen gave the game away when I contacted him for BitCon. He said, “My only interest is in finding practical solutions to real problems”. When you think about that, he’s developing businesses that will ride off the back of the blockchain. What he needs to do is sell it to somebody. So, if it’s a financial thing, he’s going to have to sell it to a bank or a finance house. If that bank or finance house says, “We have no interest in this pretend currency, we want it in dollars and pounds”, he’ll abandon bitcoin in a heartbeat. He has no loyalty to the pretend currency, none whatsoever. No one does. Except speculators and the guys trying to flog it to greater fools. In fact, Andreessen told me how he hardly has any of it. He doesn’t own a lot of it.

Yes. If you look at Marc Andreessen, in particular, you can see his VC fund Andreessen Horowitz investing heavily in the technology developments, such as Ripple, rather than the currency.

That’s right. That is their onlynterest. You’ve got $500 million approximately invested in this technology. None of them have seen real returns yet. How sustainable is that if it goes on for another two or three years? It’s not. These guys are only interested in seeing two, three, five or ten times their return on money and, if they’re not making it, they’re going to pull out and put their money into someplace else. That’s how venture capitalists stay alive.

I really blame the media for a lot of this. I don’t blame the bitcoin media, because there is no bitcoin media.  They are simply regurgitating public relations and PR releases. CoinDesk is not journalism. I’m sorry, but it isn’t. However, the mainstream media – CNN, BBC, the Wall Street Journal, the New York Times, Forbes and the like – aren’t asking the right questions. They are blinded and enamored by the idea of bitcoin. They keep rehashing this “bitcoin is the currency of the future” crap and never look beyond it to say: “Hold on a minute, this stuff can’t stand a close scrute”.

For example, Dish Network, Dell, Expedia and others supposed “accept” bitcoin, at least according to the press reports. The truth is that they don’t “accept” it. They simply allow you to pay in bitcoin. And those payments go through Coinbase or BitPay.  This is because Dish and Dell and Expedia and the others don’t want anything to do with bitcoin. Allowing a customer to pay with bitcoins is not an endorsement of bitcoin, it’s a marketing ploy.

Microsoft is not endorsing bitcoin. Bill Gates said recently something about how crypto-currency maybe the future of finance. Right. So, immediately the media screams, Bill Gates endorses bitcoin. No, he doesn’t. Apparently Bill Gates doesn’t even have any bitcoins. That’s the kind of hype and spin misinformation that really drives me nuts. It’s a failure of journalism to do its job.  As an old school journalist, I find that really extremely worrying.

In your book you’ve dug through a lot of the headlines, in terms of where claims are being made about bitcoin that actually aren’t true.

They’re categorically untrue. I’ll give you a really good example. Take my pal Patrick Byrne, the CEO and Chairman of Overstock.  About a year ago, he was saying he has no interest in cryptocurrencies or in bitcoin. Well, somebody convinced him that there were pockets of bitcoin all over the place that couldn’t be spent anywhere. So he said, let’s go after those pockets of bitcoin and sell them garden furniture. This was a marketing ploy.  He announced, “Overstock will accept bitcoins.” The press loved it. But Overstock wasn’t “accepting” bitcoins because every sale had to through Coinbase. What’s more, Patrick was smart enough to have negotiated with Coinbase that he wouldn’t have to pay a commission on the currency conversion. So “accepting” bitcoin didn’t cost him anything. The very first day he racked up $133,000 worth of bitcoin driven sales. It looked like he was supporting the bitcoin community, so the bitcoin community supported him. Within three months, however, his bitcoin-driven sales was down to $7,000 a day. Why? Because the people who had these pockets of bitcoin and no place to spend them, had spent them. And they didn’t buy back in. They saw no reason to buy any more bitcoins simply to use them to buy for pillow cases and garden furniture priced in dollars at Overstock. That’s significant. Think about it. How is there any logical reason for anybody to take dollars to buy bitcoins to pay for things priced in dollars? It adds no value and, in fact, creates extra expense. So, his sales dropped down to $7,000 a day. He then announced that he would accept bitcoin worldwide and his sales went up to $8,000 a day. But they have since fallen again. He has even said publicly, there is no international interest in bitcoin.  None.

Shortly after admitting world wide disinterest, he filed a report with the SEC which received no media reporting whatsoever.  He’d decided to hold on to 10% of all his bitcoin sales.  That means that Coinbase now converts 90% and sends him the remaining 10%. So he’s holding onto $700 a day worth of bitcoin business which he says he is giving to his staff as bonuses. By the way, the staff apparently insisted they put a bitcoin ATM in the lobby of the building in Utah so they could cash out right away. Now, on $7000 a day of bitcoin driven sales, he’s saving his 3% Visa and Mastercard fees.  That’s $210. Okay, $210 a day times 365 adds up.  Except, he told the SEC that, in order to integrate the 10% he holds,  he must integrate $700 a day into his bookkeeping for tax purposes. That’s not so easy because bitcoin is considered property by the tax people, which means there are both capital gains and capital loss calculations on each bitcoin. So far for the privilege of keeping a few bitcoins on his books, he told the SEC, it has cost him $400,000.  Next, Patrick said in that SEC filing, he would probably have to spend another $400,000 to make his bookkeeping fully compatible. So, he’s spending $800,000 to save $210 a day. It will take him almost ten years to get his money back. Explain to me how this is a good idea, how this is sustainable, how this makes any sense at all.

The Bitcoin community claim they have created money without government if they live within the Bitcoin system. What’s your reaction to this claim?

But you cannot live within the Bitcoin system. It’s impossible. Sure, you can buy bitcoins with your dollars and fool some people into thinking you’re living on bitcoins. But you’re not. To manage it, you need a circular flow of income, and with bitcoins, there is none. Every time you purchase something with bitcoins, as soon as the sellers of the goods and services turn it over to Coinbase or Bitpay to convert it back to dollars or pounds, each purchase becomes a sale of bitcoins. That way, no one’s holding this stuff.

Equally, when you look at the real statistics, you find that a lot of the numbers the Bitcion faithful claim as usage, are outright phony.  The faithful say there are 110,000 transactions a day, but only about a thousand of those transactions are for the buying and selling of goods and services. The rest are miners moving bitcoins between different wallets and address, and gambling. On top of that, there is what’s called “the change factor” which means each transaction gets counted twice. Next, the faithful say, there are eight million wallets. What they don’t tell you is that almost all of them are either empty or near-empty. In truth, Coinometrics at Cambridge says that fewer than 250,000 wallets hold one bitcoin or more. That’s not 250,000 people, that wallets, and most people have multiple wallets. Based on that, I am correct when I say, there are more people who are members of the Kuwait Airways frequent flier club that there are people on the planet holding bitcoins.

The faithful also say there are 80,000 to 100,000 businesses around the world that “accept” Bitcoin. But they don’t “accept” it.  Most of them never see any bitcoins and the few that do, mostly, don’t hold any. I called some of these businesses and I said, “Since you put a bitcoin button on your site, what’s  happened?” They said, “It’s a pain in the ass.  We’d much rather have somebody just give us cash, because what we have to do as soon as we get the bitcoins is sell them.  We don’t want them.”

Of the very few businesses I found that actually keep bitcoins, the one I liked the best is a guy who sells rodeo tickets in Texas. He said to me, “I put the bitcoin button on my site hoping that I’d get one or two, which I would save so that when I hit a million dollars of coins, I could retire. But I also play the lottery and that never comes in.” I asked, “How many purchases have you actually had with bitcoins?” He said, “None”.

The facts are the facts. No one is using this stuff. To that I add this undeniable fact: As a global economic phenomenon, bitcoin is a non-event.

The pretend currency is not working. Where people are saying bitcoin has a future, ask them to point to a bitcoin success. Nobody is saying, “Look at this, here is a huge success,” because there aren’t any. Instead, they point to the future. They say: “Just wait and see how bitcoin will end poverty by becoming a bank for the great unbanked.”

Huh? You and I both live in countries where there are unbanked, but they’re unbanked for various reasons. In some cases it’s cultural. There are ethnic communities that don’t want banks, that operate only in cash. There are also people who cannot afford banking and have to use payday lenders and cheque cashiers or things like that. But I cannot find a single case where bitcoin has actually saved any of those people, and this is in the developed world.  Not a one. In the United States, where there are 70 or 80 million unbanked, there is now a move by Bank of America and Walmart to go after these people and to get them credit, to bring them into the banking system. How do you expect three delusionals teenagers on bicycles, wearing t-shirts that say, “In thin air we trust”, to compete with Bank of America and Walmart? It’s not going to happen.  

Also, in the States and in Britain and throughout the developed world, WiFi is cheap and readily available, and smartphones are readily available and cheap.  But the unbanked are still unbanked. Now look at the developing world where WiFi is expensive, where smartphones are not plentiful and where people have traditional, cultural, religious and political distrust of all sorts of things coming from the West. How are you going to sell these people on an invisible currency they can’t possibly use?. They’re simply not going to buy into this.

On the other hand, a bank in Kenya and Vodafone, whom they know, are saying to them: “Look at M-PESA.  You can put that on your phone and move money.” They have sales and marketing forces. They understand the traditional, culture, religious and political mindset. Those three guys on their bicycle with the t-shirts are never ever going to compete with with.

I still haven’t worked out your view between the idea that there’s a good technology here, which is going to play something useful for banks such as Ripple, which has centralized capabilities.

Or Eris. It’s the blockchain that is useful, and the blockchain needn’t have anything to do with bitcoin.

Versus the Bitcoin guys who keep coming back at me and saying, “But it’s out there, it’s in the wild. We’ve got it, we don’t care about you.”

Except no one’s using it. Preston Byrne in Eris had a great quote the other day that I re-tweeted, because I think it’s the best quote ever about bitcoin: “A paradigm shift is not a paradigm shift if no one is using it.” That sums it up. The faithful always talk about bitcoin being disruptive. What they ignore, at their peril, is the fact that the disrupted will always be heard from.

So you see this as a pretend currency, but it actually has a real technology, and your outlook for the future would be: this is a really useful thing?

No, no, no. Bitcoin is a pretend currency traded like a pretend commodity and pushed and pumped by a snake oil salesmen who have a self-interest in finding greater fools to buy it from them. Look at the Winklevoss twins and their Bitcoin ETF. These guts are grasping at straws to find greater fools to buy their bitcoins from them.  And they’re  not alone. The problem with bitcoin the technology is that it is surrounded by the need to recruit the gullible in order to keep the game alive.

What about the way in which bitcoin is used as a community currency, for crowdfunding for example?

Like the Elmer Gantrys of the old south, some of these evangelists are preaching: “Look at crowdsourcing and crowdfunding, and this will save you all. “ Andreas Antonopoulos testified before a Canadian Senate last fall, telling the committee on banking how wonderful Bitcoin was. I testified in January and spent most of my time debunking everything he said, explaining to the senators: “This guy is pulling the wool over your eyes.”  One of his misleading contentions was how bitcoin crowdsourcing was changing things for small businesses. The idea that you could have people from around the world collectively giving you two bitcoins so that you could do whatever business you needed to do with two borrowed bitcoins.  Again, the media just accepts this stuff, and they accepted his explanation. So I spoke to people who are borrowing crowd-sourced bitcoins, and spoke to people who are lending this stuff, and asked: “How does it work?” One guy in South America said to me: “It works great. I borrowed 1.1 bitcoin and I only paid 2% interest.” I said: “Gee, that isn’t bad. What was the term of the loan?” He said: “15 days.” I said: “Hold on a minute. You paid 2% interest for 15 days? Tony Soprano charges 2% for 15 days. That’s 48% a year. If you put it on your credit card, you can get it for 19% a year. You’re paying extortionate usury.” I then looked closely at the leading bitcoin crowdsourcing site, and they’re listing loans at 204% interest, and 305% interest and I even found one at 2,037% interest.

Short and simple, this is loan sharking. And there are laws against this. It is even possibly criminal for sites to aide and abet these loans. And it is definitely bad for business. What’s more, if you’re sitting in Britain and you crowdsource a guy in South America and he doesn’t pay you back, how do you collect on your loan? But, Antonopoulos sat in front of those Canadian senators and, with a straight face, told them: “It’s a wonderful thing.” It took me to say: “Look at the numbers, they don’t lie. He’s full of crap”. That’s what gets me about this. All of the spin and the misinformation and the hype, and the mainstream media is not doing its job debunking this.  They should be saying: “Let’s look closely”, because bitcoin cannot stand a close scrute. Because, frankly, when it comes to bitcoin, what you see is never what you get.

