Things worth reading: 26th May 2015

Things we’re reading today include …

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Why banks (and PayPal) don't simplify

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):

Unbundling of a Bank

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?

No way.

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.


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Things worth reading: 19th May 2015

Things we’re reading today include …


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What is Chris smoking? Of course, we’re being disrupted!

Just to finish off my contention that banking is not being disrupted, just evolved or adapted if you prefer, it’s worth a thought about what would it take to cause a disruption.

First, I don’t think of disruption in a dictionary sense but in the sense that Clayton Christensen meant it in the book The Innovator’s Dilemma. This definition goes as follows:

Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

And the question today is whether the Klarna, Holvi, Zopa, Lending Club and brethren are doing the above or not?

To a certain extent, it seems clear that they are.  According to Foundation Capital, P2P lending and crowdfunding will be worth over $1 trillion by 2025 and companies like Apple are taking over the customer wallet.  The counter-argument is that there are banks that sit behind all of these movements, with wholesale markets moving heavily into support of the likes of Lending Club.  Equally, others see markets expanding.  For example, many banks won’t lend to high risk projects r companies.  A new start-up small business will always find it hard to get unsecured lending from the bank, unless they have a robust business plan.  But companies like Kabbage and Funding Circle have stepped into this space and are helping to widen markets.   According to today’s Telegraph, small businesses are getting access to over £2 billion of new funding through alternative lenders.  But then, Funding Circle does partner with banks like Santander to do this, so they’re basically picking up business that banks don’t want.  Is that the disruption?

Possibly.  Today, banks don’t want this business. Tomorrow, it’s their core business that’s gone.  Equally, bank are not helping themselves. Today’s Financial Times“UK banks are charging businesses that need short-term finance £425m a year in “hidden” extra fees, according to research.”

Surely, by giving away future business with one hand whilst sticking two fingers up at existing business with the other, banks are trying to destroy their futures rather than build them?

This should be a concern, but is P2P going to be the massive disruption that some believe is happening, or will banks partner and then merge and acquire with P2P lendersa and crowdfunders.  Maybe the latter is likely if these firms become mainstream.

After yesterday’s blog, Holvi made clear that they have regulation and are also operating in a bank-like manner. 

If it looks like a bank, walks like a bank, smells like a bank, surely it’s a bank?

No.  It’s a payment services provider.  However, if payment service providers started offering core deposits and loans as well as payment services, then yes, they’re a bank and would need a bank licence.  And have Transferwise, Holvi, Funding Circle and their brethren yet really made a mainstream impact on core bank business, or just built around that business?  I would contend the latter today.

But, and here’s the real point of all this, tomorrow.  Tomorrow is the question.  Are these companies that are small beans today relentlessly going to move up market to displace the established firms?

Will the largest financial institutions of tomorrow be a Lending Club or Alibaba?  Over the past few weeks I’ve been arguing no, but maybe you should be asking: does Chris believe this?

The reason I’ve been arguing against the Fintech tide is that many banks will say to me: “we have over X million customers today, and we know what we are doing.  The regulations protect us from competition and the technology we can incorporate over time.”

Which side do you believe and where are you placing your bet as, in ten years, one of the other will probably be true.  Most bankers I talk to believe they have time to adapt and that they are adapting.  Most technologists I talk to claim that banks are too slow to adapt, their cultures are too traditional and their leadership too weak.

Which do you believe?

I claimed that the size and regulatory structure of banking is too much of a barrier to allow some upstart to take over their core business, but disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

Are we seeing this today?

Finally, I recently asked Where is the Uber of Banking? that sparked a really interesting twitter debate:

@Chris_Skinner it’s cheaper to build the uber of banking than it is to explain it to banks. Why spend the money to explain it?

— Ian Grigg (@iang_fc) March 31, 2015

@iang_fc @Chris_Skinner is financial services, unlike taxis, un-Uber-able? I.e. B/c “Beg forgiveness vs ask permission” lands you in jail…

— Carl Marc Forcestein (@MarcHochstein) March 31, 2015

@Chris_Skinner banks operate as closed processing and distribution networks. If 1 opens up BPaaS/APIs we may see many ‘Uber of banking’

— Kevin Simback (@KSimback) March 31, 2015

Along with comments from many others.

