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.


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's Week: 27th April – 3rd May 2015

Our biggest stories of the past week are ...

Why you should feel revulsion for the term ‘omnichannel’

A lot of folks are asking me whether I’m really saying that banks need to start all over again?  Is that really feasible, Chris?  How can you recommend that we tear down the house and rebuild it?  Well, there’s a lot of reasons I can say this, and believe it.

How to spot a fake Digital Bank

I just heard a presentation from a leading American bank on the need to be digital.  This bank claims to be a digital leader in the US and, from all the PR and headlines, you would believe they were.  Listening to their presentation, you might believe it too …

The jury’s still out on Apple Pay…

This is a blog from the Hotwire PR website, written by Camilla Ives.  It summarises my good friend John Chaplin’sPayments Innovation Jury Report report well.  The report has been produced annually for the past four years and John will be presenting this in person to the Financial Services Club in England (June) and Poland (July).  In the meantime, here’s the low down.

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.

If banking were a movie, which movie would it be?

So it’s late at night and we reach that point in the evening when one of the group pipes up: so let’s stop talking about us, but let’s talk about banking.  A big groan. If banking were a movie, what movie would it be?  


The major general news stories of the past week include … 

Once interest rates are on the move again, how fast will they rise? – The Independent
It is a huge question, not least for the next UK government: how fast will interest rates rise here and elsewhere in the developed world? For a start, the cost of funding will be a crucial element in the next government’s fiscal planning, for the faster rates go up the

Barclays takes extra £800m hit for forex – Financial Times
Pre-tax profits fall 26% to £1.34bn in first-quarter but investment banking rebounds

French IT firm Cap Gemini to buy U.S. rival IGATE for $4 billion – Reuters
PARIS (Reuters) – Cap Gemini SA , a French information technology services company, said it will buy U.S.-based rival IGATE Corp for $4 billion in a deal that would make North America into its biggest market and hand IGATE’s founders a $1 billion windfall.

Investors question Deutsche Bank’s overhaul – Reuters
FRANKFURT (Reuters) – Deutsche Bank’s biggest strategic overhaul under co-chief executives Anshu Jain and Juergen Fitschen got a thumbs down from investors on Monday who judged it too little too late.

End of the bank holiday? Almost 100 NatWest and Barclays branches to be open in end of 144-year tradition – The Telegraph
RBS says customers struggle to make it to branches during working hours, as it opens branches on a bank holiday for the first time

Deutsche Bank strategy met with scepticism – Financial Times
Lack of detail in German lender’s five-year vision leaves analysts puzzled

HSBC considering spinning off British retail bank: Sunday Times – Reuters
(Reuters) – HSBC , Europe’s biggest bank, is weighing plans to spin off its British retail bank in a 20 billion-pound ($30.37 billion) deal, the Sunday Times reported.

Lloyds takes £640m hit from TSB’s Spanish sale – The Telegraph
Bank due to report fall in profits as it registers IT losses from Banco Sabadell’s takeover of TSB

If Greece falls, no one wants their prints on the murder weapon – Reuters
BRUSSELS (Reuters) – “We’re going bust.” “No, you’re not.” “You’re strangling us.” “No we’re not.” “You owe us for World War Two.” “We gave already.”

The bizarre banking loophole that has opened up in Malta – The Guardian
Malta throws a spotlight on how secure our bank accounts really are – or aren’t


If you like the Finanser, check out our latest book: Digital Bank


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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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How to spot a fake Digital Bank

I just heard a presentation from a leading American bank on the need to be digital.  This bank claims to be a digital leader in the US and, from all the PR and headlines, you would believe they were.  Listening to their presentation, you might believe it too:

  • Our CEO leads the digital charge
  • Digital is not an add-on
  • Digital is end-to-end
  • Being digital is crucial to our future

Yada, yada, yada.

The presenter then put a slide on screen that blew the whole credibility of his presentation (for me). 

This slide said that to be digital required a new organisational structure that is cross-functional, agile and able to operate in an omni-channel structure.

First, you don’t need a cross-functional organisation in a truly digital bank and, second, you never mention channel or omni-channel in a digital bank.

My thinking on this is that I’m calling for all banks in my digital bank presentation to firstly create a new digital business model, that moves away from the old physical structures to truly digital structures.  That business model operates as a value systems integrator, taking best of breed apps, APIs and cloud services and rebuilding them into incredible user experiences and capabilities for their targeted communities (digital banks talk about targeting communities, not customers).