In BitCon, you write about Mt.Gox and the guy who ran it, Mark Kerpeles, being such a geek that he wasn’t actually sustainable in his own world, let alone running billions of dollars of other people’s money.

Karpeles was a train wreck waiting to happen. And he was in Japan, which meant if you wanted to get your money back, you had to go there. Now, here’s Coinbase in the United States, run by a bunch of Americans. If something goes wrong, they’re easier to get to get. But how will you know until it happens because they don’t publish their books. They’ve just gotten a $75 million fill-up. Why? Because, I would suggest, they were in trouble and needed more money. There is a processor in Slovenia, run by two geeks. Are you telling me that you’re going to trust your money to anyone in Slovenia? This is crazy. There are no consumer protections.  There’s absolutely no guarantees in any of this.  And people say it’s wonderful. But it isn’t wonderful. It’s a minefield that’s fraught with problems, and it will come unglued because it simply cannot continue.

It’s not helped by the criminality that surrounds bitcoin. Not just Mt. Gox, but Ross Ulbricht – aka Dread Pirate Roberts – and his Silk Road conviction. Or Charlie Shrem, one of the original bitcoin stars, now doing time in federal prison for illegal activities with bitcoin. Or any of the other so-called “stars” who have previous criminal convictions. Or the fact that the champion of bitcoin, the Bitcoin Foundation, was near-bankrupt through alleged mismanagement and sheer stupidity.

As soon as the guys at Eris or Etherium or Ripple or any of the many other labs working on bitcoin-less blockchains get it right – by which I mean that they create a blockchain that deals in dollars and pounds and other currencies – that’s the end of bitcoin. It’s dead. That is when all the bitcoin processors in the United States or Slovenia will find themselves in an economic death-spiral because there won’t be enough action to sustain them. I’m not even convinced there’s enough action to sustain them for much longer, now. As soon as one of the VCs announces: “I just figured out a way we don’t need bitcoin”, it’s over. We’ve seen it before. Fads always disappear. Pet Rocks. Goo-Goo Dolls. The guy who invented pogs died the other day. His legacy is pogs. Satoshi’s legacy will be the concept of the blockchain, but the legacy of the pretend currency will be pogs.

But what about the whole idea that it will become a centralised technology.  In fact, I don’t know if you saw it, but the Fed and IBM announced the other day that they’re working together on creating a dollar-based cryptocurrency that will be authorised and regulated and centralized.  Is that the way it’s going to go?

That’s right. That’s the future. Centralized. Closed. As soon as they work out payment systems in dollars, sterling and euros, bitcoin goes down in history like 8-track, semi-automatic transmissions and Pet.Com.  The idea that everyone is going to use this pretend currency because it’s an alternative way of beating the central banks, is ludicrous.  The faithful say: “Why would you believe in a central banker when you can believe in mathematics?” The answer is because mathematics alone and the algorithm alone, can’t run an economy. You need the central banker to run the economy. But, they say, central bankers inflate everything so that the value of your money is miniscule. They argue, if you’d put $100 under your mattress in 1913, today it would be worth $3. So what? I don’t know anybody who’s got 1913 dollars under their mattress.  And anybody who puts money under their mattress is a fool, because money invested can keep up, and often, beats inflation.

Inflation is built into the system specifically to avoid deflation. If you have a closed commodity economy, like bitcoin or like gold, the deflation you end up with is ten times worse than inflation. The bitcoin faithful want all the benefits of the gold standard without any of the problems attached to the gold standard.  Look around. There isn’t a single country left on Earth that’s on the gold standard. And for good reason. The bitcoin faithful simply don’t understand the world economy. They don’t understand money. All they understand is their own self-interest. As one kid said to me: “When bitcoins hit $1 million dollars a coin, I’m going to be a multi-millionaire. I’m going to get rich.” Yeah, good luck.

You seem rather anti-bitcoin.

I’m passionate about this stuff because it’s easy to see through, and because nobody is asking the right questions. I see people come on CNBC and Fox Business, talking about the joys of bitcoin, and none of the journalists are doing their jobs by saying: “You’re full of crap”. They’re buying into this stuff and, when it all goes wrong, trust me, they will be the first to say: “We knew. We told you so.” There was a guy on CNBC that I openly challenged, who has a bitcoin credit card. He said: “You put bitcoins on your credit card and you can pay for anything with bitcoins. You go to Selfridges, John Lewis, a petrol station, and you pay in bitcoin. Isn’t that terrific?” No. It’s a con. It requires you to buy bitcoins with pounds or euros or dollars first, which is not only completely illogical but a really stupid thing to do. Why bother? Where’s the benefit? Just pay in pounds, euros or dollars. Why put bitcoins in the middle? Why add the cost when you’re getting no added value? Same thing with the bitcoin ATMs which, by the way, are mostly going broke. Bitcoin ATMs are proving to be non-profitable because (a) nobody’s using them, (b) the rent is too high and (c) the charges are too high.  They set their own exchange rate and they add a fee on top of it. There’s no reason to use them. The whole concept of bitcoin the pretend currency, is illogical. Yes, you can fool some of the people some of the time but you can’t fool all of the people all the time. Bitcoin the pretend currency will die on that.

So it’s like The Emperor’s New Clothes? Eventually you see there’s nothing there?

That’s right. It’s become a cult. It’s become a religion. And I’m the heretic because I stand up and say: “This is crazy.” So they come after me. There are whole Reddit forums talking about the fact that I don’t understand anything. Vehemence, vengeance and juvenile temper tantrums show you the kind of people who are involved in this, and you quickly understand that they can’t possibly sustain this because they truly are delusional. The rational ones are the VCs who are putting real money onto the blockchain to find practical business solutions to real problems. And none of those practical business solutions will involve bitcoin the currency.  None of them.  Because bitcoin is a solution to a problem that doesn’t exist.

And if I’m talking to you in about ten years, it’s hard to forecast these things, but do you think we’ll be looking back and saying, “Look at all these bitcoin fraudsters who have now disappeared, but didn’t they give us a great technology?”

But they’re not giving us a great technology. They’re pumping bitcoin, the pretend currency, which has nothing to do with the technology. Again, they’re self-interested. One of these clowns went on the record as saying: “Bitcoin has gone so viral, it is viral cubed.” The man needs to keep taking his meds because he’s just not in touch with the reality. More recently, he’s claimed that bitcoin’s future is assured because the average life of a fiat currency is 27 years. In the next breath he recalled that Sterling has been around since the 17th century. Only the people who want to believe the earth is flat buy into his absurdities. But then, without those flat-earthers, the pretend currency would become worthless. The point is that the blockchain will revolutionise things, but it won’t be the bitcoin blockchain. And it won’t take ten years. Five years from now, you and I will talk about bitcoin the way we talk about Edsel.

 

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The Finanser interviews: Chris Larsen, CEO and cofounder, Ripple Labs

 Following on with our regular weekly interview the Finanser talks this week with Chris Larsen, CEO and co-founder of Ripple Labs.

Chris Larsen

Chris Larsen is CEO and Co-founder of Ripple Labs, creators of Ripple, an open-source, distributed payment protocol. Mr. Larsen also cofounded and served as CEO of Prosper, a peer-to-peer lending marketplace, and E-LOAN, a publicly traded online lender. During his tenure at E-LOAN, he pioneered the open access to credit scores movement by making E-LOAN the first company to show consumers their FICO scores.

A lot of people have not heard of Ripple. Can you give us some background?

Sure. We’ve all experienced the inefficiencies of payments – I can physically travel to Europe faster than my payment settles from the U.S. to Europe using a wire service. The delays and costs inherent to today’s infrastructure restrict the expansion of businesses, international trade, economic growth and ultimately financial inclusion.

Think of the Internet’s revolution. By providing common, neutral, global infrastructure for free and instant information exchange, the Internet opened access to and dramatically increased participation in global knowledge and information sharing. It spawned entire new, previously unimaginable industries. Services like eBay, Twitter, and Uber have changed the world, but wouldn’t have been possible without the Internet.

The same concept applies to payments. Payment systems were created before the Internet existed, built country-by-country as closed loops. Payments needs common, neutral, global infrastructure for free and instant value exchange. It’s the dawn of the Internet of Value. Ripple is decentralized payments technology that enables free and instant payments in any currency anywhere in the world. It’s infrastructure that sews together and modernizes today’s payment systems so money can move on the web just like information does today.

But then some people might struggle with this, as in why do I need Ripple when we’ve got Bitcoin?

Ripple was borne out of Bitcoin’s incredible revolution. Bitcoin solved the double spend problem, creating, for the first time in history, a digital asset and decentralized ledger with no central operator. This breakthrough means people can send this new currency (bitcoins) to anyone else in the world in minutes and at no cost, instead of days and at the high expense in today’s traditional systems. But Bitcoin is only efficient as a payment system if everyone in the world adopts bitcoin as the one and only currency, and in that scenario, Bitcoin replaces today’s systems – from ACH to SWIFT to Visa, banks, PayPal, etc.

By design, Ripple is optimized to serve as improved, IP-based infrastructure for today’s payment systems. Amongst distributed payments technologies, Ripple uniquely works with any currency (dollars, euros, yen, etc.), and it settles transactions, including cross-currency transactions, in five seconds.

So, whereas Bitcoin depends on consumers and merchants adopting the currency and exclusively using the blockchain for payments, Ripple is meant for financial institutions to integrate into their core systems to dramatically increase the speed and lower the cost of payments. Financial institutions and networks using Ripple never have to touch digital currency; they continue to deal in the fiat currencies they deal in today.

So if I summarise: there is the Bitcoin blockchain technology.  This technology is fantastic, but it also allows a bit of a Wild West to exist, as it’s out there and open sourced. The community use it as money without government, which is not what the government wants, so you have made the technology appropriate more for corporations and banks to use in a structured way.

Bitcoin was designed with a different objective than Ripple. For Bitcoin, the goal was to create a decentralized currency and ledger, independent from any government or central operator. For Ripple, the goal was to create a decentralized ledger that could work with and improve the foundation of today’s payment systems.

Government regulators, central banks, financial institutions, and corporates aren’t interested in experimenting with digital currency or upending the banking and payments industry. They are interested in improving and modernizing the industry. They’re open to the benefits of lowering costs and risks in the system, end-to-end transaction transparency, and the possibility of exponential growth in volume – all of which Ripple enables.

Ripple is settlement technology that plugs into banks’ existing core systems, including compliance, messaging, and other systems. For example, Earthport is fusing Ripple with its robust compliance framework that it’s known for to offer their bank clients a trusted, secure, real-time payments option.

Lastly, because payments on Ripple settle instantly and point to point, banks, regulators and law enforcement have complete visibility into transactions as needed, which reduces costs for everyone involved.

Yes, I have seen a few references to some of the folks that you are working with, such as new companies like Fidor Bank and Earthport.  Equally you are working with some of the big guys like Wells Fargo. How is that progressing?

We’ve had a great response from the market – from community or regional banks to the top global banks and payment networks. The value proposition is clear to them: enable real-time payments; lower the costs of liquidity and compliance. Sibos last year was a turning point for Ripple where the common question we heard was, “how do we get started?”

We’ve announced integrations with Fidor Bank (in Germany), CBW Bank (in Kansas), Cross River Bank (in New Jersey), and Earthport. We’re working on dozens more integrations behind the scenes in private pilots.

It’s a pivotal time for our company. We have exciting opportunities in the pipeline and we’re focused on executing them. We just brought on Brad Garlinghouse as our COO (previously of Yahoo!, AOL, Hightail) to dig our heels in and focus on delivering to the market.

I guess that the core motivation for banks to use Ripple is that it takes out a lot of the handovers between the likes of CHAPS, SWIFT and Fedwire out and does it for free.  Is that right?

Ripple doesn’t replace local rails and standards (like SWIFT). Rather, it connects them. Today, every bank in the world relies on correspondent banking for cross-border payments. Every link in the correspondent banking chain creates costs in the form of fees, risk and time delays. There are only five or six global money center banks that provide liquidity for cross-border payments so foreign exchange rates aren’t competitive.

On Ripple, banks can transact directly with each other, instantly and for free. By way of example, Ripple enables a bank like Fidor in Germany to provide Europe to U.S. real-time payments to its customers at a fraction of the cost by working directly with a bank like Cross River Bank. In that scenario, Ripple connects SEPA to ACH and works with SWIFT’s messaging layer, so another bank in the U.S. or a bank in Europe could actually use Cross River Bank or Fidor Bank as its “correspondent” to get more competitive rates and delivery speed, which is a new business opportunity for banks who aren’t the top five.

It always amuses me when banks talk about cryptocurrencies, such as Ripple, as their first question is always: is this approved by the regulators? Does the Fed support this approach?

