Our thesis at Daily #Fintech Advisers is that consumer banking innovation is coming from two poles – the UnderBanked and the #PostBanked. #Wearables impacts the PostBanked. These #economies are characterized by high productivity, high labor costs and plenty of disposable income. So people in these countries a) have the moneyRead More
Bank Innovation
Our thesis at Daily #Fintech Advisers is that consumer banking innovation is coming from two poles – the UnderBanked and the #PostBanked. #Wearables impacts the PostBanked. These #economies are characterized by high productivity, high labor costs and plenty of disposable income. So people in these countries a) have the moneyRead More
Bank Innovation
Our thesis at Daily #Fintech Advisers is that consumer banking innovation is coming from two poles – the UnderBanked and the #PostBanked. #Wearables impacts the PostBanked. These #economies are characterized by high productivity, high labor costs and plenty of disposable income. So people in these countries a) have the moneyRead More
Bank Innovation
EMV isn’t the only innovation coming soon to a pump near you. The financial software company FIS, which says it has been in the loyalty space for over twenty years, has just launched another such #program, starting with gasoline sales. Customers in the program, which is currently offered at participating BP gas stations,Read More
Bank Innovation
Many of the successful #Fintech companies started as social enterprises in emerging markets and scaled successfully to be a unicorn. Notable examples are Ant Financial in #China and M-PESA in Keyna. Alipay of Ant Financial and M-PESA both exhibit the LASIC (Lee and Teo, 2015) characteristics. Alipay has more than 800m users globally with more than 300m Chinese mobile users and M-PESA accounts is 4 times more than all the traditional bank accounts in aggregate in Kenya. LASIC startups are those with low profit margin business, asset light balance sheet, scalable business, innovative #technology and operate in a compliance light regime. Ant Financial and M-PESA have all the LASIC characteristics.
When it comes to #insurance in China, Zhong An will rank the highest in terms of innovation and valuation given its association with Alipay as a digital (online and mobile) micro insurance provider (Fintech News, 2016). It is not surprising that Zhong An exhibits the LASIC characteristics too. But a new class of LASIC #insurtech model may be emerging in China. These new insurtech business models originated from the concept of Mutual Aid and started operation in the last two years. In organization theory, the term mutual aid is used to describe a voluntary reciprocal exchange of services and resources for mutual benefits. In America, the fraternity societies existed during the Great Depression providing their members with insurance and benefits for health, life and funeral. In the 1930’s, the English “workers clubs” also provided health insurance. But as early as 18th and 19th centuries, forms of mutual aid oragnisations such as the Friendly Societies and medieval craft guilds provided their members with insurance, funeral expenses, pensions, care for sickness, and even dowries for poor girls. The intellectual abstraction has its roots in mutualism, labour insurance system, trade unions, cooperatives and other civil society movements.
Typically, mutual aid is a term used to describe a structure or organisation that everyone is free to join and free to participate. The participants in mutual aids groups and all their activities are voluntary. It emphasizes the open and voluntary cooperation as opposed to induced cooperation (Kropotkin, 2008). The idea of mutual aid flourishes in entities that support participatory, democracy, equality of member status and decentralization of decision making at the structure level. Status of the group is determined or conferred mainly by participation. External societal status is irrelevant within the group.
On the internet, Mutual Aid Platform is seen as a mutual financial assistance and risk sharing platform. It is a class of platforms that members can lower their aid threshold and raise their aid limitation through mutual financial assistance and risk sharing. Members can join a mutual assistance plan with an advance deposit of only RMB10. As a member, one may apply for an aid of up to a maximum of RMB300,000. The maximum deduction from the member’s account for each application is RMB3. The more members there are, the lower the contribution. When there is zero balance in the member’s account, there will be a call for payments. If the member’s account keeps zero balance more than 30 days, he/she will quit the plan automatically. It is estimated that the yearly contribution is between RMB60-90. When there is an application for RMB300,000 as mutual aid amount and if there are 1m participants, each user contributes only RMB0.30 （PR Newswire, 2016）.
The largest mutual aid platforms are listed below.
