Online retail giant Overstock.com recently revealed a new checkout service borne from the Swedish payment solution company, Klarna. The partnership is still in its infancy, and Overstock admits that this is very much a testing period to see how customers respond to the integration of this new system into the buying process. But what was the reasoning behind the introduction of Klarna to a new audience? Well, it’s pretty clear once you understand how Klarna works. This system allows users to purchase products through Overstock simply by typing in their email and shipping address and perhaps their phone number. With Klarna, there is no need to type in your credit card information.
Considering the growing amount of time that consumers spend on their mobile devices, it’s no surprise that many retailers are looking for the best way to enhance the user experience when it comes to a digital interface. Retailers like Overstock.com seek payment systems that make it as easy as possible for the consumer to buy.
Klarna addresses this with a system that combines the ease of Apple Pay or Android Pay with the “one click” element of buying something through something like Amazon’s app. The difference is that with Klarna, you aren’t limited by your device or the specific site that you’re visiting to utilize the service. Klarna works on various platforms and on many different sites.
When a user types in their email address, Klarna’s system almost instantly decides if it can allow you credit, by analyzing public and private data about you as a consumer. If the system deems that you qualify for this mini-loan, then it allows you to place your order and have 14 days to provide payment information. This system has already proven to be not only effective, but powerful in places like Germany, where almost nobody uses credit cards.
In coming years we will see how the system fairs in other countries with similar buying habits.
When you talk non-stop about digital, it sometimes gives you a reality check when you actually live life in a physical world. The frustrations of crashed systems, products that don’t work, call centre operators who aren’t co-operative and check-in staff who can’t check-in. Equally, there are the moments of pure bliss such as the smell of freshly cut grass, the first coffee of the day, the sight of a butterfly and the feel of the hot sun on the back of your neck.
We must not forget these realities, as digital should be all about making our physical world experiences even better. Digital should be resolving the frustrations and augmenting the bliss. However, the reason I mention this is that I also realise how far we have to go in some of my travels. Two cases in point.
I saw a vending machine in the airport and wanted to buy one of the products shown. The machine gave me two options. Pay in local currency, of which I had none, or pay by credit card through their online service. I chose the latter – the airport had free Wi-Fi – and entered their website domain.
First, the site would not load on my mobile. Eventually, when it did, it was hardly navigable so I gave up and decided to get some local currency. After a brief argument with the cambia de exchange, I returned with some crispy new notes in my hand and pushed one into the cash entry on the machine. The machine rejected it. I tried again. It was rejected again. This process was repeated several times and then I thought: I wonder if these notes are too new and crispy? After crunching a note into a small ball and then straightening it again, I pushed this one into the cash slot and it worked.
Hmmm … I guess this vending company doesn’t sell very much.
The second experience was just paying for parking. I’d left my car in the hotel car park for three nights and needed to move on. Upon checking out, I asked the hotel if they had a deal on car parking. No sir, said the nice checkout lady, you must pay separately at the machine as you enter the car park. OK.
I walk to the car park and find the machine, enter my ticket and the grand sum of €94.80 appears. I then try to see where to put my credit card. Oh. There’s no card slot and, sure enough, the screen shows a card with a big red cross over it.
Maybe the other machine will accept cards? No. Same again.
OK, so maybe I can pay the attendant as I have no cash. I slink over to the attendant’s window, just as I spot him moving rapidly to the back door to escape.
Excusez moi! I say loudly. He turns and gives me the evil eye. Canna I paya avec moi cartes? My German isn’t very good, but he gets the idea, and walks out of the back door. He comes around the side of the office and appears next to me, and grabs my arm. No words are exchanged.
The old man gives me the steely eye look again. He points at my hand holding the credit card and at the machine’s screen, where the card with the red cross appears. He then gives me a shake of the head to show the answer is no.
I get the idea that this is a cash only car park. Wherea canna I getta money? I ask in my best local accent.
He points out of the car park door and then shows a turn to the left and then a turn to the right in big sweeping motions. I leave the car park and find the ATM nearby. As I’m leaving the country, the last thing I wanted to do was to get more cash but … returning with €100 note in hand, the car park machine duly accepts my payment and gives me an exit ticket.
I purely recite these two examples of many, to illustrate that we are moving away from physical to digital but it’s going to be a slow process.
The Federal Reserve Board is taking public comment on whether to require member banks to move to same-day payments after an industry group voted to mandate faster payments among the nations 12,000 financial institutions.