Yes, and for good reason! Banks using Ripple aren’t touching cryptocurrency. They continue to deal in fiat currencies. And, Ripple works in synchronization with their existing compliance systems.

Regulators in the U.S., Europe, the U.K., and abroad have been proactive about learning about these technologies. They’re interested in the potential for improving compliance practices, lowering costs, increasing the speed of payments, and enabling interoperability for global systems. Real-time payments isn’t just a consumer feature. The speed of payments has huge implications for the cost of liquidity, and as a result, economic expansion. History has shown us (take FPS in the U.K. for example) that if you increase speed and lower costs, volume explodes.

Do you see Ripple currency will be a big game player 5-10 years from now, or is that not the focus?

Our focus is really on creating utility for Ripple as a payments technology. I think in 5-10 years people will use Ripple for domestic and international payments without knowing it, just like how I use ACH daily but I don’t need to think about it.  

As more and more banks adopt Ripple and they push more and more cross-border volume through Ripple, market makers will need efficient ways to trade less liquid currencies. XRP is a useful tool for market making when a currency trade will take multiple “hops” (for example: Nepalese Rupee to Indian Rupee to Euros to Kenyan Shilling). Because it has no counterparty, XRP is always a one “hop” trade (Nepalese Rupee to XRP to Kenyan Shilling). So then, XRP as a utility for trading creates its demand.

One of the biggest issues is in capital markets right now around collateral management, and the efficient use of capital and liquidity.  I guess what you are saying is that Ripple plays directly to that challenge of the problem of the efficient use of capital?

Yes, that’s exactly right. Liquidity management is a big cost to banks today that’s intrinsic to the correspondent banking system. Capital outlays for cross-border payments restricts working capital. Imagine if banks don’t have to make those outlays and they can instantly and directly transact with the institutions they chose to work with. That’s the reality of Ripple today.

 

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The Finanser Interviews: Matthias Kröner, CEO, Fidor Bank

Following on with our regular weekly interview the Finanser talks this week with Matthias Kröner, CEO and founder of Fidor Bank, Germany.

Matthias Kroener

Matthias Kröner has been CEO of Fidor Bank since 2006. He is responsible for investor relations, corporate communications, strategic development and communities. Fidor is an internet bank, its primary account combines elements of a traditional bank account with internet payments and innovative banking services. Fidor was the first bank to integrate Ripple’s payment protocol, allowing its customers to instantly send money in any currency in any amount.

How is Fidor bank doing?  

We launched the bank just over five years ago and, looking back, it really has been quite challenging but also very exciting. It is amazing what you can create within the financial services industry in the past few years with technology, and that fascinates and motivates me extremely.

Regarding 2014, I think we have had a really tremendous year over the last year. A really positive outcome with a steep increase in our customers and our user base. All of our KPIs are moving North, and are proof that customer centric banking is something that people need and want. In comparison to “normal digital concepts” we may have grown faster, but we did not and could not as we are a bank that is restricted to the [MK1] regulatory capital requirements that are needed to support such growth. In a nutshell, one can say that we are forced to grow profitably and you can only do that as long as you have the capital. That of course is not always easy, but in a world of double-digit-valued-powerpoint-concepts, this is a well appreciated alternative.

The next steps involve further overseas growth. We announced a while back that we will be a borderless banking partner, simply because we live in a more and more globalized society and by the nature of the web, in a borderless environment.

On the other side, it is not a matter of where you locate a company, it’s a matter of where you scale it. We have to have a continuous and close look to “meta developments” that are happening and simply cannot ignore those. Those are political developments, as in the Ukraine crisis; and economical developments, as in the ongoing European crisis; and social developments, as in the adoption and willingness of people to take on board digital based innovations.

Now we walk the talk and execute our first steps. We opened a public Beta in the UK and we are preparing our launch in the US.

My daily life is already very international. Just take yesterday as an example. In the morning we had a meeting with our MDs for Germany, UK and the US, dealing with the future developments of our customer centric offers. Then, around lunchtime, we had a discussion with potential partners talking about the Eastern European distribution of the Fidor operating system.  In the afternoon, we had an honorable guest from the Middle East, discussing several options with us, and at night I was coordinating my next trip to Singapore and New York.

In a recent article I saw that Fidor finds it hard to get a payment-partner in the UK. Is that truly the case?

Well, Chris, I am happy you are asking me, because in particular the headline to the online version of that article was absolutely giving a wrong connotation to the real development. But yes, one has to admit, that onboarding to local UK payment-rails is not an easy task, even for a fully EU-licensed and regulated bank, but we have great partners we talk to and I am extremely confident that we will have a solution in the time we planned it.

On the other side, that particular headline caused a very positive reaction, in that we had a series of organisations and people come back to us, asking whether that article is correct and offering their support to us. That was outstanding and is another reason why I love the internet.

What about your launch in Russia, Matthias?  I guess, in retrospect, that was bad timing?

Well yes, obviously that is one of those meta-developments with the issues in the Ukraine that, had we known, we might have planned it in another sequence and priority.

 

Being optimistic though I, first and foremost, still regard it to be a success because, technically, we did make a connection within nine months from our Fidor operating system to the local core banking of our partner, which is simply great. 

 

Second in the light of this crisis and with all of the sanctions, we had a meeting in Q1 about how to move on and, despite the impression that everything is collapsing in Russia, we are still optimistic to find ways of how to go to market and leverage on the technological development.

 

One has to see that, in this case, we do not talk about the risk of a brick and mortar banking approach. We talk about the go to market of a digital approach and this enables us to have a very flexible approach. Whether that will happen with Fidor brand or not is open, nevertheless it will be Fidor technology.

And I find it interesting that you are coming into the UK direct and the US through a bank partnership. I guess the model of Fidor is evolving from one that is being a true bank to maybe a software house or am I mistaken?

 

Well, in our eyes it is extremely necessary to be a software-house if you want to work successfully as a bank within the next five years or, the other way round, a bank that is not a fin-tech company will face tough times. So, in our interpretation, there is no difference.

 

Talking about technology, we have Fidor TecS, our software house.  This, I can say, is one huge differentiator as we eat our own dog food. This means that Fidor bank´s customer centric offer can be seen as the showcase of what you can do with the Fidor operating system.

 

Coming back to our UK and European approach, as you know we have a German banking license, which is passportable to the rest of the EU. This German banking license is a “full service banking license”.  This means that we can take deposits, grant loans, execute payments and much more, anywhere in Europe.  Europe is therefore our home turf, in relation to the banking license and to the technological issues. What we want to do, we can do on our own, and no partner is needed. Step by step we will onboard European customers and service them out of our Berlin based customer experience company.

In the US and in all other regions, the situation is different because we have no banking license there.  As a consequence, we have to think about whether to apply for a banking license in a specific region we are targeting, or to team up with somebody that already has a banking license. For time to market reasons number two is definitely the better option, not only in the US but in other parts of the world. So we are particularly happy that we have found an entrepreneurial US banking partner with whom we can execute our vision in a mutual understanding and culture.

Why the US market after Europe? 

Because we’ve been asked to come to the US. There have been a number of different parties approaching us, making us think about a go to market in the US. You do not imagine how supportive social media is in this. That was one motivation. The other one is pretty easy as, once you show up in the UK, Americans can read your website. In fact, at that point, if somebody likes what we do, there is a huge danger to be copied instantly. That’s one of the brutal developments of the network and so this needs to be anticipated and you proactively have to react on such a potential but likely development.

Is the US banking partner public yet or is that going to be launched and named at the day you open?

We will not disclose our set up at this stage of development for competitive reasons. All I can say is, that we carefully prepare our go to market and take all the time that is needed.

You claim to bank anything the customer sees of value from World of Warcraft Gold to bitcoins. How is that thinking evolving?

Well, to be precise: We claim to be open – in a cultural and technical way – for any digital asset category. Those could be the ones mentioned or any other form of digital asset.  That means we have the objective to handle and integrate assets that customers regard to be of digital “purchasing-value” or, in other words, a very general description of a currency. But in our eyes this could be more than a traditional currency, such as the Euro. That is our difference to regular and normal banks. In our mind, even airmiles could be an asset class.  Data itself is an asset class.  Points, coins or whatever is existing in our digital environment can be an asset class, and whatever is accepted to acquire a service or a good is one too. At the end of the day, this is a very philosophical question which we discuss actively with our community. In that discussion, we also had a comment whether “time” could be a currency and how a banking account could handle that. All that is super exciting and extremely interesting and leads us into blockchain related issues, such as Ripple.

 

Besides those future-oriented conceptual discussions, we already today have created a multi-asset current account. For example, the Fidor Smart Account offers the ability to trade, send and store precious metals and foreign currencies.

You briefly mentioned Ripple and blockchain.  Are those integral to the backbone of what Fidor offers or are they experiments you are playing with?

It’s definitely too early to integrate a blockchain technology into the core of our operating systems, but I am forcing discussions within Fidor to think how a blockchain-technology could affect us and what our position is in that upcoming development.  This includes a deep look at the risks involved, as well as the opportunities of such a development that is still is in its infancy,

I always use your Facebook Likes story in my presentations, as it’s such a great story about how to build conversation and relevance at low cost.  The figures I’ve been using is that you spend about €100,000 on marketing and on-board a full customer with KYC for around €16.7, which are amazing figures.  Is that holding true? 

Without sharing too many company secrets, I will not disagree on the figure regarding the cost per new retail customer. The figure for German SME customers is slightly higher.
Regarding the €100,000, we have to differentiate that a little in that, talking about brand-related communications, I could say the cost is even zero.

Wow -so how do people find Fidor through Facebook? Or are they finding you through the news and word-of-mouth recommendation?

It is a mix. I think it’s a mix of word of mouth and social media, blogs, PR and affiliation, embedded in an authentically open concept, and lived by people who stand for what they are doing and what they are offering to their customers.

Are customers switching their main accounts across to Fidor?

Oh absolutely, increasingly. We did a survey most recently in January asking this question. 40% said that they were using us as their primary banking association, which I find an extremely impressive figure. 

One of the banks I deal with said Fidor is only building customers very slowly, compared to competing with an incumbent with millions of customers.  I guess you would have a comment about that?

Yes, I am aware of that point. Well, as said in the beginning, it is a little bit of an ambivalent situation: As an entrepreneurial concept we are forced to grow and we believe in growth as one part of our value-creation. As a regulated entity, we are well advanced to fulfill our capital adequacy ratios. In the combination of those two points, we are growing profitably and generate an impressive customer life time value.

To improve that situation we are currently analyzing the market and evaluating our options to increase our regulatory capital with exactly that objective: to fuel and increase our growth.

One of the really intriguing things is that we talk a lot about millennials and the young generation being the natural focus for a digital bank like Fidor, but some say they’re not actually the ones that we should focus upon, as they are not financially confident or have not had a mortgage or a job before. The people that are more mature and financially confident may be in their 30s than their 20s are the natural digital customer. What demographics do you find as a customer you are appealing to?

It’s absolutely proving this thesis. Around 60% of our customers are 30-50 year-olds but, if I would make up the range from 40 to 60 year olds, it would still be above 50% of the customer base.  This is totally proving this thesis.  Nevertheless we do differentiate through social media channels and the customers who come through those channels.  One example is that we know that, for example, Facebook users are 10 years younger than, for instance, our YouTube audiences..

So looking to the future and the long-term vision of Fidor, do you see the bank growing into a universal global bank?

As I said in the beginning, we think that a web based concept is a cross-border concept. We live in a digital society which is doing business not only in a regional context, but having friends all over the planet and going on holidays across all continents and so on.  And we have to understand, that the place of origin of a concept is not necessarily the place of scale. This does not mean that we would leave Germany. That is not what I am saying. I am saying that, out of a risk-management perspective, we have to operate in different markets, creating a portfolio which allows us to grow as efficiently as possible.

In the meantime I hear you are also launching a cryptocurrency bank?

Well, that’s a little too much you have heard there. The fact is that we have discussed that vision with selected market participants by running a workshop in Berlin in December 2014. That was an extremely interesting and intense event.  We had 250 applications for the workshop.  We invited 30 market participants and 40 came from all over the planet.

Our wish was that somebody will step up and say that he or she is taking the lead for such a project, but that did not happen. On the other side we have to focus on our geographical expansion, so the vision of a dedicated crypto currency bank has to wait a little, simply because we need to be focused.

 


 [MK1]“human capital” would not be the shortage… ;-))

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The Finanser Interviews: Roberto Ferrari, General Manager of CheBanca! and Board Member of Mediobanca

Following our regular series of interviews, we turn this week to talk with Roberto Ferrari, the General Manager of CheBanca! and Board Member of Mediobanca.