So now it’s back to Chris believing that disruption is where it’s at whether you like it or not, and arguing that banks must act now.  Some are but many are not taking this seriously, and they’re the ones that will be disrupted if they don’t watch out.


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Things worth reading: 21st April 2015

Things we’re reading today include …

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Bank Fintech worries are obvious … solutions are not as clear

I just finished presenting on Digital Bank strategies and Fintech, and was asked a wide range of questions:

  • How do we transform our legacy structures?
  • What is the biggest obstacle to becoming a digital bank
  • You mention partnerships but all cooperative structures failed in the past, how can we succeed in the future?
  • Can you show us someone who is doing this right and making it work?
  • What should a bank do when we have millions of customers who trust us?

… and more.

I kinda realised something at this point that hadn’t struck me before or, rather, it had struck me but not as visibly.  Banks are worried about the future, not complacent. 

I guess that is why I am being paid to talk, consult and write about this stuff, but it didn’t hit me as noticeably as it did today (probably because at most conferences, no-one asks any questions).

One lady came up to me afterwards and said: the problem is we all know we need to do something, we just don’t know what to do.

I said it’s pretty easy, and started re-iterating my underscores about digital needs to be seen as core, not periphery; it needs to be invested as a continuum, not a project; it needs to be seen as foundations of the bank, not a channel of the bank; it needs to be articulated clearly about what it means to the bank and led from the top; etc, etc.

She intervened fast and said: I hear you, I hear you, I hear you Chris, but you don’t get it.


It was then I got the message: Our bank is led by someone who doesn’t get it.  He’s assigned digital under the leadership programs but, when it comes up, you can see he switches off.  All he’s concerned about is regulation and compliance.  Digital is on the back of the bank’s envelope, but it’s not key.

It was then I realised I was talking to the head of digital at the bank.  Oh dear.

I must admit that I encounter this frustration more and more often.  The frustration is that the bank is worried about fintech, has woken up to digital and are thinking about what to do.  They’ve invested in apps and APIs, restructured services, trying to get off legacy and doing the things that should be done.  But the problem is the CEO doesn’t get it.  The CEO has grown up in the bank, understands the bank, loves the bank but has no idea what this digital stuff is all about.

A great example was another conference attendee who runs a group that represents bank thinking.  He said they had created a fintech focus area but were struggling as no-one in the group knew anything about fintech or digitalisation.  Sure, they all knew about bank risk, compliance, counterparty systems and mandates and such like but digital?  Fintech?  Oh no!  Bring in the nerd.

So, I know now something I’ve known before but can articulate better than ever before.  If your CEO is not leading change and articulating a digital vision, then what are they doing?  If they have a team delivering digital change but appear to have delegated their responsibility to be part of that change, thn what are they doing?  If you are seeing inertia and complacency about fintech and digital in your bank, then show them Jamie Dimon’s shareholder letter and scream: WHY?  If you are in a bank that needs to wake up to digital and fintech, then make sure that the CEO is awake first.  Finally, if you are in a bank that has not even got this in their agenda … leave.


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Why Fintech Banks Will Rule The World

Whilst debating whether new fintech startups would eat the banker’s lunch yesterday, I stumbled across a really interesting read by Philippe Gelis, co-founder and CEO of FX firm Kantox.  It was so good that I asked Philippe if I could put it on the blog and he kindly agreed.  Read and enjoy …

Why Fintech Banks Will Rule The World, by Philippe Gelis

Last week, I had the opportunity to present Kantox and my vision of Fintech in front of around 150 bank executives from Northern Europe. After my pitch, we had a Q&A round, and one more time I had proof that bankers are not expecting at all what will happen in the next 10 years.

The financial industry is one of the last large industries that have not been already really disrupted. Nevertheless, it seems that bankers do not have much of a different approach to the people who ran the press, hospitality and airline industries some years ago.

Every industry will be “uberized”, but it seems that most bankers still think it will be different in their case, probably because they consider that the heavy regulation will protect them and limit the growth of Fintech at some point. Bankers simply do not understand that tech companies are agile enough to take advantage of any piece of regulation.

