Investment Lending Market Watch Mindset Payments Personal Finance

Smart Commerce will only succeed with Smart Banking

Bill Ready had a great post at PandoDaily on the growing importance of smart mobile driven commerce. In my view this is one side of the equation of the future of commerce, the other side being the creation of smart banking services.

Using Bill’s example: I book a flight to San Francisco, my financial service app warns me that my travel budget will most likely be exceeded this month and has pushed back the budget allocation for new electronics by 1 month. My extra rental revenue from Airbnb should help cover cash flow needs for the month so that new MacBook is still a go. I take an Uber upon landing and check a restaurant for the group. Bills is split between us automatically, referring back to our positions in a global distributed ledger including interests owed (built on the Bitcoin protocol foundation). After the lunch, I check recent communications from my Angellist portfolio. My portfolio allocation to startups is split across various syndicates. Through tasks performed to help these startups, I have also earned additional exposure to a few. A good way to not only increase my upside potential but build my skills and experience.

Is this future far away? With the increase in sensors in mobile, shops, objects and the digitisation of money, the capabilities of financial services are changing quickly. A lot of this effort in calculation is currently focused on market activities (high frequency trading being probably the most discussed) but I am convinced we will see the same push start in consumer finance. The current push to integrate more data sources, including social data sources, in online lending is a good example.

Mobile is becoming an integral part of people’s financial life. Starbucks success with its mobile app proves that people, when given a good use case for mobile (increase in convenience and additional services) are more than ready to use their mobile. Payments on mobile are increasing at an amazing pace: Paypal’s total payment volume increased to $27 billions in 2013. But the increase in payments on mobile also highlights the gap between how easy it has become to spend online and how little has been done in helping people manage their spending.

Cash was the base budget management tool for a lot of people. A wallet is probably one of the best UX for money. Visually checking how much is left in a wallet is one of the most used and simple budget management tool. The rise of prepaid card with underbanked and neobanked is in some ways following the same trend, as closed cards, especially with easy to access mobile balance reminders, are the modern equivalent of counting the number of $10 left.

However, as highlighted above, as more and more of our purchase experience will not only shift to mobile online or offline but also to 1-click / no click payment, having a single credit card or debit card as a default payment mean can potentially increase the tensions in budget management and understanding of personal finance. In a world where payment is bound to disappear, the pressure for financial understanding will increase further.This is a vast opportunity for financial services startups.

The same technology that let applications recommend you what to purchase, how good a restaurant is or how to manage a fleet of cars / pricing to match demand can be used to optimize your personal financial management. As the age of mobile concierge is coming, the age of mobile financial advisors is coming as well. I am biased, professionally and personally on Simple but they are, in my view, a good example. Smart balance and goals are the beginning of a payment experience based around managing and optimising personal finance. And while this effort begins with spending, it will soon integrate as well with saving and borrowing. Paying overdraft fees with a saving account or other type of liquid assets is an incoherence in a time where a simple excel spreadsheet can compare borrowing and savings rates.

If we push this idea a little further, there is a potential for algorithmic finance becoming even more intelligent. We are on the verge of being able to record how people feel at any point in time. What about a financial algorithm that would help people maximize their happiness over time? What about a mobile agent that prevents you from buying stuff at checkout by automatically reminding of the other activities you would like to do that will be more rewarding?

Market Watch Mindset Payments

The battle for the POS is the battle for digitization of physical retail

The POS market has recently seen interesting transactions and announcements:

First Data acquired Clover end of2013 and launched its Clover Point of Sales in 2014. First Data Quietly Buys Payments Startup Clover; Launches Point Of Sale Platform For Merchants

Amazon acquired GoPago’s asset and team. Amazon Bought GoPago’s Mobile Payment Tech And Product/Engineering Team, DoubleBeam Bought The POS Business

Trends in retail and their impact for the POS.