I was talking about the internet of things again today, and realised that I have a grand vision of the not too distant future where everything communicates with everything. We have chips as tiny as nanodots inside every brick, pavement slab, tyre, wall, ceiling … you name it. We have more intelligent chips inside car engines, visual entertainment systems (the TV is no more), wearable devices from rings to necklaces to bags to shoes. Everything is communicating with everything and our devices are all attached to us through the blockchain.
The result is that my Star Trek vision of no one paying for anything becomes a reality. I drive to the big city and park. My car tells the metering system it’s my car and it’s parked here until I come back. When I come back it asks the system how much it owes and pays. I do nothing.
My car then drives me to the gas station – I don’t drive anymore as it’s self-driving – and it asks the station robot for $30 of LPG. The robot pump system delivers and I just sit, working and enjoying the entertainment and world around me. The car drives off and all of the transaction is seamlessly in the background.
I’ve asked my Tesla to take me downtown to a decent bar – I haven’t been in this town before – and it delivers me to Joes 99er. I have no idea who Joe is or why he’s talking 99 and I don’t care, I just want a drink. Joe – or the guy behind the bar – gives me a large Whisky and Bud. It’s my usual tipple and my shoe just told his stock management system that’s what I’d want. I felt a little vibration from my shoe that confirmed this would be ordered and just let it go. It was too much trouble to shake my left foot for a Gin & Tonic.
After three Buds and Whisky combos, I jump back in the car and am ready to hit the casino. The car asks me three times if I really want to do this – it knows what happened last time – and I just say yea. I’m cool and mellow and a little bit drunk, something I’m ultra-aware of as I’m supposed to be sober in charge of a self-driving car. Why that law still exists, I have no idea.
So the car drops me at Caesar’s Shed, it’s kinda five steps down from the Palace, and I start shooting some Blackjack. My shoe vibrates again, as I’ve just lost $2,000 in the first five minutes and my budgeting balance for the month for gambling has been reached. But it’s only June 2nd for heaven’s sake. I stamp my foot and the balance is lifted, along with a healthy top-up of $10,000 moved from my savings account in real-time.
By the end of the evening, my savings are gone and the bank’s given me a loan of $15,000. I hate it when I click my shoes together and say there’s no place like home. After all, that’s the trigger for my biometric check to ensure it really is me saying that I want an extra line of credit. No-one notices the heartbeat check and the touch of my finger to the side of my glasses. Works every time.
Unfortunately, it works and makes sure that I lose every last dime of my money but then I have this lady who seems to have joined the ride home, and the car is asking where to go. I say home with an S (for seduction), and the car heads to my destination of choice.
As we arrive, the nest is bathed in purple light. Ed Sheeran schmoozes Thinking out Loud from the wireless speakers and we’re soon enjoying an intimate moment. As our bodies touch, something in my ring tells me a transaction just happened. It is only then, with the combination of my gambling losses and Bud combos, that I realise this is no ordinary woman as I gather she’s not here for a long-term relationship.
In fact, the following morning, as my red eyes open and realise she’s gone, that the sun rises on my virtual walls and my infomediary assistant tells me my account has been frozen. It just goes to show that the shoes I brought last month really are a bad influence. Next time, I should stick to the watch.
Ah well, a good night was had by all and not a payment or authentication was visible to all. Just wireless credits and debits from the stamp of a shoe to the touch of an eyebrow.
The world has changed a lot in the last ten years. I remember in 2010, I used to keep lots of pocket change in my car to pay parking metres, and got frustrated with the endless stops at toll booths to swipe my credit card. By 2015, things had improved immensely. Now I just had NFC payments, prepaid apps and one time passwords. No longer would I jiggle around trying to find the right change. My tech would help me to sort out the detail. Now, my tech just does it all for me. I just try to work out : was it all worth it?
As the internet reinvents commerce on this planet, it’s interesting to see the two things that enter the innovation mix: simplicity combined with connectivity. When you think about the Uber, Airbnb, Facebook, Google, Amazon and more, you realise that they have all simplified some complex things from sharing to finding. Google’s home page has stayed pretty much the same since day one.
Clear, clean and simple, it’s a SEARCH engine. It helps you find stuff. It’s easy.
You don’t think about the complexity of the thousands of servers that are indexing everything non-stop. That’s the complex stuff that sits behind the simple home page. You don’t think about the connectivity needed to do this. The fact that Google is linked into every server on the planet to index the internet. You just assume the homepage is there and will find stuff.
It’s all simplified through global connectivity.