They also still believe that customers still trust banks, while since the 2008 financial crisis and due to the never-ending financial scandals (Libor-gate, the FX fixing scandal, etc.) customers (both individuals and businesses) have a huge appetite for alternative finance. Banks are not seen any more as partners, but rather as pure providers only looking after their own interests and short-term profits.

It is a first step for banks to open incubators or to create VC funds to invest in start-ups, some of them Fintech, but it is definitely not enough. Most banks look to fund fintech start-ups that create products to be added on top of banks products, that will make the user experience better, but they almost never invest in products that directly compete with them, that cannibalize them.

Let me explain why I think bankers are completely wrong.

We are now experimenting with the first wave of fintech, which sees companies competing with banks on specific products:

  • Loans and credit
  • Payments
  • Foreign exchange and remittance
  • Wealth management
  • and many more

Lending Club is far and away the global flagship fintech company. The success of its IPO has been a game changer for the entire fintech sector.

So, banks are getting pressured by newcomers but –and the “but” is really important– these disrupters are relying on old-school banks for banking services and banking infrastructure (bank accounts, payments, compliance, brokerage, etc.). In other words, they are re-inventing the user experience, the user interface or the business model but not “the whole thing” (to steal a quote from Marc Andreessen). And by relying on banks to do business, fintech companies are clients and so generate revenue for the bank. Let’s say it is a co-petition (co-operative competition) model in which fintech stays at the mercy of banks, they disrupt banks on one side but they bring them business on the other side. In the end, banks still win.

It is important to note that many fintech businesses have evolved from pure “P2P models” to “marketplace models” where the liquidity can come from peers or from financial institutions.

Lending Club is known for getting up to 80% of its liquidity from financial institutions and not from peers. Here we have a clear example of banks considering it to be more efficient and therefore more profitable for them to lend money through Lending Club than through their outdated branches. Anyway, the challenge is more in having deep liquidity than in locating the liquidity.

The second wave of fintech, to come in two to five years’ time, will be “marketplace banking” (or “fintech banks”). This will be a type of bank based on five simple elements:

  1. A core banking platform built from scratch.
  2. An API layer to connect to third parties.
  3. A compliance/KYC infrastructure and processes.
  4. A banking license, to be independent from other banks and the ability to hold client funds without restrictions.
  5. A customer base/CRM, meaning that the fintech bank will have the customers, and a customer support team.

 The products directly offered by the fintech bank will be limited to “funds holding”, comprised of:

  1. Bank accounts (multi-currency).
  2. Credit and debit cards (multi-currency).
  3. eWallet (multi-currency).

All other services (investing, trading & brokerage; wealth management; loans, credit & mortgages; crowdfunding (equity and social); insurance; crypto-currencies; payments; remittances & FX; this list is not exhaustive) will be provided by third parties through the API, including old-school banks, financial institutions and fintech companies.


Imagine that you are a client of this “marketplace bank” and that you need a loan. You do not really care if the loan is provided to you by Lending Club or Bank of America, what you look for is a quick and frictionless process to get your loan, and the lowest interest rate possible.

So, through the API, the “marketplace bank” will consult all its third parties and offer you the loan that best suits you.

We can imagine both a process in which conditions offered by third parties are non-negotiable but we can also imagine a competitive bidding process to get the best offer for each client at any point in time.

I have been asked several times about this business model and I think it is a no-brainer. It is a simple mix between an access fee to the “marketplace bank” and a revenue sharing model with the third parties providing additional services.

Here we have a completely different approach regarding the relationship with incumbents. Fintech banks, thanks to their banking licence, will not rely any more on any bank to be and stay in business, and so will not be at the mercy of incumbents. What is even more powerful, through the marketplace, incumbents will become “clients” of fintech banks, so the system will be completely reversed.

We will see banks pay a commission to Fintech banks to serve their customers!

The beauty of “marketplace banking” is that it competes directly with banks on core banking services without the need to build all the products.

Now the question is, what is really needed to launch a “marketplace bank”?

Technology/API/Compliance/KYC: building the technology is a complex part but many people have the skills to do so. So it is definitely not the main barrier.

Banking license: in Europe, the budget to get a banking license is estimated at approximately €20 million, though it could cost less or more, depending on the country. But it is not only about money.