In a world of horizontal e-commerce behemoths such as Amazon or vertical specialized online stores such as Fab, the pressure on physical retail is high whether it is through showrooming or easier commerce. Reinventing retail around usage and experience is a possible solution. The percentage of non commercial square footage in Apple stores is telling.

Because the payment component will disappear from the customer’s experience (the absence of checkout registers for the last years in Apple stores is telling), the Point of Sale is becoming the customer interaction interface within stores. The focus on personal names (introduced notably by Square) is key in this evolution. Recognizing people by their first name is a great feature for IRL CRM.

Impact of the reorganization of hardware and softare for the POS

The Point of Sale market is following the reorganization of hardware and software that is seen across other industries. Software wins over hardware. The mobile phones and tablets are at the core of the hardware experience (run the applications, connected). The customer’s mobile phone will become the main interaction screen (I tend to be skeptical of additional tablet screens in store, customers already spend most of their time glued to their own screen).

iBeacon in an Apple store

Physical adds-on, such as Bluetooth beacons (Apple, Paypal, Estimotes) provides the ultra-localized experience to interact with the products themselves, but should disappear when products become connected themselves

Market dynamics

There has been a flurry of POS and wallet startups following Square’s success. However not a lot of them have shown as much success. More established players, such as Paypal, getting in the market have not helped.

User acquisition is particularly difficult in B2B markets, especially for small and medium businesses (though signing mainstream chains is another important challenge). This plays a role in the vertical acquisitions we have seen were acquirers/processors have moved to buy Point of Sales startups. Their customer acquisition weight is just too important and their margins are being compressed by rates reduction and competition.

On the other hands, the demands of data enriched services is pushing for more horizontal organizations where connectivity to payment, accounting, global CRM, ecommerce and devices are becoming key. This is where Amazon acquiring POS software could fit. Square’s success as a stand alone company also depends on it.

Where will it start?

We are still very early in this game but there early indications can be found:

In service businesses. They have been facing less competitions than merchants businesses from the online world and, after the Groupon experiment, are looking to build repeat business.

In the expension of Bluetooth LE. It couldbe the first local connectivity technology to reach the masses. Bluetooth LE success might not come from marketing but from recreating value with the customer in enhancing support.

In online businesses going offline. New stores opened by brands such as Bonobo, Warby Parker are interesting to follow. But more importantly Apple is leading the way here, the Apple Store App is probably the most undervalued example of the new Point of Sale paradigm.

As the POS is moving from accepting payments, to accepting wallets, to enhancing the customer relation, there is plenty of opportunities for startups to help reinvent retail in the digital world.

Market Watch Mindset Payments

Understanding a Bitcoin advocate

After an eventful last year, 2014 is starting with more debate and conversations around Bitcoin.

Bitcoin 2013

It is often said that understanding Bitcoin is too technical for the average user (and at core it is, for a good summary of Bitcoin, this things the following is one of my favorite posts : ), but understanding Bitcoin advocates might be an easier tasks. In my view they split among 3 categories:

> The Libertarian: he is most likely an early Bitcoin supporter. As mentioned by the ECB, his economic background comes from the Austrian school , they see in Bitcoin a competitive currency with the main advantage of not being linked to any State. Often a goldbug as well, he considers  the limit of 21 million (or so) Bitcoins an important advantage as well. The deflationary nature of Bitcoin is an asset.

How to spot him: look for mentions of Hayek, fiat currency, algorithmic currency

> The Speculator: he bought Bitcoin at X and now it is at Y. Will share any rumours mentioning a high Bitcoin price. Bitcoin the new currency in China: share. Bitcoin coming from Alpha Centauri (thanks @azeem): share. He is a Libertarian when needed and a Protocolist as well.

How to spot him: look for retweets of Bitcoin going to $1M posts

> The Protocolist: often a techie, he sees Bitcoin as the equivalent of the internet protocol for payment or even further as a distributed ledger for all contractual agreement between a number of parties. Notably, the much lower transaction fee on the Bitcoin network appears as a great alternative to the 2.x% of credit card networks.