Roberto Ferrari

The bank, based in Milan Italy (where I’m speaking at the MegaTrends conference in May) has been recognized on many occasions as an innovator from flagship futuristic branches to award-winning banking apps such as WOW!   What makes innovation in the Italian markets any different to most markets?  Roberto explains.

What does innovation mean at such an exciting historic moment?

Everyone is talking about innovation these days. The hardest thing is to manage the technology in order to provide new, simple solutions to clients. Innovation is a means, not an end. As Leonardo da Vinci said: “Simplicity is the highest level of sophistication”. Never forget that. One can claim to have truly changed the market when one’s innovative solutions are adopted by the masses of clients, thus modifying the dynamics of the system itself. So, it takes a lot of intuition, speed, vision and a sense of priorities. It must be the customer experience that one wants to develop, neither compliance nor technology.

What does innovation mean for the banking and finance sector?

It is a huge challenge because the sector is hyper-regulated, and in Italy even more so. But, at the same time, it is an adventure because the sector truly lives on schemes, services models, and infrastructures that are decades old, inadequate for digitalization. Therefore, it may be more difficult when compared to other markets that have already been transformed (music, publishing, travel come to mind) but this does not mean that it is any less intriguing. It is necessary to have more strength and decision in challenging the status quo and not be stopped by the first objection “this can’t be done”. If one tries hard enough there is always a way to change things. Always. 

CheBanca! is a startup: what goal did it start with?

We can define CheBanca! as a Fintech Bank, a new bank. It began in 2008, precisely when Italy was reaching its historic record for number of bank teller windows (!). It had another vision, to change the model of bank retailing in Italy and to position itself where the market would be heading. It is a native multichannel bank, focused increasingly more on its digital affluent. It acts strategically as a funding arm of our shareholder Mediobanca, guaranteeing the parent company direct access to collecting. But it does so in a disruptive manner in respect to the market, challenging from the inside the various status quo and consolidated business models. We have done it with physical retailing, with customer service, products, and we are doing it with payments and investment advisory. It may be a long path but with a very clear vision. We have over 500,000 clients and we have 13 billion in overall collections, even having passed through the darkest phase of the country’s economic and financial crisis. For years now we have been the best online bank for customer satisfaction. I’d say that’s quite a success. But we won’t stop here.

Thinking in general of the startup ecosystem, is it a resource or a threat for traditional banking?

Startups are the lifeblood of every sector. Challenging the market, bringing innovation, forcing incumbents to move, nourishing the competition and, thus, in the final analysis, favoring the improvement of the ecosystem. If someone sees them as a threat they are making a mistake. Those who wall themselves in are destined for extinction, it is just a question of time. We work with Fintech startups, we develop services. It is very good for us. And we help them grow and get stronger.

What is the most explosive idea that you have seen in recent months?

The one that most impressed me is IMPS, a real time mobile payments project in India. Just during the month of December in 2014, it registered over 9.5 million real time transactions, mainly via mobile – not necessarily smartphones –, surpassing by a good 5 times over its results from the preceding year. It has a user park of over 70 million digital account holders. A boom, and it is just the beginning. To sum it up, it managed to apply the success of a scheme like that of m-Pesa to a population of over 1.2 billion individuals. This is something that is truly breaking the mold and changing the game. True innovation is measured by the number of people whose lives it can truly improve. We tend to look towards the West, primarily the US, but I have the impression that innovation in the world of banking and finance will increasingly come from the south and east. There are many other examples in Africa, China, Australia, Korea…

And the external actors, like Facebook and Apple, who are making space in their sectors: what role will they have?

They will have the role of challenger, very strong because based on economies of scale and on client bases that are unattainable for any bank in the world. But I don’t think they will become banks in the true sense of the word. It is much more probable that they will concentrate on the most mass market and easiest to manage parts internationally, like with payments. It will not be easy to get out of the US. It will be a long path, just like it was for PayPal. I wouldn’t underestimate Amazon and Google. The first one already manages payments globally, the second has such a mass that it can do what it wants. There will surely be great disruptions from them as well. The wave is long, it started with PayPal, which was born in 1998.

Bitcoin is having yet another delicate moment: are we at the end of its trajectory or in a transformation phase? What future do you see?

Bitcoin is the second attempt at real time global digital currency outside of the control schemes of the central banks. With this, other virtual currencies were created just about everywhere. In my opinion, though, Bitcoin is still not a true currency and suffers from the same mechanisms that brought about its success one year ago: too much volatility and zero regulations. A year ago, it registered a positive value and, so, everyone was enthusiastic. Now, no, it seems like a failure. Because Bitcoin is perceived speculatively, as an investment, and not as an exchange value. The history of money teaches that exchange rates and values cannot be too volatile. This is the limitation of Bitcoin, though I don’t think it’s impossible to resolve. But, above and beyond its future, whether it will be successful or not – and this will definitely take years and years – Bitcoin is a sign that the current banking and transaction system on a global scale must confront digitalization. Currently, it is too old, obsolete. A different transnational system is necessary, that functions like the digital economy: real time on a global level, and, inevitably, with some form of transparent governance. Because, without trust, a currency does not exist. This is its true message.

 

ABOUT ROBERTO FERRARI

Roberto Ferrari  is the General Manager of CheBanca! and Board Member of Mediobanca Innovation Services, the IT and Operations service company of Mediobanca Group in Milan. He’s highly qualified in an international contexts in Marketing and digital channels field: since his degree in Economics and Business Administration, he spent his career in a very large enterprises as is Procter&Gamble in Rome, where he led sales development of franchising network and product marketing. In 2006 he entered in Mediobanca Group as Marketing & Partnership VP in Compass, the consumer finance and payment company of the financial Group, where he was in charge of marketing, product and business development activity.

ABOUT CHEBANCA!

The Italian CheBanca! is the retail bank of the Mediobanca Group. Born in May 2008, CheBanca! was the first financial institution in Italy to enter the market with a multi-channel distribution model that includes website, customer service and innovative branches.

Many are the initiatives CheBanca! promoted to support (fintech) innovation in Italy. In few years in fact CheBanca! created new sources of information as blogs, journals and databases, contests supporting and rewarding the most original and innovative Italian fintech start-ups, and a unique fintech community in Italy that acts as a catalyst for innovation.

PIV

The bank, based in Milan Italy (where I’m speaking at the MegaTrends conference in May) has been recognized on many occasions as an innovator from flagship futuristic branches to award-winning banking apps such as WOW!   What makes innovation in the Italian markets any different to most markets?  Roberto explains.

 

 

Chris Skinner: What does innovation mean at such an exciting historic moment?

 

Roberto Ferrari: Everyone is talking about innovation these days. The hardest thing is to manage the technology in order to provide new, simple solutions to clients. Innovation is a means, not an end. As Leonardo da Vinci said: “Simplicity is the highest level of sophistication”. Never forget that. One can claim to have truly changed the market when one’s innovative solutions are adopted by the masses of clients, thus modifying the dynamics of the system itself. So, it takes a lot of intuition, speed, vision and a sense of priorities. It must be the customer experience that one wants to develop, neither compliance nor technology.

 

Chris Skinner: What does innovation mean for the banking and finance sector?

 

Roberto Ferrari: It is a huge challenge because the sector is hyper-regulated, and in Italy even more so. But, at the same time, it is an adventure because the sector truly lives on schemes, services models, and infrastructures that are decades old, inadequate for digitalization. Therefore, it may be more difficult when compared to other markets that have already been transformed (music, publishing, travel come to mind) but this does not mean that it is any less intriguing. It is necessary to have more strength and decision in challenging the status quo and not be stopped by the first objection “this can’t be done”. If one tries hard enough there is always a way to change things. Always.

 

 

Chris Skinner: CheBanca! is a startup: what goal did it start with?

 

Roberto Ferrari: We can define CheBanca! as a Fintech Bank, a new bank. It began in 2008, precisely when Italy was reaching its historic record for number of bank teller windows (!). It had another vision, to change the model of bank retailing in Italy and to position itself where the market would be heading. It is a native multichannel bank, focused increasingly more on its digital affluent. It acts strategically as a funding arm of our shareholder Mediobanca, guaranteeing the parent company direct access to collecting. But it does so in a disruptive manner in respect to the market, challenging from the inside the various status quo and consolidated business models. We have done it with physical retailing, with customer service, products, and we are doing it with payments and investment advisory. It may be a long path but with a very clear vision. We have over 500,000 clients and we have 13 billion in overall collections, even having passed through the darkest phase of the country’s economic and financial crisis. For years now we have been the best online bank for customer satisfaction. I’d say that’s quite a success. But we won’t stop here.

 

Chris Skinner: Thinking in general of the startup ecosystem, is it a resource or a threat for traditional banking?

 

Roberto Ferrari: Startups are the lifeblood of every sector. Challenging the market, bringing innovation, forcing incumbents to move, nourishing the competition and, thus, in the final analysis, favoring the improvement of the ecosystem. If someone sees them as a threat they are making a mistake. Those who wall themselves in are destined for extinction, it is just a question of time. We work with Fintech startups, we develop services. It is very good for us. And we help them grow and get stronger.

 

Chris Skinner: What is the most explosive idea that you have seen in recent months?

 

Roberto Ferrari: The one that most impressed me is IMPS, a real time mobile payments project in India. Just during the month of December in 2014, it registered over 9.5 million real time transactions, mainly via mobile – not necessarily smartphones –, surpassing by a good 5 times over its results from the preceding year. It has a user park of over 70 million digital account holders. A boom, and it is just the beginning. To sum it up, it managed to apply the success of a scheme like that of m-Pesa to a population of over 1.2 billion individuals. This is something that is truly breaking the mold and changing the game. True innovation is measured by the number of people whose lives it can truly improve. We tend to look towards the West, primarily the US, but I have the impression that innovation in the world of banking and finance will increasingly come from the south and east. There are many other examples in Africa, China, Australia, Korea…

 

Chris Skinner: And the external actors, like Facebook and Apple, who are making space in their sectors: what role will they have?

 

Roberto Ferrari: They will have the role of challenger, very strong because based on economies of scale and on client bases that are unattainable for any bank in the world. But I don’t think they will become banks in the true sense of the word. It is much more probable that they will concentrate on the most mass market and easiest to manage parts internationally, like with payments. It will not be easy to get out of the US. It will be a long path, just like it was for PayPal. I wouldn’t underestimate Amazon and Google. The first one already manages payments globally, the second has such a mass that it can do what it wants. There will surely be great disruptions from them as well. The wave is long, it started with PayPal, which was born in 1998.

 

Chris Skinner: Bitcoin is having yet another delicate moment: are we at the end of its trajectory or in a transformation phase? What future do you see?

 

Roberto Ferrari: Bitcoin is the second attempt at real time global digital currency outside of the control schemes of the central banks. With this, other virtual currencies were created just about everywhere. In my opinion, though, Bitcoin is still not a true currency and suffers from the same mechanisms that brought about its success one year ago: too much volatility and zero regulations. A year ago, it registered a positive value and, so, everyone was enthusiastic. Now, no, it seems like a failure. Because Bitcoin is perceived speculatively, as an investment, and not as an exchange value. The history of money teaches that exchange rates and values cannot be too volatile. This is the limitation of Bitcoin, though I don’t think it’s impossible to resolve. But, above and beyond its future, whether it will be successful or not – and this will definitely take years and years – Bitcoin is a sign that the current banking and transaction system on a global scale must confront digitalization. Currently, it is too old, obsolete. A different transnational system is necessary, that functions like the digital economy: real time on a global level, and, inevitably, with some form of transparent governance. Because, without trust, a currency does not exist. This is its true message.

 

 

 

ABOUT ROBERTO FERRARI

 

Roberto Ferrari  is the General Manager of CheBanca! and Board Member of Mediobanca Innovation Services, the IT and Operations service company of Mediobanca Group in Milan. He’s highly qualified in an international contexts in Marketing and digital channels field: since his degree in Economics and Business Administration, he spent his career in a very large enterprises as is Procter&Gamble in Rome, where he led sales development of franchising network and product marketing. In 2006 he entered in Mediobanca Group as Marketing & Partnership VP in Compass, the consumer finance and payment company of the financial Group, where he was in charge of marketing, product and business development activity.

 

 

ABOUT CHEBANCA!

The Italian CheBanca! is the retail bank of the Mediobanca Group. Born in May 2008, CheBanca! was the first financial institution in Italy to enter the market with a multi-channel distribution model that includes website, customer service and innovative branches.