To be in business you need strong and experienced board members, without them regulators will probably not give you the green light. So this means that you need to be able to convince investors and board members to trust you based on a Powerpoint presentation and to bet big on you. I think that we need the first wave of fintech to be successful, with some exits and big returns, to have people betting a lot of money on “marketplace banking”.

As an entrepreneur you need to have demonstrated that you are able to execute and scale a fintech business to lead that kind of new venture.

Customer base/CRM: here is the most complex part. How do you attract a critical mass of customers based on a simple offering (accounts + cards + eWallet) that relies on third parties for additional services? You cannot only rely on marketing and having a cool brand to attract hundreds of thousands of new customers if you have nothing really different to offer.

You also need some kind of focus: will you target individuals or businesses? Lower end or high net worth individuals? Small, medium or large businesses? Will you focus on one single country or several ones?

As always, it is all about customers and revenues, so you need a clear sales and marketing plan to quickly scale the customer base. I have some ideas how to do it but I will keep it for another post.

I have been asked several times if the first “marketplace bank” will be launched by an old-school bank (an incumbent) or a fintech startup? I definitely think the latter. It is too disruptive and the risk of cannibalization is too high to see a bank assuming the risk.

Anyway, most bankers are not already worried enough by fintech to react to its coming second wave. I remember a pool during a fintech panel where almost 90% of people answered that a fintech bank was improbable and, if it happens, it would be build by an incumbent.  This creates a fantastic “window” for us fintech entrepreneurs, to build it, and once it’s done, it will be too late for them to react.

Fintech banks are inevitable!

This is just a blueprint. To pull it off requires a lot of hard work. But given that the elements are all already available, it’s not a question of if but when the first pure fintech banks appear. They will be lean, flexible, and unhindered with legacy systems and a bad reputation due to never-ending scandals. 

They will eat the lunch of the current bank dinosaurs and could well eventually rule the banking world. 


About Philippe Gelis

Philippe Gelis is co-founder and CEO of the foreign exchange marketplace, Kantox.  Philippe has led Kantox’s growth to serve over 1,500 corporate clients from over 15 countries, carrying out over $1 billion in total trades.  Kantox was founded in 2011 with the goal of bringing transparency, efficiency and fairness to the FX market for SMEs and mid-cap companies.  Philippe is a regular columnist and commentator in the financial press, and has appeared in Forbes, the Financial Times and Business Insider, among many other publications.


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The reports of banks death has been greatly exaggerated

There are a number of debates that pop-up regularly including the war on cash, the end of the branch and the death of banking.  The last one I haven’t blogged about much because it’s irrelevant, but I’ll blog about it today as there are two camps of thought: incumbents and new entrants; and today’s blog is inspired by exactly this argument between Michal Panowicz of mBank (an incumbent) and Brett King of Moven (a new entrant) on twitter.

Incumbents believe they can change and adapt and keep up with fast tech change; new entrants claim that incumbents have the wrong mindset and, like Kodak and Nokia, will miss the mark and disappear.

The first camp claim to be protected by rules, regulations, compliance and high barriers to entry due to governance, gaining a bank license and dealing with complexity.  The latter claim none of that matters, and believe they can attack specific pieces of the system with new business models based upon next technologies.

The incumbents say that they are building new technology structures and reforming their original operations; that legacy systems have been a challenge, but they are being overhauled; that most of the new tech sits on top of that structure anyway, so they can build great user experiences, regardless of the form factor gaining access.  The new entrants claim that if the core is rotten then the rest will be rotten, and that banks are hampered by heritage; stuck in the mindsets of the past; and have no chance if they don’t destroy themselves, rebuild and start again.

It’s a fun argument to watch, but it’s an argument that’s irrelevant.  In fact, I will be so bold as to say that the discussion is meaningless.  It’s a bit like the argument between a zealot and an atheist.  They can talk about it until the sun sets, but they will never get an answer.  In other words, the bank versus death of bank argument is meaningless because it doesn’t matter.  Some startups will eat some of the bankers’ lunch, whilst some incumbents will adapt and survive by changing their business models, partnering with innovative new startups and acquiring companies that cause concern.