How  to spot him: look for mentions of interchange, remittance and http for payment.

In truth the distinction is not that clear and most people interested in Bitcoin are a blend of various proportions of these different types (and most likely different at different times).

There is also a Fourth category, one that does not have so much public exposure and that would be interesting to know more about:

> The Consumer: I am talking about the Chinese investor that use Bitcoin for Tax/Currency evasion. The underground population that transacts with Bitcoin. But also the buyer on, Zynga or other more mainstream ecommerce sites. Maybe the best way to start is to look for technical services providers such as hosting, etc. Because it is difficult to isolate commerce from other flows, the actual volume is tough to estimate at the moment. If you have bought (as more than an experiment) services and products using Bitcoin, I would love to hear your feedback.

Lending Market Watch Mindset

Welcome to Banks’ new competitors

Founded in 2006 by a single repeat entrepreneur. IPOed the next year. Raised a total of USD 232 M, including a last round in 2013 of USD 150M that puts it firmly in the dollar billion valuation club (aka the unicorn club) …… If you have not figured out which company it is, I will just add 3 words:

– All Blacks

– Sailing

– The Lord of the Rings

If you still have no figured out which company it is or why I am starting to speak about Xero on a financial services / banking blog, then you are pretty much in the same position as most Banks.



The same can be said of Amazon. Founded in 1995 by a former Wall Street Hedge Funder, starting as on online bookstore and now the biggest ecommerce seller and platform online.

How Big is Amazon


What do these two companies have in common? They have both started to distribute financial services products via their platform, whether it being working capital loans on stocks or data on small and medium business financial performance.

One way to look at Banking is that it is a data arbitrage business, whether by exclusivity on data itself or control over the aggregated value of data. That data to simplify enormously is used to arbitrage interest rates between deposit and credit. As software is hacking the world, the ownership of financial data is moving from the existing financial players to the new global platforms. 

Interestingly, businesses are more and more leveraging several of these platforms at the same time. For example, online retailers may use both Amazon and Ebay to distribute their products or local competitors. Several online accounting platforms are competing for medium and small businesses, with the aggregated accounting data across companies distributed across them.

Therefore  lot of the early competitive pressure we are seeing is whether each of these platforms have a critical size (and the business appetite) to be an exclusive channel for financial services? Or whether innovative cross platforms financial services providers, such as Kabbage or Fundbox will prove that most of the value lies in cross platform companies? One thing is sure, the market for non-bank financial data, whether productized internally or distributed via APIs, will boom on the next years. 


Lending Market Watch Mindset Payments

Braintree takes Venmo Touch international with AMEX > what it means for credit

With Simple and now AMEX on board as preferred marketing partners in the US and UK, expect Braintree to follow a similar playbook in future markets. There also could be some significant competition in these initial two markets from other payment card companies (Visa, Mastercard, Discover, etc.) seeking to get their cards installed into Venmo’s valuable default payment card real estate.

via One small step for Braintree, one large step for mobile payments: Braintree takes Venmo Touch international | PandoDaily.

Spot on, multiple card selection on mobile within 1 click payments / facilitated payment (à la Uber) is not a UX problem to solve. It just won’t happen. 

This is why it is so smart from Simple (disclosure, Anthemis is an investor) and AMEX to partner with Braintree to become the default card. But the implications are much more important. With a single default card, the position of credit card is put at risk. Credit Cards are tools made for a card selection environment, with people doing arbitrage while looking at their wallet between debit, credit, credit limits and points. This behaviour is not possible in a 1 click environment, even less in a seamless environment.