A criticality to being able to be agile in a digital structure of value systems integration however, is to be digital at the core, as I’ve blogged often.  This is where the first piece of credibility of many digital banks falls down. They’re not digital at their core.  Their core is still stuck in legacy and heritage.  Hence why they talk about omnichannel.  There are no channels in digital banks because digital banks think of form factors accessing their digital core.  A form factor is a mobile or tablet; but equally can be a fridge or car; a call centre operator or a branch representative; or a customer walking payments on the net.  Any form of access to the digital core becomes a consistent experience, because there is ONE core.  When there is not one core, the bank has channels.  If the bank has channels, they are not digital because the channels create cracks and inconsistencies as you move from one to another.  At the back end are likely to be multiple systems that are purely integrated at the front-end through the lipstick on the pig.

Therefore, unfortunately for this so-called digital bank, the first failure is talking about channels or omnichannel.

The second is the use of the phrase cross-functional.  Cross-functional means that the bank not only has silo systems that need channels, but silo structures that need integration.  Silo structures based upon products and non-integrated interests of silo product leaders. 

A cross-functional approach implies matrix management; different interests; competitive internal structures; skewed rewards mechanisms; and all the other things that are issues of the legacy past.  A customer or, preferably, user- centric approach is what you expect to hear from a digital bank.  A digital bank organises around user-centricity through a digital outreach to their communities of interest.

This is why digital banks focus upon the customer- / user- experience as their priority.  This gets into another interesting discussion, in that most banks focus upon the experience through some internal team that reviews the bank’s internet Content Management System (CMS).  Wrong.  User experience is end-to-end.  In fact, it builds on my blog the other day about the Cap Gemini survey  discovering all these banks investing heavily for front-end experience, but doing nothing for the user-experience in their prioritisation of projects in the middle- or back- office.  That just does not cut the mustard and is like a general asking for more troops in the face of tanks attacking.  The bodies are there, but they’ll just get run over.

In summary and in future, I’m going to judge digital banks as those that are doing tit (user-centric with digital at the core) and will name check those that are just talking about it (cross-functional omnichannel banks).


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The jury’s still out on Apple Pay…

This is a blog from the Hotwire PR website, written by Camilla Ives.  It summarises my good friend John Chaplin’s Payments Innovation Jury Report report well.  The report has been produced annually for the past four years and John will be presenting this in person to the Financial Services Club in England (June) and Poland (July).  In the meantime, here’s the low down.

The Payments Innovation Jury Report sheds light on the state of the FinTech industry in 2015, from those on the inside, and dispels any hype with candid perceptions on where the biggest opportunities lie. This year’s report was sponsored by Currency Cloud, Ixaris and WorldRemit.   

The Jury is comprised of 40 uniquely qualified individuals from 23 countries across six continents. Unlike many payments commentators, every Juror has been there and done it before – these are the opinions of FinTech founders and CEOs of the most successful businesses in the sector.

What’s interesting is that the area in need of most innovation, according to the jury, is the B2B space.  The jury wholeheartedly agree that SMEs who require international payments technology would really benefit from disruption. However, there are well established businesses helping to provide this service, including our clients Kantox and Currency Cloud. It seems that all the right elements are there; the competition and the infrastructure, so why aren’t more FinTech startups rising to the challenge?

The jury are not enamoured with Apple Pay. While the tech giants are starting to make a play for acquisitions in the FinTech market, they are far from exciting the jury with their own innovations. The majority of the jury believe that Apple Pay is over-hyped due to the significance of the Apple brand, but ultimately it’s an unremarkable product. Saying that, the in-app functionality is impressive and most jurors had to concede as much. It’s hard to knock Apple completely, so the jury is still out on where Apple Pay will be in a few years’ time; shelved entirely or a major player.

For those of us working in FinTech, it will come as no surprise that the availability of low cost smartphones will be the single biggest enabler for driving adoption of Mobile Money. Very few Mobile Money schemes have yet to become profitable, but this could come full circle within the next couple of years. There are still billions of ‘unbanked’ people (i.e. without bank accounts) in the world, predominantly in developing economies. Of the worlds unbanked, most will own a mobile phone. The World Bank reports that Mobile Money has helped significantly to increase financial inclusion across the developing world. In Kenya more than half of adults who pay utility bills use a mobile phone to do so!

The key takeaway here, though, is that the legacy systems in Europe and America – i.e. our dilapidated banking systems – are leaving us lagging behind the developing nations of Asia and Africa. The European banking systems really are the ball and chain of the continent. It’s about time we swallowed our pride and learned something from the innovators in emerging markets.

Download the full report here.