Equally, it’s meaningless because history dictates that the death of banking isn’t going to happen.  Most banks are 100 years old or more.  Name any other industry dominated by players that have been around for a century or more? 

Airlines?  Maybe.  Most airlines have their roots back into the 1900s and have grown through acquisition and merger, just like banks.  There are new players out there – SouthWest, Easyjet, Ryanair – but most airlines have been around a long time. 

Grocery stores?  Probably.  Most have high barriers to entry – the store network and margin squeeze through volume play – and have players who have been playing for a long time – Wal*Mart started business in 1962, Tesco in 1919 – but that doesn’t mean new players like Aldi and Lidl cannot make an impact. 

Pharmaceuticals?  Ah, now that’s a business based upon product innovation and patents, who then control the supply chain through copyright.  Sounds a bit like music, but drugs are harder to copy.   GlaxoSmithKline’s roots date back to 1715 and Pfizer to 1849.

And this is where the argument of the new entrants falls down for me, as they continually compare banking to music, entertainment, film, photography and similarly digitally disrupted industries.   But these are the wrong industries to compare with, as these industries don’t have tight regulations, high barriers to entry and strong capital requirements.  The only similarity, which is why they are the continual comparison, is that banking can be a pure digital play which, in context, is the same as music, entertainment and photography.

Banking is therefore similar to these firms but, unlike these industries, it also has many commonalities with pharma, groceries and airlines.  These are markets with a strong store distribution footprint, tight controls and high costs of capital that are similar to the incumbent model of banking. 

So the real dialogue is between the new entrant who think that banking is a pure digital play versus the incumbent who feels that the distribution, controls and costs of banking makes it far more like pharma.

You make your own choice, but my view is that if we really believe some geek in a bedroom can create the uber of banking, then it is like saying that some nerd in a garage can create the next Pfizer.  It is highly unlikely to happen as the incumbent will have the time to adapt.  They may get hurt – vis-à-vis BA with Easyjet and Ryanair or Tesco with Aldi – but the incumbents will find a strategy to survive and thrive in the new world, even with these threats.   

In fact the nearest we have got to the uber of banking so far is bitcoin, as discussed yesterday, and banks are already adapting to that one.  So let’s see who’s right or wrong in ten years.   The incumbent or the new entrant?  Or maybe it doesn’t really matter.


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As the Bitcoin Foundation fails, banks wake up

I’ve blogged before about how bitcoin will become institutionalised, that you cannot have money without government, why it needs a Foundation and how a Wild West structure for value exchange will fail.  It’s certainly moving in that direction after the latest revelations about the Bitcoin Foundation, alongside the equally revealing announcements that banks are incorporating the blockchain.  Here’s the latest.

There were lots of news and media sites covering the revealing post made by new Bitcoin Foundation Board Member Olivier Janssens over the weekend.  Janssens was elected to the Foundation just over a month ago and, on Saturday, posted an update on Reddit: The Truth About The Bitcoin Foundation .

It’s pretty revealing.

First of all, the Bitcoin Foundation is effectively bankrupt and The lesson for all of us in Bitcoin is to never put any trust in a centralized org again that wanted to represent Bitcoin.

Urm.  I’m not sure that’s the lesson Olivier.  I think the lesson is don’t give your money away to something that has no regulation, no guarantees and no transparency.  Anyways, the fallout has been pretty interesting.  A few comments on the Reddit post include:

I think it is going to keep coming back to: who manages the funds? [coinaday]

Shh guys – don’t you all realise “blockchain technology” is just the terminology we are using so that we can get bitcoin into banks and big businesses through the back door? [bitcoind3]


The truth is that money turns everything into shit. Centralization and money even more so. [lightrider44]

In fact, most of the community believe that decentralised control of everything solves everything.  It’s an interesting idea.  Today, the 1% control everything and the 99% revolt.  Tomorrow, if the 99% control everything, then what happens to the 1%?  Most likely they find a way to create a new control mechanism and retain their 1% privilege.   It’s an interesting battle.