The same is true with Facebook. You share your life with your friends, from links to funny videos of cats and babies to pictures of your own cats and babies. You don’t think about the complexity of the thousands of algorithms required to tag, link, upload, organise, store and manage all your stuff. You just want to share stuff. You don’t realise how Facebook is getting smarter and smarter. You just want to connect with your friends and family.
Amazon is the same. Again, you’re just buying things you like. It’s simple and easy. You don’t think about how Amazon has created a global store of everything through connectivity to every sales outlet. You just buy things. You don’t think about how Amazon can read your mind and predict the next things you want to buy through indexing all purchases through meta-tags. You just enjoy the fact that it has suggested that you might want that next book by Anna North. You just like the fact that it can read your mind and your tastes.
Uber and Airbnb are doing something different however. Rather than simplifying how you find, share and buy things, they have simplified marketplaces. The taxi market was fragmented and disorganised. Uber organised it. In this case, the simplification is through connectivity rather than complexity. Uber’s purely connecting people with cars through an app with people who need driving.
Airbnb saw a similar opportunity to sell spare space by connecting people with rooms to people who need rooms. It’s the P2P connectivity that provides the simplification of markets (transport, lodging), rather than purely simplifying activities (finding, sharing, buying).
Which brings us around to banking. What activities can we simplify in banking and which marketplaces could be simplified through connectivity?
These questions have already been answered in some areas. PayPal and Alipay simplified the activity of paying by providing a layer over the traditional complexity, called an email. Prosper and Lending Club have simplified the credit markets by providing connectivity between those who have money and those who need it.
Paying and enabling credit are the narrow areas of finance being attacked by simplification, but what else could be flattened by connectivity. I must admit that when I look at this chart from CB Insights (doubleclick image to see a larger version):
It really makes me take note, as any financial activity can be levelled by technology. Any financial activity can be simplified. Any financial marketplace can be flattened by connectivity, peer-to-peer, person-to-person.
This is why banks must change tack, and become integrators and aggregators of components of finance. A bank cannot compete with a specialist who is simplifying a marketplace or financial activity. Instead, they need to work with the simplifiers and incorporate their best practices into their own. This is why the likes of Moven and Fidor are being brought into bank operations as partners. This is why the likes of Venmo and Braintree are brought by PayPal.
Any incumbent player who tries to resist the onslaught of the simplifiers is going to fail, because the simplifiers are reinventing activities and markets overnight. My favourite current example in fact, is Venmo.
If you don’t know the story, Venmo was invented by two mates during a long weekend. The whole story is here, but the gist of the story goes like this:
One of the weekends we were getting together to work on this idea, Iqram was visiting me in NYC and left his wallet in Philly. I covered him for the whole weekend, and he ended up writing me a check to pay me back. It was annoying for him to have to find a checkbook to do this, and annoying for me to have to go to the bank if I wanted to cash it (I never did). We thought, “Why are we still doing this? We do everything else with our phones. We should definitely be using PayPal to pay each other back. But we don’t, and none of our friends do.” So we decided, let’s just try to solve this problem, and build a way to pay each other back that feels consistent with all of the other experiences we have in apps we use with our friends.
After four years, Venmo is now processing almost $4 billion in social payments a year and was acquired first by Braintree in 2012 (for $26 million) who were then, subsequently, acquired by PayPal.
Could PayPal invent Venmo?
Did PayPal invest Venmo?
Why didn’t PayPal invent Venmo?
Because simplification comes from kids and complexity comes from incumbents.
The incumbents are too dogged in their own complexity to see simplicity in too many cases. That’s why banks spend all their time talking about regulations, regulations, regulations, whist Fintech start-ups talk about innovations, innovations, innovations.
The startup has the excitement of simplifying complexity; the incumbent has the weariness of dealing with complexity.
That’s why Fintech is so hot – because it’s reinventing financial activities and simplifying markets. Watch this space for more.
I was flicking through the Economist this week and was surprised to see a big quarterly special all about Fintech. Wow, this stuff is hot, hot, hot. That’s what the magazine makes clear:
From payments to wealth management, from peer-to-peer lending to crowdfunding, a new generation of startups is taking aim at the heart of the industry—and a pot of revenues that Goldman Sachs estimates is worth $4.7 trillion. Like other disrupters from Silicon Valley, “fintech” firms are growing fast. They attracted $12 billion of investment in 2014, up from $4 billion the year before.
The magazine probes these areas in depth, citing Lending Club, Venmo and others on my list as disruptors and concludes that: “the bigger effect from the fintech revolution will be to force flabby incumbents to cut costs and improve the quality of their service. That will change finance as profoundly as any regulator has”.
In other words, the industry does not disappear, just the big, fat, lazy players. I agree.