Many are the initiatives CheBanca! promoted to support (fintech) innovation in Italy. In few years in fact CheBanca! created new sources of information as blogs, journals and databases, contests supporting and rewarding the most original and innovative Italian fintech start-ups, and a unique fintech community in Italy that acts as a catalyst for innovation.

 

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Why bitcoin will be bigger than the internet

Nicholas Carson of  Business Insider interviews Silicon Valley entrepreneur Wences Casares.

Here’s why bitcoin will be bigger than the internet

“In Spanish, we have a saying that when a genius points at the moon, a fool looks at the finger. I find that happens a lot with bitcoin.” —Wences Casares

Bitcion _ Wences Casares

Serial entrepreneur Wences Casares created Argentina’s first internet provider and later sold his online brokerage firm to Banco Santander for $750 million in 2000. He was 25 years old.

Now 40, Casares is a star of the Silicon Valley bitcoin scene, but his Argentinian roots inform much about him. The son of a cattle rancher, he sees the world in literary and philosophical terms, speaking of the arc of human existence over thousands of years.

Bitcoin has had a rough time lately, with its slumping value and high-profile flameouts, but Casares has no doubt that the digital currency will prevail. First, it promises efficiency and equality of access unlike anything the world has known. Also, he argues, technology has already created a leapfrog effect in the developing world. As cellphone usage shows, billions of people worldwide have cash but exist outside of the traditional banking and credit systems. Bitcoin unleashes that power.

Casares believes the revolution will take time, and bitcoin will not fully replace other forms of money. His newest company, Xapo, is said to be the largest custodian of bitcoin in the world, catering to people seeking to hold on to the currency in a secure way. As such, he says, Xapo is the “Swiss bank of bitcoin.”

Nicholas Carson of Business Insider spoke with Casares at the World Economic Forum in Davos, Switzerland, in January. In the beginning, he offered a soliloquy on the history of commerce and the future of bitcoin. The following has been edited for clarity and length.

Wences Casares: I think bitcoin may very well be the best form of money we’ve ever seen in the history of civilization.

That’s a super-bold statement, I understand. We were all taught that early civilizations first bartered and later invented money because bartering was too hard. Well, that’s not true.

The way we did commerce before there was money was that everybody in our tribe would know that you killed a big buffalo and I would come and say, “Hey, can I have a little bit of your buffalo?” And you would say, “Sure, here’s a bit of buffalo.” And that was the end of the transaction. I had to remember I owed you. You had to remember everybody you gave buffalo to.

You had to carry a ledger in your brain for each counter party. It was unreliable. But it worked for 25,000 years. And then, someone intelligent came up with an idea, a new technology. This person came to you and said, “Can I have a bit of buffalo?” And you said, “Sure, here’s your buffalo meat.” And this person said, “You know what? Here are some beets.” You said, “I don’t want or need beets.” 

Beets

He said, “No, no. It’s not about that. We’re going to use beets as the objective ledger in our tribe.”

Instead of your having to remember, just let the beet keep track for you, right? It was brilliant. It was such a good technology that it took off. In some tribes it was beets; in others, salt. In other places, different things.

That worked from 25,000 years ago to 5,000 years ago. It just spread like fire. Really successful technology. And then, 5,000 years ago, when tribes began to trade with each other, they needed to use the same ledger.

Gold emerged as the universal ledger. Anthropologists say that they can predict what’s going to emerge as money in any tribe because it always has six characteristics. Most of all, it has to be scarce. If it’s not scarce, you cannot trust it. People will create a fake. It also has to be divisible, transportable, durable, recognizable and fungible.

Those are the six things that make money, money. So gold emerged as the universal ledger and it was the best form of money we’ve seen for 5,000 years. Nothing has kept value the way gold has. Not the British pound, not the US dollar, not land, nothing. Not even close. Simply because of its scarcity. And some people believe — wrongly — that gold has some form of intrinsic value. And the truth is, the only value is that it’s scarce and it makes a good ledger. Bitcoin, like gold, doesn’t have intrinsic value. But in all but one of those six qualities, it is much, much better than gold.

In terms of scarcity, gold is scarce, but we still mine areas. Let’s say you buy 0.01% of the gold that there is today. Next year, it will be a smaller percentage, because we’ve mined some more. Right?

‘We have never seen something so perfect’

Same thing if you have some cash. With bitcoin, you buy something today, and it will be the exact same percentage of the 21 million coins that there can ever be. It’s perfect. We have never seen something so perfect from that point of view. 

In terms of the divisibility, each bitcoin is made up of a hundred million Satoshis. It’s incredibly easy to divide. And in terms of the transportability, it’s also something that we never seen before. Whereas with gold, it’s a stupid transaction; you’re dealing with coins and exact change. And we have to trust a third party. In the past, we’d go to the Medicis or the Rothschilds and they would write letters of credit and you would trust that I had gold there.

Since then, every time we do a payment when we’re not physically together, we have to trust a third party — whether it’s a bank, Visa, MasterCard, PayPal, there’s always a third party, I have to trust them.

Bitcoin. It’s remarkable in that it allows me to send money to you anywhere in the world, in real time, free, without any third party. So in terms of the transferability, it’s revolutionary. But it’s better than gold in every way except in terms of fungibility. If someone offers you two identical gold coins, you truly shouldn’t care which one they give you. It’s exactly the same. Truly fungible. In the case of bitcoin, each bitcoin contains in it its entire history within, right?

So if someone offers you one of two bitcoin, you should choose the one that has never been attached to Silk Road or that has some dubious history. It could be that is eventually worth less. But in every other aspect, bitcoin is superior.

So, you know, we live in a world in which there are 5 billion people who have a phone but do not have a bank account or a credit card. So these banks that do so well have managed to barely bank 1 billion people. There are 5 billion people who get abused for not having a bank account or a credit card. They cannot participate in this global economy that we’re talking about all day. This is the one time that we see a true, realistic hope this could change.

Bitcoin History

Bigger than the internet

That’s why I think bitcoin is important: It’s relevant, and I think it will take time, just like the internet took time. But it may have more impact than the internet. If you go to Africa or Latin America, parts of Asia, and you sit down with not even a poor person, just an average person, and you ask, “Look, what would you prefer — free access to information [which they’re getting now with their phones] or a secure place to store the fruits of your labor and to receive and make payment?”

If they didn’t have either, which was true until recently, they would choose the second because it is more relevant to them. Right? So for 5 billion people, I think that bitcoin will be more relevant than the internet.

Nicholas Carlson: That’s amazing. How long until that happens?

WC: A long time. I am maybe the most bullish person you can find on bitcoin. Ironically, I think it will be much more powerful than people think, but it will also take more time.

NC: Decades?

WC: Yes. If it takes one decade, it will be incredibly fast. More likely, I think it will be two decades.

NC: What are the big applications that need to be invented between now and then?

WC: I think the applications will emerge organically once you have consensus around the legitimacy of bitcoin. I don’t think bitcoin will or should ever replace money. I think the pound should be the pound, the euro the euro, the dollar the dollar, and so on.

But I do think we need a global type of currency, like a meta currency. If Argentina is buying oil from Iran today, for example, there’s no point in their using the dollar, right? I think it will make a lot of sense for all individuals to have a little bit of bitcoin.

NC: Right.

WC: So more than the applications, I think what has to happen is for people to just take bitcoin for granted the way they take the internet for granted.

Let me tell you a story. When I was a teenager, my mom was worried that I was spending too much time on the internet. And back then, you know, there was no browser — it was just a UNIX screen. So I remember sitting down to try to show her how this thing, the internet, would change the world. I showed her the CPU board, I explained the whole stack, the protocol, why it was free. You know, it was a total failure. She limited my computer hours anyway. And the funny thing is, if today I ask her, “What do you think of the internet?,” she says, “Oh, my god. It’s great! It changed my life!”

She just takes it for granted. It works. Same thing with credit cards. It’s quite complicated how they work. Most people trust them, but don’t have a clue how they work. To get to this point with bitcoin will take a long time more than it took with the internet, because the internet was not challenging any existing assumptions. Whereas, bitcoin challenges a lot of assumptions we have about money. Once you change that, all the rest will come.

NC: Basically the analogy is you need the World Wide Web to be developed on top of the internet.

WC: It’s exactly like that. And look, if bitcoin continues to grow at the same rate as it has for the last five years, we can expect to finish 2015 with 50 million users. That’s a fivefold increase in one year. And we’ll probably have more bitcoin users and owners than PayPal accounts sometime next year. Then you can start doing something different, right?  

NC: Does the massive spike and plummet that bitcoin experienced over the last year limit the possibilities?

WC: That’s basically because of the volatility. The volatility is a constant reminder: Don’t use money you cannot afford to lose. That’s why I hope the whole ride from here to where I see bitcoin going is as volatile as possible to keep this honest and to keep it safe.

NC: Is there a comparison to be made between bitcoin and Esperanto, the language some people say would be a better universal language?

WC: Look, we live in the 21st century, and the fact that it’s easier for me to call Jakarta, see someone on the screen, and talk to them for free — given all of what has to happen for that to be true, and yet I can’t send them 1 cent? That’s incredible.

It’s like this train departed, and there are a few wheels that are behind. It’s like they’re not part of the rest of our world. That’s just to prove a point: Bitcoin isn’t like Esperanto.

NC: What will be the first common application of bitcoin?

WC: You know, I think it’s dangerous to think that you are genius enough to do so. But if I had to brainstorm, I would say I see two very different use cases. One for the developed world and one for the developing world. In the developed world, to me, there is a clear need for internet money. The internet is super powerful, but it doesn’t have its form of money. So whenever you’re going to transact on the internet, you have to use dollars, euros, pounds, and it’s messy. It interrupts you for at least 35 seconds. It costs a lot of money. It’s just a mess. Right?

What if you could really move money the way you would move an icon? Put it there. Put it here. Send it. Especially micro transactions. Imagine how it could work for some of the columns you’re writing. Readers like me could see a summary. But if I want to read more, I have to pay few cents. And some of your stories get enough thousands of readers that that could be meaningful, right?

Or, when YouTube is telling me that I have to wait 5 seconds to skip that ad, let me just pay a few cents. And that would be a lot more relevant to the producer of that content. Right?

Bitcion Economy

NC: Let’s just dig into this. So I have an iPhone that has Apple Pay rigged into it. Why is it better than me just hitting Apple Pay, just hitting this button? And it clears through my credit card.

WC: Because this is a closed ecosystem. In a closed ecosystem, it only processes them when they have enough to make the transaction fees justified. They will still take a few days to receive it, and you still pay 3.5% to Visa. It creates that sense that it’s paying immediately, but it takes three days to clear. It costs a fortune.

NC: It’s not as efficient as it could be. 

WC: It’s not as efficient, and it’s a fiction. But it’s not really that things are happening in in real time. It’s like saying, “Why do I need the internet?” I can go to CompuServe. Or Delphi or AOL, and I have all of that here, but it’s a closed system. The beauty of the internet is that anybody can do anything.

I imagine a totally different case for the developing world, where I think it’s more interesting. You know what’s the maximum number of fixed telephone lines we ever sold? It’s a little over a billion now.

And you know how many cellphones there are today? A little over 6 billion. And you know what made us go from 1 billion fixed lines to 6 billion cellphones? The real leap has nothing to do with form factor or technology. The real leap was financial. Every time you issued a fixed telephone line it was like writing a blank check. I install your phone. Use it, and I’ll charge you at the end of the month. So I’ve got to trust your credit. So the billion people who have credit, good credit, got it. And no one else.

And with the cellphone, we got to a billion cellphones, postpaid. The other 5 billion are prepaid. It is a financial fact that people come with cash and pay you in advance and then they go use it. That’s what allows the 5 billion extra. They can’t participate in conferences like these. They’re not part of this economy. But, man, they have a phone just like yours. They have money.  They can’t participate in conferences like these. They’re not part of this economy. But, man, they have a phone just like yours. They have money.  They have cash. And they just cannot be part of the global economy, because cash doesn’t travel here.

NC: Yes.

WC: There are a number of problems with today’s currency system. It’s expensive. It’s unsafe. It carries huge transaction costs. And I think that bitcoin can be the way in which these people can participate. They love their phones and can use them to do things that you and I take for granted.

NC:  It’s cash that’s digital.

WC: It’s digital cash for them.

NC: Yes.

WC: You and I don’t need it.

NC: Right.

WC: They do.

The article was originally published by Business Insider, February 2015.  Reproduced in full with permissions.

 

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The Finanser Interviews: Jon Matonis, Crypocurrency Economist

Bitcoin still stirs up a huge debate about where it will go in the future; will it become institutionalised; what is the blockchain going to do to banking; and more.  In order to clarify the debate, we interviewed Jon Matonis, a renowned expert on bitcoin and cryptocurrencies, to find out what is the truth.