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Digital channels are just lipstick on a pig

I just sat through a nice presentation from Cognizant President Prasad Chintamaneni at the CEB Summit in Boston …


… and was pleased to see others referring to channels and front-end investments as sticking lipstick on a pig.   Something I’ve been saying for a while, as you have to re-engineer the core to be fit for digital, not just keep sticking things on the front-end; and the only reason we talk about channels at all, is because we have just one in the 1970s – the branch – and have been sticking crap on top of that legacy for the last fifty years, cementing it in place thanks to our channel overlay.  We have to get out of that and rearchitect for a digital core where there are no channels.  There’s just access to the digital core. 

Anyways, I’ve blogged about this so much, I’m starting to get repetitive so, rather than do that, I was intrigued to see the questions posed to Prasad at the end and thought I would discuss them here.

Which of the forces driving digital do you as the nearest-term threat to traditional financial institutions?

Probably social lending and crowdfunding.  According to Foundation Capital this is forecast to rise to a trillion dollar market by 2025 and I see Kabbage, Lending Club, Funding Circle and more taking a huge slice of the traditional credit market from banks.  Some say that banks are just offsetting direct credit risk to these guys through wholesale funding of their businesses.  I say that if lean and mean loans and savings firms offer services on a razor-sharp margin basis directly through servers between savers and borrowers, then what are the banks left with?

How do you drive adoption through an aging customer base?

 Well it’s blatantly clear that the highest earners are often the most digitally savvy and it also intrigues that we think millennials are where it’s at, whilst banks like Fidor say no, it’s the over 40s.  Digital is not an age thing so much as a mentality thing.  How do you look at the world and how smart are you with tech?  Often grandpas and grandmas are the ones with the headphones on at the dinner table these days, and you have to tell them to stop texting.  It’s not always the kids.  However, the real point of this question is what are the incentives to use digital?  That’s easier to answer: it’s giving people control of their money 24*7.  That’s what is really driving adoption.  That people can see where it’s at, what they are doing with their lives financially, and can control that in real-time.   That’s the incentive.

Given the regulatory environment, what will happen to the digital disrupters when the CFPB (Consumer Financial Protection Bureau) look at them?

Great question.  Many think that digital disrupters are liked by the regulators as they are creating more competition.  Of course, they are; but are they also creating more risk?  If all the SMEs getting loans through Kabbage and Funding Circle on the basis that they don’t meet the risk criteria at the banks, what risk criteria are Kabbage and Funding Circle using?  That’s going to be an interesting development over time.  Maybe it means that all the upstarts gradually feel the pinch of the regulator’s hand on their collar and, over time, start behaving just like banks.  As they do so however, they’ll have stolen a good portion of current bank business.

Many of the success stories for digital finance are in the consumer retail side of things.  What impact will digital have in other areas?

To be honest, digital is mainly discussed in consumer lending and payments right now, but it’s impacting just as much, if not more, elsewhere in commercial and investment banking.  Looking at things like Holvi, eToro, Betterment, Personal Capital, Currency Cloud, Ripple and more, you can really start to see a digital rearchitecting of the system.  Some banks are part of the rearchitecting, such as Deutsche Bank with their Autobahn App Store, but most are still going Digital What? I feel sorry for those ones as they won’t be around in a few years.

Can you point to anyone who’s doing this digital bank strategy right?

I always point to a small few like mBank in Poland, Fidor Bank in Germany, ICICI Bank in India, Commonwealth Bank in Australia, Deniz Bank and Akbank in Turkey and even USAA and Bank of America.  The reason why I pick on these is that they have all embraced digital fully and taken significant steps to adapt and adopt.  For example, ICICI place all their customer service in Facebook communities, as does Fidor and Deniz Bank.  USAA is investing in cryptocurrencies and are renowned for great digital remote service, but you cannot ignore what Bank of America is achieving with mobile digital services for the masses such as location-based loyalty discounts using Cardlytics.  CBA transformed the bank through cloud and mBank threw away the mother ship – BRE Bank – to become truly digital.  All of these deserve credit.  There are more out there too btw, but these are the top of mind examples.

What advice would you give to a bank that needs to transform to digital?

Make sure the CEO is committed and, by that, I mean the old chicken and pig breakfast sort of commitment (the chicken participates, but the pig is committed).  Does the CEO believe I this and are they aware and knowledgeable of what digital means to the bank?   Are they leading the change or delegating it? These are critical questions as you won’t succeed otherwise.

There were lots other questions but maybe the last one was key:

Is Fintech going to destroy banks or will banks adapt and survive as Fintech reformed?

I’ve been playing this question on the blog for the past week, with the argument that we’re adapting winning over being destroyed.  Nevertheless, it’s easy to argue either way.   The net: net is that banks will be destroyed if they ignore Fintech and the digital reform it is introducing to finance.  That’s the only thing you really need to focus upon. 