Additionally, studies show Gen Y is moving away from credit cards (I am definitely part of that population). According to a recent FICO study ( “16% of people aged 18 to 29 had no credit cards in 2012, up from 9% in 2005. As a result of lower credit usage, Generation Y’s average outstanding credit card debt was $2,087 last year, down 32% from a $3,073 average for young people in 2007.” According to Frederic Huynh at FICO “it stands to reason that the Great Recession has influenced, to a certain degree, consumer credit behavior as well.”

There is also pressure to move some or all of payments off the card network to direct debit. A potential in Paypal’s acquisition of Braintree is for Paypal to export its arbitrage business model to Braintree. And Dwolla’s effort in building an alternate network is the ultimate push in the direction of direct debit.

This is a great opportunity for credit innovation. What we are seeing in B2B online lending with Kabbage, Paypal and Amazon will very soon spill over in the consumer world. B2B is the low hanging fruit as the market places (Ebay, Amazon), einvoicing networks (Tradeshift), online accounting tools (Xero) act as booth data providers to support credit risk scoring and aggregators to improve cost of origination. But Consumer Credit will be next and the mobile payment providers have an amazing opportunity to act as the future credit platforms. New Banks, such as Simple will also be the winners of this world. The card is only a tool for payment, credit is better managed within the budgeting, goal setting, savings experience of a smart bank.

Credit Card is an obfuscation, the credit and the payment mean are two disconnected products, the digital unbundling machine will soon make it a reality.

Market Watch Mindset Payments

Payment startups: thoughts on acquisition cost, payment processing cost and marketing services

With the cambrian explosion of payment startups, clones tackling mobile, NFC, QR codes, cryptography etc. it is quite a confusing market, especially when looking for the startups and companies that will shape the market. One possible framework to look at payment startups is to focus on the 2 main competitive  forces in the market in terms of merchant services.

– Acquisition cost

Because in our current card dominated world there is a relative equilibrium on the payment processing costs (crumbling under government push?), the main (only(?)) way to compete is to lower acquisition costs. In my view any price premium will be driven down by market forces (relative to the risk component included). In this perspective the main trend in physical and digital world is self service. API driven payment companies (Braintree, Stripe for example) have lowered the acquisition cost of merchants by reducing significantly integration costs and in Stripe cases, documentation on the merchant side by accepting more risk internally.

The existing sales, software integrator model has difficulties competing with these new players. In a typical case of disruptive innovation use case, they are picking up first the lower part of the market, high risk merchants and startups. But they are doing it at a pivotal moment.

It is important to look at there merchant client base in the perspective of the ongoing digital transformation of all industries. In fact their merchant base needs to be looked at as a venture portfolio. Only a couple of winners make most of the gain. But if you are processing payments, it is quite phenomenal to have client with a 10% weekly growth rate. Paul Graham has a very good post on what growth means in the startup world ( Think what Airbnb meant to Braintree’s growth. There is also some network effect as winner attract winners and good reputation in the startup world matter a lot as referral. (note: I am being somewhat of an absolutist here, user support has also been one of Braintree’s forte).


Screen Shot 2013-07-18 at 18.46.15



–  Payment processing cost

This is the red herring of the payment world. In that perspective startups like Dwolla, Technology protocols such as Bitcoin, Supermerchants partnerships such as MCX are the same. They all target  much lower cost of transaction vs the credit card networks, in most cases a few cents vs a fixed percentage.

This is different from arbitrage business model strategies such as Paypal’s where you find a way to reduce the cost of some of your transactions which allows you: to have little/no margins on others, increase your overall margin.

However so far, the value proposition of lower transaction costs has not proven enough for massive merchants acquisition. Obviously this is because changing the rails of payment means changing the consumer behaviour at point of sales, getting him a new wallet or payment mean to complete the transaction. This is a long haul process .. and that does not prevent to have a successful merchant acquisition strategy beyond cheaper processing. Additionally, moving risk around does not make for a cheaper proposition overall. No chargeback  does not mean an insurance cost component will not be added in some forms to a transaction. 