10. Banmashe,斑马社
Started in July 2016 with a #Blockchain platform, Shanghai based with RMB100m registered capital Zhongtuobang (ZTB) has reached two million users as at 1 Oct 2016 and it is the first mutual aid company to have a double A rating from the Chinese Internet Association iTrust. On August 19, Shuidihuzhu was the largest with over a million users before being taken over by Zhongtuobang in the second half of 2016. The growth in this sector is exponential. The founders of these platforms have insurance experience and bridge the gap in serving the underserved.
ZTB main business is in medical mutual aid and lower the barrier entry for micro enterprises and farmers that are deterred from buying insurance of high entry premiums. It is a form of insurance inclusion scheme where the risk is pooled with low contribution. Zhongtuobang has launched multiple mutual aid products including Anti-Cancer & Disease, Travel Accident, Dad & Mom Mutual Aid, Women’s Health and a Students Comprehensive Plan. According to ZTB, the average age of members is 31 and 27 for male and female respectively. To cater to those who are above 55 and not eligible for traditional insurance, ZTB rolled out mutual aid product for those between 51-65 years old. They have launched products specifically designed for medical care personnel and diabetes sufferers. There are plans to launch smart contract insurance products using the Blockchain technology. Blockchain with analytics also has certain features that will minimize false claims and frauds because the data are transparent and permanent. The total investment by Venture Capital into Beijing based Shuidihuzhu is RMB55m by IDG, Tencent, and others. They have launched four programs so far.
There are two Blockchain use cases that we know of in the mutual aid industry in China, ZTB and Tongxinhuzhu. Tonxinhuzhu blockchain (https://www.tongxinclub.com/pc/blockchain/index) has 124,858 members, 90 nodes and around 971,533H/s, equivalent to computing power of 4 MacBook Pro and 2.7GHz Intel Core i5 8G storage. There are 537345 blocks as at 4 Oct 2016. Both cases are using Blockchain for identification and verification purposes for the members.
The advantage of this Blockchain application is that historical information can be obtained for every account at low cost. Given that the information is permanent and public (it prevents the service provider from changing the records), it solves the issues of trust in a mutual aid platform. It is easy to match, execute, monitor with the potential use of smart contracts at low cost as compared to a centralized system. At present, claims are not verified or executed by smart contracts and Blockchain is only utilised to address the issue of trust in the mutual aid industry.
This ZTB use case has demonstrated that mutual aid is scalable by solving the issue of trust among potential subscribers who are strangers to each other. This is scalable to 1.3b population from all over China with potential use of smart contracts. Insurance inclusion is achievable for specialised risk pooling in areas of insatiated demand, especially in rural areas and critical illnesses. With big data, such risk will be better understood and allowing for mass adoption and efficient pricing of insurance services. Network effect of risk sharing will enable mutual aid platforms to scale across a large number of members.
Are these new Mutual Aid business models a form of LASIC InsurTech? This class of business model has low profits margin with no requirement of heavy investment in assets. It has been scaling as seen in the last few months with the help of low premium. Some of them are using Internet with Blockchain as an innovative technology to lower cost and increase trust. There are hardly any compliance rules at this moment for the industry. It remains to see if the use of new technology can detect and reduce fraudulent claims and whether the industry can increase its scope of services to a larger base of sticky customers. Ant Financial has only 1 fraud in 100,000 transactions and like M-PESA, offers services beyond payments of daily purchases and utilities. Users can buy insurance, funds, tickets, movie bonds, obtain loans, and even get a credit rating. The latest innovation Alipay Everywhere is to purchase household services such as cooking and caregiving from neighbours for a fee (Horwitz, 2006 and Jain, 2006). These are all made possible because of data analytic, location services and mobile technology. Big data, smart contract and artificial intelligence risk analytic remains an area that the mutual aid InsurTech industry need to take advantage of. There are LASIC unicorns such as Ant Financial to emulate and if the industry can harness the right technology to serve the masses, mutual aid startups such as Zhongtuobang will become the new unicorns.