Jon Matonis

Tell me about yourself and your background Jon. 

I was involved with the Bitcoin Foundation since its inception, starting in 2012, as one of the founding board directors. At the end of last year I decided to retire from the Foundation board and give other people the opportunity to step forward and work on the board.

It was never meant to be a lifetime gig for any person.  Prior I was working in the payment space at Visa and VeriSign, working on the public key cryptography for online banking, and prior to that I was an FX and Derivatives trader for commercial banks. I have been blending all these skills into this new brand amazing field of financial cryptography.  

What’s the future of the Bitcoin Foundation?

In terms of the Bitcoin Foundation going forward, it still is an excellent institution. People should be encouraged to join it, as it does pay for some of the core developers’ compensation. It doesn’t pay for all the compensation, as no one entity controls Bitcoin development.  It is an open source project so it’s not a centralized power struggle, but does provide some compensation. The main focus of the Foundation today, which is slightly different from when it first founded, is to develop a standards body for Bitcoin Core, along the same type of protocol standards as the IETF. It is premature to just automatically throw that over the fence with the IETF standards process, as it would be lost. It has to mature, has to have more participation, more advocates to allow it to thrive in an IEFT structure. That is what the Foundation is preparing the protocol for, so that eventually it will go into a larger more rigorous standards body process.

You mentioned you’ve been a trader and involved with the payments industry so why did you get interested in bitcoin?

I had always been studying and focusing a lot of my research work on digital currencies and alternative monies. Even prior to Bitcoin going back to Digitcash and E-Gold days. In late 2009, I got introduced to Bitcoin by a random email from Satoshi Nakamoto.  I didn’t give it much thought at the time and then 3-4 months later I started to focus upon it. It seemed to solve a lot of problems encountered by the first generation digital currencies, primarily around the centralization issue for preventing double spends. That’s the real breakthrough and is what got me excited both as a trader and as a digital currency monetary theorist. Bitcoin came up with the way to solve the double spend problem, without having to go back to a centralized mint for reissuance or confirmation that the units weren’t double spent. The cryptographic principles for Bitcoin have been around prior to the launch of Bitcoin. There was nothing uniquely new about any of the individual components but it was unique in how it was assembled as a peer-to-peer distributed environment. That was the real breakthrough.

You say it’s decentralized, which often raises the question: is this money without government.

Well the decentralized and peer to peer computing capabilities are the wave of the future. So that is definitely going to last. I see that growing in fact rather than going in the other direction.

In respect to the ‘money without government’ phrase, we actually have always had money without government going back to the evolution of money, even gold and pre- gold barter days. Gold was the form of money without government before the kings and monarchs started stamping their image on them. So I don’t see concept of money without government as being something impossible to achieve.  Instead, we are regaining something that was lost. 

But regulators and government officials, when it comes to a value exchange that is unregulated, worry about drug runners and terrorists. Do you see that as a threat? 

I don’t see it as threat. It’s not specific to Bitcoin and other crypto currencies.  Any type of value exchange medium for small or medium transactions are subject to abuse.  The tradeoffs are that you have to severely clamp down on the benefits of having digital money in an absolute way, to prevent something happening on the negative side in an absolute way.  What I mean by that is that the so called drug and criminal communities that you’re labeling, dwarfs what’s happening in Bitcoin. You don’t blame the monetary unit for the actions of the criminals.

I agree with, although another problem of an unregulated value exchange system is that you get lots of hacking and issues like MtGox and Bitstamp failures.  These things give Bitcoin a bad name. Do you see a structure to give consumers more assurance that it is safe to use?

Let’s talk about MtGox and the episode of Bitstamp. Regulation cannot be a panacea for ‘caveat emptor’ (buyer beware). Regulation cannot be a panacea for everything. It rarely works in a way that a government intends it to anyway. Look at episodes in the United States where Lehman Brothers and MF Global were both regulated entities and meant to be safe.  They weren’t. So in terms of protecting consumers, that is just what the government regulators put forward for the justification of massive regulation in the Bitcoin arena. We are now seeing major areas of Bitcoin being involved with best practice though.  If you look at the recent BitStamp episode, that actually resulted in adoption of new multisig technologies for Bitcoin and cryptocurrency exchanges. So the solution with BitStamp generated a more robust and stronger exchange system, which happened outside the action of any government regulation.

Alongside that you are seeing firms like BitGo, which was the multisig company, and companies like Xapo, CoinBase and more adopting their own private insurance to provide customer security and peace of mind for any funds that they choose to leave there. So the market is stepping up, through best practices and through providing these solutions. The main take away from MtGox, which happened over a year ago, is that it demonstrated the exact opposite of too big to fail capitalism. It’s always curious to me that some the critics of MtGox would prefer a world where the tax payers always steps in and bail everybody out. That’s not the world we need to be moving towards, so that MtGox was allowed to fail on its own accord should be taken as a positive sign that the system is working.

It’s interesting that traditional value stores have started to pick up on Bitcoin since failed. A lot of institutions that have got licenses and government regulation are starting to try to incorporate cryptocurrency and blockchain technology in what they do.  That feels like a movement towards the institutionalisation of cryptocurrency. Do you think that will happen or would that be the opposite of the wishes of the community that created this capability? 

Well the wishes of the community don’t really matter here and the institutionalisation of Bitcoin will be jurisdiction by jurisdiction.  Going back to your other point though, the exchange environment has matured significantly over the 12 months since MtGox and that’s a beneficial sign.  Not only are they aware of this, but the service providers are a lot more robust.  Some of them are taking steps on their own in anticipation of future regulation but to present a more mature offering. Users of these services have also worked out that it’s not right to use firms like MtGox as a bank vault, which they should have never been using as such in the first place.  So Bitcoin gives you a way to control your own assets and not required to leave everything on balance.  It’s down to your own guidelines and comes back to what I said, caveat emptor, whether its regulated or unregulated. 

On the institutionalisation of Bitcoin, you will start to see that happen. I don’t think this is a negative and, as mentioned it will be jurisdiction by jurisdiction. Trading liquidity, increasing volume and depth of the market will lead to institutionalisation.  It is unavoidable that we will get to a phase where we see Bitcoin derivatives type instruments, which we are already starting to see evolve in certain markets.  It will be just like any other commodity that goes through stages and develops.  We are just seeing that on a faster time horizon with Bitcoin, which seems like it is moving a lot more quickly. We will get there. 

I can see it happening. That’s why you see innovators like Fidor Bank and Circle creating cryptocurrency consumer guarantees and assurances, similar to traditional regulated banking licenses, but in the new model world rather than the old model world.  Is this the correct view?

It is a correct view. We are also starting to see it on an international level. You will have the small local regional players, but you will start to see the ones that are large have a global footprint, which will end up only being beneficial because a global footprint for a cryptocurrency type operation really sets the stage for entry into the remittance market. When you have a global player that covers multiple countries you’ve pretty much displaced the functionality of someone like Western Union.

That’s where things get very interesting. For example, Ripple is working with Wells Fargo and other banks to have their technology capabilities incorporated but using other cryptocurrencies than bitcoin.  Will we see a different cryptocurrency arrive?  Is bitcoin the one?

Well there are already over 300 crypto currencies that come and go. Bitcoin has the majority share at almost 99% share. Bitcoin is the dominant player. Ripple is making a lot of progress with financial institutions, as they are making this area their main focus of attention. I don’t see systems like Ripple as being truly decentralized however. They have distributed deployment, but the currency unit itself is entirely pre-mined by the founders of the currency.  That means it is not decentralised, as there are people who work out where to deploy that initial currency unit. The Ripple currency XRP is what they use as a glue to hold everything together and the test as to whether something is truly decentralised is: who will be the financial winner with Ripple’s success? Ripple has lots of venture capitalists participating in it, and investors in XRP. Those people will be the winners. Because of that Ripple doesn’t take them away from a single point of failure. Their implementation with lots of financial institutions, and what they are trying to do with various asset webs and connections, is very appealing to banks as it makes it subject to oversight and regulation.  At some point, when you traverse everything in that world however, there is still a single point of failure. Regulators like to have that single point at the end of the day, because then they can regulate it. Bitcoin doesn’t give them any type of single point to focus on.  That’s why it’s democratized value.

So if Ripple is not the solution, how will banks manage cryptocurrencies into their operations?

This is actually a very interesting area.  I am starting to focus on it a lot more in my work as, in some ways, it’s the flip side of Ripple and alternative cryptocurrencies that want to do their own independent blockchains. What we are starting to see evolve are banks beginning to leverage the existing Bitcoin blockchains.  The blockchain that already exists, rather than trying to recreate something that will be a second or third tier chain. The reason this is interesting is that it’s already there to be exploited.  The fact is that banks just have to figure out a way to connect to the Bitcoin network, which gives them the same type of liquidity and ability to do the large amount transactions they currently have on SWIFT.

An interesting company that illustrates this development well, came out of the SWIFT innotribe challenge last year coincidentally.  This is a company called epiphyte based in London, and with offices in New York.  They created an interface for commercial banks on both sides to be able to leverage and utilise the Bitcoin network, in lieu of using Fedwire or CHAPS or SWIFT, who are liquidity providers.  The banks never end up touching the cryptocurrency. This solves the challenges of correspondent banking for large global banks, who have to tie up a lot of capital in counterparty cover.  Equally, there are other parts of the world where banks do not want to leave a lot of money with their correspondent banks, due to the counterparty risk.  If they can leverage something like the Bitcoin blockchain then this will have significant impact on the future of correspondent banking worldwide.

That’s one of the reasons I believe bitcoin as a cryptocurrency has more relevancy at the wholesale level, replacing both Hawala and correspondent banking structures at the same time.

So if I summarise what we have covered so far, you believe we will have a jurisdiction-based system that regulates usage at a national level but, because it’s incorporated by banks into wholesale bank structures, it massively reduces costs. Is that how this plays out?

Yes.   It’s important to look at jurisdictions, as jurisdictions do have the ability to regulate the in-and-out functionality of their own currencies into cryptocurrencies.  When you talk about a country having Bitcoin regulation, what they are really regulating is their own currencies exchanged into and out of another cryptocurrency. That’s what you’re seeing at bitcoin exchanges and banks, and will be one primary level of regulation.

Beyond that, you will have a whole parallel world which will exist person-to-person.  In some ways that world is more interesting than person-to-business use of cryptocurrencies as in a person-to-person environment, similar to using Skype or using encrypted email, you find new ways of doing things.  In this case, you have an independent financial messaging system which has allowed us to create a large global value exchange network. That secondary level of exchanges, person-to-person or otherwise, with a cryptocurrency like bitcoin is outside the control of regulators. That’s not even an area where the regulators have a remit, and is why they will have to focus upon when cryptocurrencies are converted into and out of their own national currency.

So that person-to-person exchange, what will be the protection mechanism that will take place in that the system? Will free agents manage the system?

Well ultimately this will rely on the Bitcoin blockchain, which is secured by the power of the overall mining participants. This represents the largest distributed and secure computing project in the world. In aggregate it exceeds the top 500 or 600 super computers combined. 

And here, I want to make a point about the price of bitcoin, as this comes up a lot. I don’t think watching the price is that important. It’s more important to look at the number of projects and developers working on building user friendly solutions. It is more important to focus upon the installed base of bitcoin wallets.

At the end of the day, the bitcoin price should reflect a price level that is sufficient to protect the aggregate value of transactions that are arriving over the blockchain. If you extrapolate that forward and say that a lot more economic activity is occurring on Bitcoin blockchain, then the security reaches a level that is consummate with the value riding across that decentralized value transfer network. As a result of this, that will tend to slowly increase the natural price of Bitcoin. That’s the only way to guarantee that the transactions riding across the network will be secure.  Then people will be willing to pay for that additional security in increased transaction fees.

It’s a feedback loop, as you won’t have those transactions occurring if the miners aren’t rewarded through a higher price of bitcoin. You won’t have the higher price of bitcoin if the transactions aren’t occurring in the first place. So it’s very much a feedback loop in a two-way structure.  That’s why I don’t put a lot of effort or thinking into the alternative cryptocurrencies, as they tend to be distraction for building the strongest leading network that we need for migrating economic activity and commerce.

Final question Jon.  If you were a betting man and you were betting on what will happen in the future, where would you put your money… or don’t you use money anymore?