More on this later …


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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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Data personalisation strikes to the heart of bank disruption

I’ve heard a lot of talk this morning about Big Data at a conference here in Barcelona, and had a realisation half way through.  The conversation was all about the move from mass markets and customer segmentation to the market of one and peer-to-peer personalisation.  In other words the deep data mining demanded by Don Peppers and Martha Rogers in 1:1 marketing in the 1990s is finally here.  It took twenty years, but here it is.  Yet this is the heart of the debate about digital disruption, fintech startups and bank responses. 

The reason why banks are being accused of being old and stale and slow, is that they are finding it very hard to adapt from product selling to mass markets through traditional media engaged via channels to offering contextual services to individuals via social media that provides digital access.  This is all part of the evolution, or revolution if you prefer, of banking and the heart of this is that the fintech startups are focusing upon putting control in the hands of one.

For example, at a recent US conference, there was a lot of talk about Venmo.  Venmo is a social payments app that acts as both a way of ensuring bills are paid between mates and also being a social share.  We all go out at the weekend and Dave pays so Chris, John and Erin send money via Venmo a few minutes/hours later.  The next time we go into Venmo, where’s Brett’s payment?  Hmmmm …

What’s Big Data got to do with that?

Not a lot.

What’s that got to do with the new market of one?

A lot.

The market of one is all about making the individual the centre of control and supporting them in controlling their lives.  The market of one can only be served by apps that leverage data and personalise it.  So Venmo’s secret is not deep data mining but allowing deep data sharing.

It’s also interesting that Venmo came through Braintree into PayPal, and PayPal now have one of the hottest apps out there.  For example, Venmo processed $141 in payments in 2013 increasing four0-fold to $700 million last year.  Could PayPal have created Venmo?  Not really.  PayPal are already being called an incumbent legacy, as they’re over a decade old.  Ten year old firms find it hard to stay fresh, as even Facebook demonstrated.  That’s why the new tech firms are acquiring and investing fast to keep up.  It is why Braintree acquired Venmo and PayPal acquired Braintree in a similar way to Facebook acquiring WhatsApp and Instagram. 

PayPal would not be able to create Venmo anyway as Venmo came out of an idea of two mates in their 20s who owed each other money after a long weekend.  A bit like Facebook, Tinder, Snapchat and more, these apps come from people seeing context and then looking at how to use new tools from Big Data through Cloud to Apps to provide real-time sharing and sourcing of needs.

And this is where we do see the banks struggle, as they cannot create these new apps as they don’t have the structure, capability or organisation to do so.  But what they can do is seed fund these apps, buy their companies, partner with the founders and more.  And that’s what Jamie Dimon is alluding to in his shareholder’s note, and it’s what banks need to wake up to in the new landscape.

The new landscape demands that banks work 1:1 with relevance to the individual’s needs.  If the bank cannot deliver this through their archaic systems and structures, then they have to rebuild the bank through working with the new systems and structures. 

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What keeps Jamie Dimon awake at night? (clue: Fintech)

I’ve written a lot about incumbents versus startups lately and noted with interest that Jamie Dimon’s annual letter to JPMorgan shareholders picks up on this theme (not as a direct result I’m sure?).  He talks about “hundreds of startups with a lot of brains and money working on various alternatives to traditional banking” and that “the ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting.”

These are the ones of concern?

Yes, because “they are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks.”

Interesting.  Why does it take banks weeks?  He doesn’t say.  The answer is because banks are laden with sedentary processes built in the last century for the physical distribution of paper in a localised network called the branch.  The branch was filled with human automatons who could manage transactions but not assess risk.  Risk is a Head Office function managed by specialists, who are trusted not to lend to idiots (hence the reason why we avoided a credit crisis!).  The hand off of fact-finding papers by automatons to enable specialists to work out whether the applicant was an idiot or not would take weeks.  Now, self-service forms online have replaced the automatons and automated systems have replaced the specialists.  That’s why the new P2P providers can replace banks with instantaneous decision-making services at a fraction of the cost.  After all, a server for $1,000 is far cheaper than a specialist Head Office credit risk manager costing tens of $1,000s.

As I blogged a while ago, this is the reason why banks should fear the replacement startup companies more than the wrapper services.  It is also why Jamie Dimon not only underscores that the banks is “going to work hard to make our services as seamless and competitive as theirs” but, in a step further towards bank as value systems integrator, he states that JPMorgan “also are completely comfortable with partnering where it makes sense.”

Will JPMorgan integrate Lending Club and Prosper into their credit risk operations and structures, and what does this to do margin, process and operations?  Good question and one that JPMorgan along with other banks are all trying to assess, as they have to face it: the day of stand-alone vertically integrated banking is over.