I think for the rail changing players, a combination with the first strategy will be necessary to grow. Grow on the existing rails and switch the population to new rails, while committing to passing the price difference down to the merchant. Or focus on a market where cards have much less penetration.

What about marketing tools, coupons etc ? Aren’t they value ad services for the merchants? 

So far we have not seen much success on this front and I think this is because using transactional data has put too much emphasis on discounts, coupons, instant buy strategies. Mobile, connected devices will not make people more discount, coupons push marketing addicts than television and comfy living room has made QVC shopping the most popular way to shop. Impulse buying, coupons are an important part of advertising/marketing but is not the solution to everything. Especially when you have Amazon in the picture. In the end most merchants prefer to sell at full price vs discounted price. 

On the same idea, selling CRM tool to small merchants is somewhat of a contradiction. Most small shops, if they are successful don’t need to know who their best customers are, they already do. They know what they buy, like etc. Even a giant like Starbucks is successful at it, any morning regulars is known by name and type of coffee. There is a potential for marginal improvement (still a good thing) but no revolution /”I cant wait to get this” factor.

However they are other services that can be tagged to payment and in my view bring more value to merchants (think Square business dashboard as a start)…

The payment startup market is crowded and only  a few will survive. The coolness factor of mobile, code will not be enough to succeed.  On the startup front, it seems to me the merchants will make the winners,  in the same way as a few startups tend to make a whole portfolio successful.




Market Watch Mindset

Shadow banking: a platform for innovative financial services

Shadow banking has become a focus of media in the last years, with many headlines on its growing size, its supposed incomprehensible structure and how it was superseding the existing banking system . This view has often been biased toward rejection and misunderstanding. After all, one can argue an independent hedge fund has a better aligned risk-reward structure vs a tax payer propped up bank. (yes, this is an extremely pro-biased view, yes there is a question of size and systemic / structural impact)

Interestingly, the development of shadow banking (broadly) is one of the fundamentals in the development of innovative financial services. A very good example is LendingClub in the US. Structurally, Lending Club is an important securitisation company in the US. Each of the p2p loan is an unsecured obligation from LendingClub with the lenders being the pool of investors. Structurally, it fits very closely the definition of shadow banking.


Other models are being explored, receivables based lending companies are structured using multi compartiments funds, crowdfunding platforms use multiple limited partnerships to simplify the impact of many shareholders on startups (see Fundersclub)

The development of prepaid products as a replacement of banking products can also be seen in the same light. In Europe, for example, the emoney licence is one of the leading platform for innovative financial services. The recent announcement of the Mangopay platform by Leetchi, on the back of of their acquisition of an emoney licence in Luxembourg proves it. In no way this would have been possible if they had pursued a full banking licence.

What is next? There is a risk that the regulator (under various pressure) will want to further restrict these structures (in the name of protecting the consumer). We may see this happening in the US where bank charters have become harder to acquire (Acquiring a bank charter is way harder in most European countries – ask Metrobank)

On the surface, the regulators might be satisfied with this, because the fewer the banks, the more healthy the remaining financial institutions. But this is a fallacy of epic proportions. The lack of bank charters is creating a myopic ecosystem, whereby existing banks — whether they are qualified or not — have an ever-reducing impetus to innovative or improve their service to  customers. Why regulators would want that is beyond me.

I think it is in the best interest of the market if regulators where trying to open the bank market, making it easier to acquire a bank charter (even if limited in some forms in the beginning). Its already fascinating to see the services born out of shadow banking structure, it would be even more interesting how entrepreneurs would leverage a bank charter.



Market Watch Mindset Uncategorized

Bank hacking: power to the financial services makers

With the Maker Faire movement growing over the last few years, Hardware hacking has finally been making the headlines. It is one of the root causes of the recent startup hardware trends that are also fueled by platforms such as Kickstarter. What is interesting to me is that independent, smart  and techno savy people put the same effort in building hacks around financial services to make them fit. It’s not always pretty, but it gives strong indication of where things could be going.