I do have to still use money in some cases and also credit cards but, if I look at it from a Bitcoin investment point of view, I would bet on investing in the actually currency and using that as a proxy for the sector, rather than choosing individual companies. I think it’s unique and rare that we have an opportunity in the investment world to choose a currency as a way to invest into an entire sector. It is a proxy for the sector.  If there was a way to invest into healthcare through a healthcare currency, you have that now for investing in bitcoin as a cryptocurrency for the digital value exchange sector.

In terms of your portfolio, I look at this in the same way as gold.  If people are comfortable in having 10-15% of their overall net worth in something like gold and precious metals, then equally they should be comfortable in having 10-15% in bitcoin. It’s investing in assets and commodities on a portfolio percentage basis.  I think this whole transition that you describe as the ValueWeb  will be complete when we start calling gold an analogue version of bitcoin.

 

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The Finanser interviews: René Frijters, Founder and CEO of Knab Bank (Aegon's digital first bank)

Following on with our regular weekly interview the Finanser talks this week with René Frijters, Founder and CEO of the Dutch digital bank Knab.  

Rene Frijters

Knab is the digital first bank funded by Aegon.  In Aegon’s latest results summary, there are some interesting comments.

Knab, Aegon’s online bank in the Netherlands, has been recognized as having the best new investment concept for its simple, convenient and accessible investing. It provides sample portfolios to help guide newer investors as well as advanced analysis tools for more experienced investors. Knab’s innovations have now attracted more than 50,000 customers, following a strong increase in 2014 … Gross deposits tripled to EUR 1.0 billion. This was mainly the result of the continued strong performance of Knab, Aegon’s online bank in the Netherlands. Knab accounted for EUR 0.6 billion of gross deposits in the fourth quarter, up from EUR 42 million in the same quarter of 2013. The number of clients at Knab has grown significantly in 2014 and now stands at over 50,000, supported by very high customer satisfaction scores.

Here’s what René has to say about it:

Can you give me a bit about the background to Knab Bank? When did it launch and who is behind it?

Knab was founded in September 2012. The initiative was started, mid 2009, by Rachelle van der Linden, Marcel Kalse and me. Rachelle has a marketing background. Marcel and myself were heavy involved in Alex Beleggersbank, a stockbroker which we had set up in 1999. Alex Beleggersbank was sold in 2007 for 380 mio Euros to Binck Bank. I was co-founder of Alex and Marcel head of business development.

For setting up Knab we needed a banking license and a lot of funding not only for the necessary investments but also for the required capital. Because of this we contacted several financial institutions to see if they wanted to support our idea. Aegon Bank (part of Aegon Insurance) was enthusiastic about our vision and became 100% shareholder at the end of 2010, the moment we started building the bank.

What is the bank trying to achieve and how did you see the market opportunity before you launched?

The reason why we started the bank was threefold.

First, we wanted to give customers a better insight in their financial situation, because increasingly they are becoming more and more responsible for their financial future.  For example, governments are reducing tax-facilities to build up pension, to deduct interest on your mortgage, etcetera and companies are moving away from defined benefit to defined contribution systems, so pension risks are transfered to the employees themselves.

Second, we wanted to build a bank which really acts in the interest of it’s customers , instead of only talking about customer centricity while the company tries to earn as much money as possible without telling the customer at the same time.

Third, we wanted to give customers real attention. Preferred and private banking concepts completely fail in the Dutch market. Only a very small group of customer really get the attention and the pro-active advice they require from their bank.  

Has that view  of the market changed at all since you launched?

Not really. Because of the economical crisis we see more and more laws coming in, which strengthens the need to get better insight in your financial situation yourself. Banks try to be more customer centric, but they change very slowly because of various reasons (impact on P&L, legacy, reorganizations, compliance). 

Why is the bank called Knab?

The name Knab says everything about our intention. Knab is bank spelled backwards. We try to work in exactly the opposite way the established banks are doing things. We put the customer – which, in Dutch, is ‘K’lant – first and the ‘B’onus on last, as in we don’t pay bonuses.

And do you offer all the usual bank services, such as deposit accounts, debit and credit cards, cheque books, loans, mortgages and so on?

Yes, we do. At the moment we offer a current account, a savings account, term deposits, a credit card, two investment products (Execution Only and Asset Management) and a lot of services and tools.

In fact we offer our customers a PFM platform together with a bank. So our tools and services are even more important than our products. 

You talk about Banking-as-a-Service, could you explain that a little more?

Traditional banks live from product push. They talk about customer centricity, but their focus is on selling as much products as possible. We don’t believe in this model and really try to stand on the customers side by offering our customers all kind of services to improve their financial insight and situation. Let me give you three examples.

Personal (highest) Interest Service.

With this service we monitor the interest savings rates of the customer’s accounts at other banks and warn the customer when a change has taken place. Even when a competitor of Knab offers a higher interest rate than Knab, we send the customer an alert to make him/her aware.

Smart Cash Management Service.

With this service we automatically transfer money from the current account to the savings account when the amount on the current account exceed a customized threshold. And we do the opposite when an overdraft occurs on the current account. At traditional banks customers pay 14% on the overdraft while they get 1% on their savings at the same time. We see this as a kind of robbery from customers and refuse to do this.

Smart Alerting.

Based on all the data we have, we send our customers alerts to call their attention to potential financial gains and risks. We have built about 100 of these alerts and they are only being sent to customers if it’s relevant according to his/ her profile

This also comes with an ‘subscription like’ payment model. A customer subscribes to one of our services (basic, plus, premium or business) and then gets a bank which is on his/her side.  

You also talk about Knab as  a Digital Bank – how do you define a Digital Bank?

Knab is 100% digital. We don’t have any branches and will not have them in the future (except from  perhaps a flagship store in Amsterdam). Customers can do all their activities via Internet and mobile apps. They can reach our Customer Service desk via phone, (video) chat and social media (FB and Twitter). Signing of legal contracts is being done by using your bankcard, the same applies for changing your address, you card limits, etc.

What about customer onboarding, how you deal with KYC and all that?

The onboarding process is 100% automated. Customers can open a current account with us within five minutes. The only thing which they have to do, is to transfer money from an existing account at another bank, with exact the same name, to Knab to identify themselves. We do all kind of checks and balances (EVA-check, world compliance check, etc.) in the background, fully automated.   

Is the bank using any form of social media outreach and, if yes, how?

We have introduced Knab Live. Knab Live is our community platform where customers can give feedback about our services and bring up their ideas. 100% open and transparent. We also organize a monthly Knab Open session at our office. Each customer is welcome and we use these events to co-create our products and services together with our customers. And of course we interact with our (potential) customers via Social Media.

You are a Dutch-based bank, and many Dutch folks seem more digital than elsewhere. Would you agree, and what’s the typical sort of customer you are attracting?

In Holland we have a very good infrastructure and 95% of the people are online. Most of our customers are between 35 and 55 year old, but in comparison to the Dutch population, we are more dominant in the age between 20 and 35. Our customers are well educated and most of them have more than double the average Dutch income.

I note that you’ve achieved quite a high take-up of new customers compared to other banks, is that through heavy promotion, advertising or are you offering special deals on interest or other account opening incentives?

It’s a combination of facts.

First, banking is about trust and we see that, after two years, people believe we are here to stay.

Second, after a difficult start with only one proposition (premium) we have introduced in November 2013 a Spotify-like type of proposition. Customers can start saving with us without paying a subscription fee and grow within our bank (Basic., Plus, Premium).

Then we have changed our ATL-campaign from a more ‘brand advertising’ type of campaign to a more ‘proposition’ type of campaign where we communicate concrete advantages (two times interest, fixed subscription fee, etc.) .

Fourth, we started a multi-channel distribution strategy: partnerships / channels; comparison sites (referrals), independent advisors, Aegon customers.

We started doing ‘fact based marketing’. So, we measure every step a customer makes, do A/B testing on our site, etc.

Finally, we offer one of the top three interest rates in the savings market.

All these things helped us to grow our business with more than 40.000 customers in 2014.

From a marketing perspective, does the bank have any brand values, and what are they?

The brand values of Knab are:

a)            We build the bank together with our customers

b)            We share our tools and knowledge to help our customers to get better insight in their financial situation. So they can get the most out of their money.

c)            We offer outstanding service, 7 days a week16 hours a day

d)            We are 100% transparent

e)            We always keep innovating to make maximum use of new technological possibilities

Specifically, are you providing a service that is different to other banks and, if so, how?

Yes, and maybe this a one of the biggest differentiators.  Although we are a digital bank we believe that customer service is one of the post important things to become successful and to create ambassadors. The employees who have contact with our customers are all selected based on the right ’DNA’. Can they really listen to the customer and are they able ‘to stand in the customers shoes’ when they talk to them. Are they able to ‘over deliver’ and ‘surprise’ customers. That’s the way we like it and so, why shouldn’t customers like to be treated this way?

We have a Net Promoter Score (NPS) of +26 and Customer Service is an important part of this value (Dutch financial institutions have a negative value of -20 on average). It’s impossible for traditional players to reach this level. They have a product and procedure based service instead of a customer based service. 

 Looking ahead, how do you see the longer-term vision for the bank?

We really must focus on Personal Finance and on customer experience. These will be the differentiating areas for the future because products will become more and more commodities. We will enlarge our products and service offering and add on services like P2P-financing, mortgages and perhaps Bitcoins. The last one isn’t possible today because of rules and regulations set by Dutch Central Bank.

Finally, what would you like the bank to best be known for?

We like to be known as the most customer driven bank.

Some more about Knab on Slideshare:

And a nice interview with Rene in Five Degrees and Financial Brand.

About René Frijters

René Frijters is Founder and CEO of Knab. Knab is a bank built with customers and takes the financial situation and the interests of its customers as the starting point. He vows to be completely transparent with fees, and describes Knab as “socially conscious,” encouraging customers to allocate part of their savings to select charities. Before Knab was founded, he was CEO of the Alex Investment Bank for 12 years.

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The Finanser interviews: René Frijters, Founder and CEO of Knab Bank (Aegon's digital first bank)

Following on with our regular weekly interview the Finanser talks this week with René Frijters, Founder and CEO of the Dutch digital bank Knab.  

Rene Frijters

Knab is the digital first bank funded by Aegon.  In Aegon’s latest results summary, there are some interesting comments.

Knab, Aegon’s online bank in the Netherlands, has been recognized as having the best new investment concept for its simple, convenient and accessible investing. It provides sample portfolios to help guide newer investors as well as advanced analysis tools for more experienced investors. Knab’s innovations have now attracted more than 50,000 customers, following a strong increase in 2014 … Gross deposits tripled to EUR 1.0 billion. This was mainly the result of the continued strong performance of Knab, Aegon’s online bank in the Netherlands. Knab accounted for EUR 0.6 billion of gross deposits in the fourth quarter, up from EUR 42 million in the same quarter of 2013. The number of clients at Knab has grown significantly in 2014 and now stands at over 50,000, supported by very high customer satisfaction scores.

Here’s what René has to say about it:

Can you give me a bit about the background to Knab Bank? When did it launch and who is behind it?

Knab was founded in September 2012. The initiative was started, mid 2009, by Rachelle van der Linden, Marcel Kalse and me. Rachelle has a marketing background. Marcel and myself were heavy involved in Alex Beleggersbank, a stockbroker which we had set up in 1999. Alex Beleggersbank was sold in 2007 for 380 mio Euros to Binck Bank. I was co-founder of Alex and Marcel head of business development.

For setting up Knab we needed a banking license and a lot of funding not only for the necessary investments but also for the required capital. Because of this we contacted several financial institutions to see if they wanted to support our idea. Aegon Bank (part of Aegon Insurance) was enthusiastic about our vision and became 100% shareholder at the end of 2010, the moment we started building the bank.

What is the bank trying to achieve and how did you see the market opportunity before you launched?

The reason why we started the bank was threefold.

First, we wanted to give customers a better insight in their financial situation, because increasingly they are becoming more and more responsible for their financial future.  For example, governments are reducing tax-facilities to build up pension, to deduct interest on your mortgage, etcetera and companies are moving away from defined benefit to defined contribution systems, so pension risks are transfered to the employees themselves.

Second, we wanted to build a bank which really acts in the interest of it’s customers , instead of only talking about customer centricity while the company tries to earn as much money as possible without telling the customer at the same time.

Third, we wanted to give customers real attention. Preferred and private banking concepts completely fail in the Dutch market. Only a very small group of customer really get the attention and the pro-active advice they require from their bank.  

Has that view  of the market changed at all since you launched?

Not really. Because of the economical crisis we see more and more laws coming in, which strengthens the need to get better insight in your financial situation yourself. Banks try to be more customer centric, but they change very slowly because of various reasons (impact on P&L, legacy, reorganizations, compliance). 

Why is the bank called Knab?