References
Biznews, “Mutual Aid Rising in China”, Sep 2016,http://www.biznews.in/article/mutual-aid-rising-in-china
Fintech News, “Top50 Fintechs in China”, Sep 2016,http://fintechnews.sg/5639/fintech/top-50-fintechs-china-kpmg/
Horowitz, Josh, “With Alipay, China’s Most Popular Payments App, You Can Now Ask Total Strangers To Do Anything For A Fee”, Sep 2016, http://qz.com/795732/alipay-everywhere-from-alibaba-and-ant-financial-lets-you-ask-total-strangers-to-do-anything-for-a-fee/
Huzhuzhijia, “互助之家”，http://www.huzhuzj.com/
Jain, Aman, “New Alibaba App Allows You To Ask Strangers Do Anything For A Fee”, Sep 2006, Valuewalk, http://www.valuewalk.com/2016/09/alibaba-app-strangers-anything-fee/
Kropotkin, Peter, “Mutual aid: A Factor of Evolution”, 2008, Forgotten Books, Charleston, SC.
Lee, David Kuo Chuen and Ernie Teo, “Emergence of Fintech and the LASIC Principles”, Journal of Financial Perspective, 2015, Vol 3, 3.
PR Newswire, “Mutual Aid Rising in China: Inclusive Aid Catches Up With New Opportunities After the G20 Summit”, Sep 2016, http://en.prnasia.com/story/159264-0.shtml
Acknowledgement
Appreciation to Ge Long, Co-founder, Eric Yu, CTO of Zhongtuobang and James Gong of Chainb.com.
About David LEE Kuo Chuen
David LEE Kuo Chuen, PhD(LSE), Professor (UniSIM), 2015 Fulbright Scholar (Stanford University), is an investor in Blockchain companies and #cryptocurrency. He is also the founder of Dlee Capital Management and various other companies. His award winning book “Digital Currency” was voted as outstanding by the American Library Association. His business and operating experience includes manufacturing, finance, hospitality, real estate, consultancy with 20 years in alternative finance. He is nominated by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain.by Internal Consulting Group as the Global Thought Leader for Fintech and Blockchain. He is contactable at [email protected].
Amidst news of major #banks, both government and private, considering developing their own Blockchains for internal use, a question has to be asked: is there even a point? Given the seemingly self-defeating nature of using decentralized currencies in highly centralized operations, Cointelegraph asked top industry experts from Agentic UK, Lisk and Steemit about their opinion on the matter.
Lucas Cervigni, Managing Director of Agentic UK, explains:
“Recently, central banks have taken the #Cryptocurrency asset to the next level by starting to research Cryptocurrencies of their own. As modern banking works under the fractional reserve system, this research makes sense. Through this system, banks are able to issue loans as long as they keep 10% in reserve. In turn, this creates money with each loan. That is not possible with #Bitcoin and therefore the banks have begun considering centralized and government controlled cryptocurrencies. However this is a serious matter for the banks to consider, as should the central system issue all of the money, there is no doubt the dynamics of the fractional reserve system could change. Ultimately, the smaller banks could be left out of business.”
People’s Bank of China (PBoC) announced on their website about their own digital currency conference, urging their team to speed up efforts to release its digital currency. Bank of Englandand Bank of Canada have also considered developing digital currencies.
These types of currencies are called Central Bank-issued Digital Currency (CBDC). What are the implications of CBDC? To create a cashless society, steal the spotlight from Bitcoin and other privately-issued currencies, or to achieve a more accurate monetary policy?
Ned Scott, Founder of Steemit, thinks the bank-issued cryptocurrencies will differ from the protocols we got accustomed to:
“It would be interesting to see what design choices the banks make for their Cryptocurrencies’ protocols and how they integrate the currency with their business. With every cryptocurrency there are variables that developers massage in terms of emission and the way they release the protocol into the wild. My feeling is that the profile of these Bank-issued coins would be very different from many of the decentralized protocols we see today. Banks are likely entertaining the idea more seriously if they feel they can control the currency, as well as gain from its use and possibly their manipulation over it.”