Hacking hardware. For people living in a card contactless environment, getting to one platform via mobile can’t happen soon enough. The solution? Cutting and soldering.

From this post on RFID transplantation in Singapore.


Rooting Android to support more NFC scenarios. Cherian Abraham has an excellent post on the limitation of NFC in native Android (linked to a controlled Secure Element) and how a rooted Android Environment can help make NFC more open for payment for example with SimplyTapp

SimplyTapp appealed to an early segment of Android enthusiasts who abhorred having been told as to what functionality they are allowed to enable on their phones – by Google, Carriers or anyone else. And to any who dared to root an NFC phone (supported by CyanogenMod) and install the Cyanogenmod firmware, they were rewarded by being able to use both SimplyTapp as well as GoogleWallet to pay via NFC – the former where credentials were stored on the cloud and the latter – within the embedded SE.

Scrapping Personal Banking Data. Truth is, it’s not easy to acces your own banking data. Most of the bank websites have an average to bad UI, non-existing archiving functionalities (being upgraded to 9 months archive is considered amazing) and API access does not exist in 99% of the cases. If you want to automate movements between your bank accounts, get your bank account balanced pushed by email to you every morning then start by building your own scraper: . You can also find wrappers to access swedish banks: and many more.

Bank account simulation I was looking for more of these examples and I am sure they exist as this is an area where I expect an increase in interesting work. Accounts management is currently a very manual activity and there is no reasons it will not become automated in the future. 

In my view the financial services industry should keep a close eye on the fringe of banking personal hacking. These are early signs and indicators of major trends and innovative services. Hacking challenges, idea crowdsourcing, clients on-boarding are essential tools for the future bank.



Market Watch Mindset

2013 – First Notes

2013 starts very strong and time is already a precious resource. Some notes on what I am interested in:

– Redefinition of Employment: 
Crisis may recede, but long term changes to employment structure will not. Rise of the Robot Economy.…
Information employment less stable (as detrimental to knowledge expansion)

Possible impacts: Underwriting, Lending Structure

Robots distrupt music (courtesy of parkparadigm)

– Redefinition of Ownership: 
As employment is less stable, alternative source of revenue in leveraging existing assets. Compounded with diminution of Marketplace costs. Implies rise of the Sharing Economy / Collaborative Consumption:…

Possible impacts: Underwriting, Lending Structure, Redefinition of Merchants and their Financial Services, Increase importance of Insurance

– Redefinition of Commerce
Physical Goods becoming Digital (books as best example), Distribution of remaining Physical Goods becoming mostly Digital. Physical distribution frictions reduced for Advice to compete.

Death of the existing physical retail structure:…

Possible impacts: Acquiring and POS systems, Risk Management, Payment Pricing Structure, Digital Pricing, Real Estate Financing, Currencies

– Redefinition of Production
3D printing, direct sourcing in Asia, lowered production costs (?). Will we see same change in hardware startups as in digital startups?

Possible impacts: Alternative forms of financing, Embedding of id and payments, International Payments and FX, Escrow services

– Rise of Alternative currencies
Gap between existing currencies, underlying payment/compensation systems and digital age potential is becoming too important to remain for a long time. While existing and imperfect payment methods are commoditized, alternative currencies will strive on their capacity to challenge existing status quo of imperfect payment.…

Possible impacts: Payment, Merchants, Risk Management, FX, …

Market Watch Mindset

Fortune 2.0 – small assets management

I have highlighted in the past several major trends affecting financial services :

– Digitization of transactions, especially receipts from purchases.

– Improvement and democratization of marketplaces, lowering the cost of liquidity on transactions

– Improved leverage of assets from the emergence of collaborative consumption (Airbnb, Getaround)

Private Banking is sometimes offering to their high net worth clients the management of both their financial and non-financial assets. Is a similar approach possible for retail clients?