The name Knab says everything about our intention. Knab is bank spelled backwards. We try to work in exactly the opposite way the established banks are doing things. We put the customer – which, in Dutch, is ‘K’lant – first and the ‘B’onus on last, as in we don’t pay bonuses.

And do you offer all the usual bank services, such as deposit accounts, debit and credit cards, cheque books, loans, mortgages and so on?

Yes, we do. At the moment we offer a current account, a savings account, term deposits, a credit card, two investment products (Execution Only and Asset Management) and a lot of services and tools.

In fact we offer our customers a PFM platform together with a bank. So our tools and services are even more important than our products. 

You talk about Banking-as-a-Service, could you explain that a little more?

Traditional banks live from product push. They talk about customer centricity, but their focus is on selling as much products as possible. We don’t believe in this model and really try to stand on the customers side by offering our customers all kind of services to improve their financial insight and situation. Let me give you three examples.

Personal (highest) Interest Service.

With this service we monitor the interest savings rates of the customer’s accounts at other banks and warn the customer when a change has taken place. Even when a competitor of Knab offers a higher interest rate than Knab, we send the customer an alert to make him/her aware.

Smart Cash Management Service.

With this service we automatically transfer money from the current account to the savings account when the amount on the current account exceed a customized threshold. And we do the opposite when an overdraft occurs on the current account. At traditional banks customers pay 14% on the overdraft while they get 1% on their savings at the same time. We see this as a kind of robbery from customers and refuse to do this.

Smart Alerting.

Based on all the data we have, we send our customers alerts to call their attention to potential financial gains and risks. We have built about 100 of these alerts and they are only being sent to customers if it’s relevant according to his/ her profile

This also comes with an ‘subscription like’ payment model. A customer subscribes to one of our services (basic, plus, premium or business) and then gets a bank which is on his/her side.  

You also talk about Knab as  a Digital Bank – how do you define a Digital Bank?

Knab is 100% digital. We don’t have any branches and will not have them in the future (except from  perhaps a flagship store in Amsterdam). Customers can do all their activities via Internet and mobile apps. They can reach our Customer Service desk via phone, (video) chat and social media (FB and Twitter). Signing of legal contracts is being done by using your bankcard, the same applies for changing your address, you card limits, etc.

What about customer onboarding, how you deal with KYC and all that?

The onboarding process is 100% automated. Customers can open a current account with us within five minutes. The only thing which they have to do, is to transfer money from an existing account at another bank, with exact the same name, to Knab to identify themselves. We do all kind of checks and balances (EVA-check, world compliance check, etc.) in the background, fully automated.   

Is the bank using any form of social media outreach and, if yes, how?

We have introduced Knab Live. Knab Live is our community platform where customers can give feedback about our services and bring up their ideas. 100% open and transparent. We also organize a monthly Knab Open session at our office. Each customer is welcome and we use these events to co-create our products and services together with our customers. And of course we interact with our (potential) customers via Social Media.

You are a Dutch-based bank, and many Dutch folks seem more digital than elsewhere. Would you agree, and what’s the typical sort of customer you are attracting?

In Holland we have a very good infrastructure and 95% of the people are online. Most of our customers are between 35 and 55 year old, but in comparison to the Dutch population, we are more dominant in the age between 20 and 35. Our customers are well educated and most of them have more than double the average Dutch income.

I note that you’ve achieved quite a high take-up of new customers compared to other banks, is that through heavy promotion, advertising or are you offering special deals on interest or other account opening incentives?

It’s a combination of facts.

First, banking is about trust and we see that, after two years, people believe we are here to stay.

Second, after a difficult start with only one proposition (premium) we have introduced in November 2013 a Spotify-like type of proposition. Customers can start saving with us without paying a subscription fee and grow within our bank (Basic., Plus, Premium).

Then we have changed our ATL-campaign from a more ‘brand advertising’ type of campaign to a more ‘proposition’ type of campaign where we communicate concrete advantages (two times interest, fixed subscription fee, etc.) .

Fourth, we started a multi-channel distribution strategy: partnerships / channels; comparison sites (referrals), independent advisors, Aegon customers.

We started doing ‘fact based marketing’. So, we measure every step a customer makes, do A/B testing on our site, etc.

Finally, we offer one of the top three interest rates in the savings market.

All these things helped us to grow our business with more than 40.000 customers in 2014.

From a marketing perspective, does the bank have any brand values, and what are they?

The brand values of Knab are:

a)            We build the bank together with our customers

b)            We share our tools and knowledge to help our customers to get better insight in their financial situation. So they can get the most out of their money.

c)            We offer outstanding service, 7 days a week16 hours a day

d)            We are 100% transparent

e)            We always keep innovating to make maximum use of new technological possibilities

Specifically, are you providing a service that is different to other banks and, if so, how?

Yes, and maybe this a one of the biggest differentiators.  Although we are a digital bank we believe that customer service is one of the post important things to become successful and to create ambassadors. The employees who have contact with our customers are all selected based on the right ’DNA’. Can they really listen to the customer and are they able ‘to stand in the customers shoes’ when they talk to them. Are they able to ‘over deliver’ and ‘surprise’ customers. That’s the way we like it and so, why shouldn’t customers like to be treated this way?

We have a Net Promoter Score (NPS) of +26 and Customer Service is an important part of this value (Dutch financial institutions have a negative value of -20 on average). It’s impossible for traditional players to reach this level. They have a product and procedure based service instead of a customer based service. 

 Looking ahead, how do you see the longer-term vision for the bank?

We really must focus on Personal Finance and on customer experience. These will be the differentiating areas for the future because products will become more and more commodities. We will enlarge our products and service offering and add on services like P2P-financing, mortgages and perhaps Bitcoins. The last one isn’t possible today because of rules and regulations set by Dutch Central Bank.

Finally, what would you like the bank to best be known for?

We like to be known as the most customer driven bank.

Some more about Knab on Slideshare:

And a nice interview with Rene in Five Degrees and Financial Brand.

About René Frijters

René Frijters is Founder and CEO of Knab. Knab is a bank built with customers and takes the financial situation and the interests of its customers as the starting point. He vows to be completely transparent with fees, and describes Knab as “socially conscious,” encouraging customers to allocate part of their savings to select charities. Before Knab was founded, he was CEO of the Alex Investment Bank for 12 years.

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The Finanser Interviews: Soner Canko, CEO of BKM, Turkey

Following on with our regular weekly interview, the Finanser talks this week with Soner Canko, CEO or BKM (Bankalararası Kart Merkezi), the ACH for Turkey. 

Soner Canko

 

BKM was established in 1990 as a partnership of public and private banks. Today, all the banks that issue a card and own a POS are members of BKM.  The ACH is notable for being a key promoter of contactless payments and, more recently, launching its own mobile payments wallet for the banks to leverage to their clientele.

How do banks and BKM interplay?

Among BKM’s main fields of activity are to develop procedures to be applied among  banks for credit/debit cards, to perform operations for ensuring standardization, to establish domestic rules, to carry out interbank authorization, clearing and settlement transactions, to establish relations with foreign entities and, if necessary, to represent its members with these entities and to carry out transactions that are already being made by any bank in a more secure, faster and cost-effective manner from a single centre. 

BKM works synergistically with its member banks.  Therefore I believe that Turkish Card Payment Systems Market is very lucky, because the needs as well as the actions that must be taken to improve the industry are discussed and determined by the committees, which meet regularly and in which the representatives of banks take a place, and also by one-to-one discussions. This is a great opportunity that many other countries do not have.

We experienced the benefits of this opportunity in the project for migration to Chip&PIN. All banks have decided their migration dates, acted together, and harmonized all credit cards, POS devices and ATMs in compatible with EMV in a very short period under the leadership of BKM and we achieved a highly successful migration, which is considered as a model throughout the world.

What motivated BKM to promote contactless in Turkey?

Turkey met with contactless cards in 2006. Turkish cardholders have always been the first to meet with many new contactless products until today. Today, as of the end of 2014, 23 percent of all credit cards and 4 percent of all terminals have contactless features. We can argue that these figures are very low for a country that has met with contactless cards very early.

But I believe that transition to the new generation of payment systems will be much more difficult until the users get used to contactless cards. Users must get used to the speed and practicability of contactless in order to have an easier adaptation to new generation of payment systems.

On the other hand having contactless terminals widespread is very important to have the infrastructure of technologies, such as NFC and HCE.

Therefore we pay significant efforts to popularize contactless terminals and ensure that users experience it.  

What does BKM see its mobile wallet now and in the future?

BKM Express is a digital wallet, developed in 2012 together with the banks in order to increase the volume of e-commerce. We did a lot in the last 2 years in this process. We initially worked hard to expand the acceptance network and today BKM Express is one of the payment methods accepted by e-commerce companies, which produce more than 50 percent of e-commerce transaction volume. 99% of the cards in Turkey can be included to the system thanks to our online integration with 17 banks.

We also added P2P money transfer functionality to BKM Express in 2013. Users of BKM Express can immediately send money to a mobile phone number 7×24 thanks to our database.

We also began to allow our users to use BKM Express for face-to-face payments in 2014. Our users have begun to use their digital wallets in more areas like fuel stations and restaurants.

We are well aware that time and practicality are very important for users in today’s digitalized world. Therefore we believe that payments must be invisible and complementary for shopping experiences of users. For this purpose, we search and try what we can do to improve our user’s experiences everyday and make our developments accordingly. We aim to make BKM Express a digital wallet that can be used by its users everywhere and everytime. 

How will payments change in Turkey over the next ten years?

As BKM, our main objective is to have a society that makes payments without cash in 2023. We have already started our works both to develop the infrastructure and increase the awareness of society for this purpose. For instance, we began to explain the benefits of transition to digital payments with our Goodbye Cash campaign in 2010.

Turkish banking system has a strong infrastructure, which will certainly help us in transition to digital society. On the other hand, banks are competing with each other with their innovative products. All kinds of products and services that will meet the needs of end users are offered.

Today, approximately 40 percent of payments are made with cards in our country. 10 years later, we will have a country, in which all of the payments are made in digital environment.

What are the key things that you focus upon?

The position of our payment systems is very strong. Users meet with many payment system products for the first time in our country throughout the world thanks to valuable managers in the industry and their innovative perspectives.

We, as BKM, pay a lot of attention to adopt quickly to changes, follow up the new technologies and developments throughout the world and experience all innovations as much as possible since we are operating in a field, in which the expectations and competition are very intense.

Being a member of many different platforms to exchange knowledge is one of those very important issues for us. This allows us not only to monitor different markets but also to establish strong relationships.

How are you innovating?

We believe in internal entrepreneurship. As a part of this belief, we expect from all our employees to make contributions to the innovation.  While trying to reinforce this strategy with the trainings we receive, we are also paying a lot of attention to open communication in our job. We support all our employees as much as possible to clearly communicate their ideas and recommendations and implement them regardless of their current jobs.    

For this purpose, we established a R&D center, named BKMLab, within our company. We are testing new technologies and proactively completing our preparations before launching them.

Thanks to BKMLab, we can test and observe new products and services before they are introduced to the market and, if they are found suitable, we can continue on our works or, end them. For example, we have completed our first project in this center for integration of BKM Express and GoogleGlass. After getting the results of this project and integrating new wearable technologies, we intend to achieve the most suitable solution.

BKMLab will also soon be open for other entrepreneurs in our ecosystem. Start-ups will have an opportunity to benefit from the center at any time of the day.

Will ApplePay and PayPal Here, for example, make BKM more or less relevant?

One of the main duties of BKM is to grow the ecosystem of payment systems. For this purpose, all innovations throughout the world are monitored closely and analyzed. BKM prepares common platforms for the most suitable and fastest penetration of products, which assist in the growth, development and/or improvement of payment systems, to Turkish market and sometimes it assumes new roles in adaptation to new technologies.  

Therefore BKM is very open for new products and services throughout the world as well as for collaboration with them and provides the utmost support for development of the ecosystem.

Any innovation in payment systems is introduced quickly to Turkish market thanks to BKM’s organization that closely monitors new technologies and adopts swiftly to changes, which is also valid for all local or international players!

About Soner Canko

Dr. Soner Canko graduated from Istanbul University, Faculty of Political Science, Public Administration Department. He also received master¹s degree and Ph.D from Istanbul University, Faculty of Economics.

Dr. Soner Canko¹s career has commenced in 1990, where he performed in sales, management and consulting roles at Procter & Gamble, Citibank, Hewlett Packard. He was the founder and Country Manager of First Data Turkey, and lastly Assistant General Manager of Ziraat Bank.  Today, Dr. Canko is the CEO of BKM (Bankalararası Kart Merkezi).

 

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