That’s demonstrated well in the payments world, that also gets a note in the letter.

“You all have read about Bitcoin, merchants building their own networks, PayPal and PayPal look-alikes. Payments are a critical business for us — and we are quite good at it, but there is much for us to learn in terms of real-time systems, better encryption techniques, and reduction of costs and ‘pain points’ for customers.”

Learning is a good thing to focus upon, and JPM along with their counterparties are doing just that.  It is why UBS, BBVA, NYSE, Intesa, Barclays and several other banks are investing in cryptocurrency startups and supporting new payments models.  The thing is that they cannot do this effectively if banks are hamstrung by heritage.  As Dimon states:  “some payments systems, particularly the ACH system controlled by NACHA, cannot function in real time and, worse, are continuously misused by free riders on the system.”

Free riders? Who could they be?  “PayPal and PayPal look-alikes”?

So what are you going to do about JD?

Well, I answered that a while ago  but, in case you missed, it JPMorgan has been hiring a whole host of Silicon Valley talent.  They have to do this to compete with the new startups, free riders: wrappers, replacers and reformers.  As Jamie Dimon puts it:  “We move $10 trillion a day.  We’re one of the largest payments systems in the world. We’re going to have competition from Google and Facebook and somebody else … when I go to Silicon Valley… they all want to eat our lunch.”

So, although banks have a system designed to protect them through licences, it’s not completely protected from margin squeeze and fee contraction through new players.  And we may say that this is just something to be concerned about in the retail space, but I suspect that the likes of Jamie Dimon don’t see it that way as most of the upstarts don’t.

So, the bank of the near future will be value systems integrator of best-in-class apps, APIs and analytics that enable them to deliver the ultimate delivery of value aggregation for their clients.  If they don’t move to this model, then their failure to adapt will have been proof of being ignorant of the change that is going on around them and, as noted by Roberto Ferrari who I interviewed the other day, if leadership teams are unable to lead change then they are not a leadership team anymore.

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The Finanser's Week: 6th April 2015 – 12th April 2015

Our biggest stories of the past week are …

The reports of my bank’s death are 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.

It’s not the end of banking as we know it, but …

I’m intrigued by how often I hear the line: “banks are stuck in the past”.  Most upstarts and startups are saying that banks have their heads up their rears, aren’t focused upon the future, don’t think out of the box, cannot change, blah blah blah.  Do they really believe this?  Apparently yes.  Such arrogance is impressive and is the reason why so many new companies are entering the industry to change it.  The question is: will they?   My answer is: a little.

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 …

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.


The major general news stories of the past week include …  

Atom Bank raising £75m before launch – City AM
Atom Bank is raising £75m from investors as it prepares to gain its full licence and launch this year. The Durham-based challenger bank plans to be the first fully digital lender, operating predominantly via mobile apps.

How secure are new payment technologies? – Financial Times
Latest developments increase safety — but can also pose risks

Gangsters flood Italian banks with €500 notes known as ‘Bin Ladens’ because they are notorious, but rarely sighted – The Independent
The €500 note, the Euro-gangster’s favourite form of money, is behind an unprecedented wave of money laundering in Italy, officials warn.

Bank systems creak under weight of digital transactions – Financial Times
Pressure is mounting on the archaic technology systems that underpin some of the largest banks as they roll out online and mobile services to compete in the digital age.

UK launch of digital bank Fidor hamstrung by payments providers – The Telegraph
Innovative German lender Fidor Bank’s UK launch has been delayed by difficulties gaining access to the country’s payments system infrastructure

Stupid errors in spreadsheets could lead to Britain’s next corporate disaster – The Telegraph
Large firms have failed to learn lessons from Enron, which was brought down by spreadsheet inaccuracies

IdeaBank offers in-car deposit box – Financial Times
Mobile bank targeted at small businesses that rely on cash transactions

Cyber risk the most serious threat to business, says Lloyd’s chief – The Telegraph
Lloyd’s of London is receiving more enquiries for protection against costly cyber attacks

Labour is being far too reticent: it didn’t cause the global financial crisis and Coalition austerity policies have stalled the recovery – The Independent
My old Bank of England colleague Tony Yates – soon to be Professor of Economics at the University of Birmingham – has an interesting post about electoral politics on his blog, longandvariable. He notes that the Coalition claims credit for the extraordinary job-creation – which he argues almost certainly had

Banks ‘pay 60%’ of profit in penalties – BBC
Britain’s largest banks have paid 60% of their profits since 2011 in fines and repayments to customers, according to a report by accountants KPMG


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