But the real issue with the Bitcoin Foundation turns out to be the centralisation of focus and then the use of that focus.  As I mentioned in my blog last year:

Why is the Bitcoin Foundation smeared with controversy?  There has been extensive critique of the Bitcoin Foundation and its leadership, such as the discussion yesterday, of their involvement in the Mt.Gox failure.  Former vice-chairman of the Bitcoin Foundation, Charlie Shrem, faces federal money laundering charges for his role in assisting agents of the infamous online drug marketplace Silk Road.  Executive chairman Peter Vessenes’ relationship to former board member Mark Karpeles, the disgraced CEO of bitcoin exchange Mt. Gox, has been highlighted as inappropriate. In fact, the Bitcoin community in general is divided over the role of the Bitcoin Foundation as a community or industry representative. 

Certainly the Bitcoin Foundation were close to Mt.Gox, and it really doesn’t help when the organisation created to promote and support Bitcoin’s developments is accused of being corrupt.  In fact, between the multiple failures of exchanges in bitcoin and now their organisation created to promote their cause, it begs us to ask: what will happen to bitcoin now?

The answer: not much,  as you have to bear in mind that the Bitcoin Foundation and Mt.Gox are not bitcoin, but operators around the markets of bitcoin.  It would be like saying that because the US tourism agency and Washington Mutual fail, that the US dollar would disappear.  They are not the same things, and bitcoin will continue to develop regardless of these headlines.

Meanwhile, some have pointed out that the failure of the Foundation may be more to do with being unlucky or stupid, than anything else.  After all, the Bitcoin Foundation had $4.7 million of net assets at the end of 2013, but these were mainly in the form of bitcoins valued at $900 each.  A year later, the value of bitcoin had tanked to $250 each, wiping out almost 75% of the value of their asset base.  Meanwhile, expenses were around $1.47 million whilst revenues were less than one million.  In other words, the Bitcoin Foundation was created during a rapid growth in the value of bitcoins and did not know how to handle the rapid loss of bitcoin value, whilst trying to sustain their operation.  That created a challenge as to how to keep going and is the reason why many people have stepped down or been let go (including our friend Jon Matonis).

Anyway, before I move on my favourite comment about all of this came from John Barrett on Cryptocoin News:

Bitcoin foundation

This is why you need a regulatory structure folks.  

The 99% will claim that with democratised transparency they can manage everything but, without structure and control, you have anarchy and abuse.  Imagine Alibaba or eBay without a central exchange to manage disputes and that’s what the 99% are lobbying to achieve.  They believe the multisig structure to arbitrate disputes will provide the appropriate controls, but I am not so sure.  In fact, these developments – Mt.Gox and the Bitcoin Foundation – demonstrate more about why you need independent governance to make monetary systems work as, without it, you have a complete mess.

Talking of which, banks have become far more vocal and articulate about bitcoin or, rather, the blockchain of recent days.  In January, USAA, NYSE and BBVA invested in these technologies ($75m in Coinbase), with two quotes catching my eye:

“At its core, Bitcoin is a decentralized protocol that enables exchange of value among parties around the world, giving it the potential to alter the financial services landscape,” Jay Reinemann, BBVA Ventures executive director; and

The Bitcoin blockchain “is an opportunity for Wall Street to streamline some operations that are pretty antiquated”, Duncan Niederauer, former CEO of NYSE Euronext 

It’s not surprising that these statements are being made when even the regulator gets it:

“The price of handling bits [of data] has come down by a factor of 10,000 fold over the last generation; it’s high time that the costs of payments processing fall by a factor of even two.  Bitcoin offers the prospect of necessary and important disruption in finance for the benefit of buyers and sellers rather than financiers and middlemen.”  Lawrence H. Summers, former U.S. Treasury Secretary

Maybe the latter quote is the reason why the US Fed is creating their own cryptocurrency with IBM.

All in all, we are seeing the natural development of order in the cryptocurrency community where the unregulated markets of exchange (Mt.Gox) go through a trough of disillusionment as even their leadership cannot function effectively (the Bitcoin Foundation), whilst the traditional order things (governments) wake up to see how they can make this work effectively (via the banking system).

Watch our weekly interviews closely as we’ll have more on this coming up soon.

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The Finanser's Week: 23rd March 2015 – 5th April 2015

Our biggest stories of the past week are …

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

The Finanser Interviews: Roberto Ferrari, General Manager of CheBanca!