By coincidence, this article hit my radar the same day as the great guys over at Finovate were running their annual West Coast bash. In preparation for this, Jim Bruene posted a list of Unicorns – start-up firms founded since 2000 that have achieved over $1 billion valuations – and notes that the list has tripled over the preceding year, from just 11 companies in 2014 to 35 in 2015. Simlar to other lists, a third of these are in lending and credit markets and a third in payments – that’s where the action si ffolks.
With a big thank you to Jim for compiling this, here’s the names of the biggest Fintech firms around:
I wrote a while ago about the contrast between the innovators (jeans and beers) and regulators (suits and canapés) and was struck by this again as I attended EBADay in Amsterdam. Like SIBOS, EBADay is attended by the best people in transaction banking and payments, and they all wear suits and ties.
The focus of these meetings is often on a regulatory dialogue, and EBADay didn’t let us down with panel sessions on BASEL III, Beyond SEPA, The Regulatory Hurdle, PSD2, ISO20022 XML, Financial Crime and Security and so on and so forth. There was a bit on the blockchain too, and here is really struck me that things were awry.
I’ve been tweeting a while that bankers are all repeating the mantra Bitcoin Bad, Blockchain Good. This rallying cry is now so strong that if you challenge it – is bitcoin really that bad? – everyone quashes the discussion. I’m now of a mind that the majority quash such discussion because they really don’t know what bitcoin is about.
Reid Hoffman – the co-founder of LinkedIn and early investor in PayPal and Facebook – talks about this in Wired this month. Interestingly, Reid only got interested in bitcoin two years ago after meeting Wences Cesares, who interview featured on the blog in March. Reid says a few interesting things in this space.
“There are three aspects to Bitcoin that are interwoven … One, it’s an asset, like digital gold 2.0. Two, it’s a currency in as much as currency is like the digital app that allows you to begin to transact and trade. And, three, it’s also a platform where you can build financial and other products on top of it. These attributes all bound together are what convinced me that there’s a certainty that there will be at least one global cryptocurrency and that there’s a good argument that it’s Bitcoin, or that Bitcoin is one of them, if not THE one.”
He goes on to talk about how other VCs and protagonists are dissing bitcoin and says that this pleases him, as he’s investing for the long-term and the long-term says that bitcoin, or a relation, will win.
Now, back to the banking audience, and they’re talking Ripple – Chris Larsen was the opening keynote here – and, since I arrived, I’ve heard this mantra about Bitcoin Bad, Blockchain Good.
So why would someone as intelligent and informed as Reid Hoffman – and Marc Andreessen, Richard Branson, Wence Cesares, Jon Matonis, et al – be so pro-bitcoin when the banks are not. My answer is that most of the people dissing bitcoin haven’t looked under the hood.
So here are two test questions for all of you reading this and thinking Bitcoin Bad, Blockchain Good.
One, have you actually read Satoshi Nakamoto’s white paper?
Two, can you explain to me exactly why the blockchain is good?
I don’t do this, as I don’t want to embarrass anyone, but I’m guessing that 99% of the Bitcoin Bad, Blockchain Good people would answer no to both questions.
So, to help you along the way, here is Satoshi’s white paper and the abstract pretty much summarises what you need to know (but read the rest anyway as I’m going to test you on it):
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
Here’s a quick explanation of the blockchain that works well for me from the bitcoin.org:
The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.
And here’s why bitcoin is integral to the blockchain: because the blockchain does not work without a native cryptocurrency, and why would you create an alternative to bitcoin when over 90% of all cryptocurrency transactions are based upon bitcoins?
Nasdaq will leverage the Open Assets Protocol, a colored coin innovation built upon the blockchain. In its first application expected later this year, Nasdaq will launch blockchain-enabled digital ledger technology that will be used to expand and enhance the equity management capabilities offered by its Nasdaq Private Market platform. Nasdaq’s blockchain technology will offer efficient, fully-electronic services that facilitate the issuance, transfer, and management of private company securities.
And no, they may not mention it in the press release, but yes, Nasdaq is using bitcoin as the native currency for their blockchain developments.
So please stop being parrots and squawking Bitcoin Bad, Blockchain Good as some parrots are Norwegian and may find themselves in a Monty Python sketch if they don’t watch out,.