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 Innovation Services.

To say “banks are failing to grasp the mobile opportunity” is like saying “Apple is failing to grasp the technology opportunity”

At last week’s Payments International conference, Dave Birch and I engaged in a fun Oxford style debate entitled: This House Believes That Banks Are Failing To Grasp The Mobile Opportunity.  Unfortunately Dave got to propose the motion – we both said afterwards we could have argued either way – and, purely because a lot of bankers were in the room, he lost the motion.  I opposed it and, purely for the record, thought I’d share my notes, for what they are.

Does anyone really need a mobile wallet?

Reflecting on another conversation at last week’s conference, there were lots of discussions about why the mobile wallet wars were lost.  No one’s won the mobile wallet war yet, not even Apple, but it is there to be won.  In fact I wondered why it took a firm like Apple to take up the mantra and aim for this crown – not forgetting WeChat, Alipay and others – and realised it’s because no one has yet worked out what a mobile wallet is for.

Corporate bankers … do you need to wake up?

So I’m talking with a group of corporate bankers and the conversation goes into the normal alleyway.  This alleyway is the one that says: “we are corporate bankers and will not be disrupted”.  The conversation goes something like:

Corporate bankers …buy some extra pillows

So I blast the corporate banking world for being slow to change and believing their customers won’t change … and maybe they’re right.  After chairing a panel of large corporates including Jaeger, Virgin Media, Illy and Hotel Booker BV, the view seemed to be that banks were doing a good enough job and that corporates aren’t looking for innovation or new technology capabilities from their bank partners but other things. 

Where is the Uber of banking?

The smartphone revolution has radically restructured every industry from booking a trip (TripAdvisor), a room (Airbnb) or a taxi (Uber), but where’s the Uber of banking? There isn’t one yet and consumers will soon defect to new players unless high street banks wake up.

The billion dollar fraud and how deep learning might avoid it

Banks are being hacked all the time.  According to various statistics, banks get over a million cyberattacks a year, and protecting the bank from breach is getting harder and harder.  This was well illustrated by the Kapersky report of a cybercrime group in February gaining access to over $1 billion in two years by targeting over 100 banks in 30 countries. 


The major general news stories of the past week include … 

Monitise founder Lukies moves on – Financial Times
Shares plunge as mobile money group decides to go it alone after rejecting offers

Bank of England rapped over payments system failure – The Independent
The Bank of England has been criticised by an independent investigation over its handling of a breakdown of its electronic payments system last October, which disrupted a “significant” number of house purchase transactions and created “considerable inconvenience” for ordinary households and companies.
The world’s next credit crunch could make 2008 look like a hiccup – The Telegraph
Is this why central bankers are so scared of raising interest rates?

Sell Commonwealth Bank and buy this stock instead – Sydney Morning Herald
Commonwealth Bank’s share price has more than doubled since the Global Financial Crisis and price-to-book ratios for the big four are at the top end of their historical averages.

Deutsche Bank ‘Horribly Undercapitalized’: Regulator – Here is the City
A top U.S. banking regulator called Deutsche Bank’s capital levels “horrible” and said it is the worst on a list of global banks based on one measurement of leverage ratios.

Challenger bank Shawbrook fetches £725m valuation on IPO – The Telegraph
Shawbrook Bank is the latest start-up bank to float on the London Stock Exchange and is widely thought to be the last listing until after the election

Banks must ‘raise their game’ to win back public trust – The Telegraph
Chairman of the body tasked with improving standards in the financial sector says trust has been ‘badly damaged’ as she unveils new board

Western banks axed 59,000 jobs last year, more cuts to come in Europe – Reuters
LONDON (Reuters) – Top European and U.S. banks axed 59,000 jobs last year as they restructured and cut costs, with headcount expected to shrink further in Europe as bosses strive to improve profitability that has been hit hard by tougher regulation.

British Airways says some frequent flyer accounts hacked – Reuters
LONDON (Reuters) – British Airways said on Sunday tens of thousands of its frequent flyer accounts had been hacked and that it had frozen those affected to sort the problem out.

Nationwide defies banks’ branch closures with major cash injection – The Telegraph
Mutual expected to spend around £300m over five years on upgrading physical outlet


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