There’s an interesting debate about blockchains, sidechains and identity taking place that is emergent right now but, soon, will be mainstream. For those who are unclear about these things, blockchain is the technology protocol invented by Satoshi Nakamoto with bitcoin, although it doesn’t have to be based upon bitcoin. The blockchain allows you to create a public ledger system that is accessible for all and secure. This is achieved by having public recording of transactions whilst they are secured by private keys. As a result, any exchange on the blockchain is secured until the private key is passed along. At that point, the ledger records the exchange of the key and the movement of a digital asset, and that asset can be anything from a currency transaction to a securities settlement to a mortgage deed to a marriage contract.
In fact, in order to allow different markets to create different blockchains to record these different styles of transaction, there is now this thing called sidechains. Sideschains are just spin-offs of a blockchain used to record a specific market transaction, such as house deed sales, and sit alongside the main blockchain.
It is this is the technology that all the banks are excited about, as it allows the exchange of digital assets to be recorded digitally for near free and, for those who read them, the recent case studies with Ripple, Jon Matonis and Jeffrey Robinson illustrate the great debate around this technology well. The core of this debate is whether this blockchain technology needs to reside on the bitcoin currency. For some, such as Jon Matonis, this is a given. Why would you create another currency? For others, such as Jeffrey Robinson, as soon as blockchains are endorsed and operated using dollar, euro or yen, then why the hell would you need bitcoin? You can make your own mind up, as this is a sideshow to the emergent discussion about the internet of things and how the blockchain may make it work effectively.
So here’s the scenario in the very near future.
You buy a fridge, a car, a house, a smartphone, a wearable, a whatever. All the things you buy have clear serial number identifications as well as chips inside to enable them to transact wirelessly over the web. Upon purchase, your device is recorded as being yours using your digital identity token (probably a biometric or something similar). That recording of that transaction takes place on the blockchain.
Now, you have multiple devices transacting upon your behalf. Your fridge is ordering groceries from the supermarket; your car auto refuels as it self-drives the highways; your house reorders all the things needed for the robot vacuum and other cleansing devices it uses; and so on.
Each transaction is a micro-purchase around your wallet, but involving no authentication of you. The authentication is of your devices. Should a large transaction occur, or maybe just to check-in as contactless payments do with every twenty or more transactions, you are request to agree that this is your device ordering on your behalf by providing a TouchID or similar.
And all of this is being transacted and recorded on the open blockchain ledger of your bank cheaply, easily and in real-time.
What this provides is the scenario I keep talking about. The scenario invented years ago by Gene Rodenberry, when he came up with the idea for Star Trek. Now Star Trek has lots of things that were forecasts of the future that came true from communicators that were the predecessors of Motorola flip phones to body scanners that could be hand held. One of the other predictions was that we wouldn’t need money.
Did you ever see anyone ever pay for anything on Star Trek?
The reason you don’t need money in the future is that all the transactions you make take place wirelessly around you, through your internet of things. You walk into a store or mall, and all of your devices and identity are communicating your location and intention. As a result, you never pay for anything. You just authorise with the blink of an eye or the wave of a watch.
The future is so bright, I gotta wear shades, and it’s coming within the next decade. By 2025, the only humans who will be using cheques, cards or cash, will be the ones who are happy to pay the penalty fees charged by the merchants and banks for these transactions. The rest of us will be using chip-based identities for ourselves and our devices to wirelessly order everything without having to think.
So we’re having a meeting the other day and my friend was a little upset.
He’d just been promoted in the bank to become the Director of Digital Payments, Innovation and Strategy. We all noted that he was now the lead for DPIS and congratulated him for taking DPIS. For some reason he took offence.
It might have been because he was reporting to two people he had little respect for: the Senior Head of Innovation Technologies and the Chief of Re-engineering Augmented Processes, both of whom were playing a role in the new matrix structure.
I could understand this, but it’s not nearly as bad as the offence my female counterparty took to being made Veep of Asian Growth.
It almost reminded me of the day when I was promoted to be Head of Professional Services, or PS Head as my business card displayed. Similar to the fact that when I left that role I accidentally became the Senior President of Vice when I should have been the Senior Vice President.
This led to all sorts of confusion and name calling, as more and more roles became notable within the organisation. For example, as PS Head, I created a couple of key team roles. The first was for a Third-party Workers and Alliances Team leader and the second a Data and Innovation Centre Knowledge Head. For some reason, neither role got many applicants.
I complained about this to my colleague involved in Asia Growth, but she was too concerned about reporting to the Master of Intelligent Networking Growth Experiences. I empathised, and explained that my new boss was the Associate Senior Strategist for Human Organisational Experiences, a newly created role within HR that seemed to have on point in life apart from annoying folks like me.
We all then agreed that the whole thing should be given to the Business Intelligence Network to try to see if was worthwhile.