Max Kordek, Founder of Lisk, eхplains why banks may see in Cryptocurrencies a necessary evil:
“This topic requires the consideration of multiple perspectives. If I was a cryptocurrency user with little involvement in this space or knowledge of the current regulations, creating additional currencies could be difficult to comprehend. However, in reality certain laws and obligations could make a customized, maybe even private, Cryptocurrency a necessary evil.
On the other hand, maybe current Cryptocurrencies do not meet the technological requirements a bank deems necessary for a digital currency. For example, perhaps they require a specific peg, specific Block-time, or in fact multiple currencies on one single #Blockchain.
It is impossible to be certain of whether a bank-owned, government-owned or public Cryptocurrency will dominate in the future, but I do hope the latter is the case.”
When asked as to what the reason for the banks’ sudden interest in Cryptocurrency, the majority of our audience seem to agree that it is some combination of wanting to stay relevant and trying to control the future development of the Blockchain.
A reasonable stance, considering how Bitcoin, and other Cryptocurrencies have already proven their worth by enabling the users to send transactions faster, cheaper, and with less restrictions, compared to bank transfers.
However, Vitalik Buterin, the co-founder of Ethereum, argues that this trend is not entirely political. According to him, private Blockchains can, in certain contexts, offer several technological and financial advantages, compared to the public ones.
Those advantages stem from the greater control that a bank is able to exert over a private Blockchain, and include less to no risk of a 51% attack, greater level of privacy for the Blockchain’s owner (duh) and even cheaper transactions.
All in all, currently there is no clear consensus regarding the value of privately-owned Blockchains, and their impact on the overall ecosystem, if any, it remains yet to be seen.
[linkedinbadge URL=”https://www.linkedin.com/in/lucascervigni” connections=”off” mode=”icon” liname=”Lucas Cervigni (Lucce)”] is Managing Director – AGENTIC GROUP UK
#Hedgeable, the #roboadvisor geared to you-know-who, is expanding its target audience to #small businesses. The nation’s biggest generation– yes, it&8217;s millennials again — wasn&8217;t big enough. Hedgeable isn&8217;t the only #startup looking beyond millennials and consumers in general to pitch its wares. In the past decade, many fintechs in wealthRead More
Bank Innovation
This is the second post on financials and #funding for #Innovation in large corporations (in the #Financial Services industry).
In the previous post we talked about how one can think about the amount to be invested in Innovation by comparing the investment to the premium of a call option.
This post is about how to deploy capital, possibly in a cleverer way.
Let’s start with describing the status quo in most Financial Services companiesbriefly:
In the context of Corporate Innovation these four points make fast progress of initiatives almost impossible.
To address these issues we propose a capital deployment model for Innovation efforts in Financial Services firms that follows the StartUP / Venture Capital model with multiple funding rounds:
The key to keep in mind here is the iterative deployment of capital. Similar to a startup that gets funding in smaller and growing chunks as risk decreases we believe this to be the right model to be applied inside financial services firms as well.
In order to facilitate a quick decision making process and avoid long waiting periods we recommend to have a VC partner like group that can deploy capital at each stage. Ideally they are empowered to take decisions within 48 hours for their portfolio. The Project Owner (like a Startup CEO) in turn gets the freedom to spend the funding he has “raised” until the next milestones is (or is not) hit. Alignment of interest andempowerment are therewith given.
It is important to realize that as with startup funding there is always an option to abandon. For more information with regards to (real) optionality please refer to this good MIT deck.
Of course the devil is in the detail and all of the above is easier said than done; especially Financial Services companies with existing and often stiff processes. But there is hope. If you want to talk more about this please get in touch – at Lightbulb Capital we’d be happy to work with you on this tricky challenge.
[linkedinbadge URL=”https://www.linkedin.com/in/dan-liebau-b136923″ connections=”off” mode=”icon” liname=”Dan Liebau”] is Founder of Innovation Research & Advisory firm – Lightbulb Capital
Image source Buying #Health & #Life #Insurance today is like filling in a form to tell Netflix what movies we say we like at that moment in time – versus what movies we actually watched recently. You fill in a snapshot report of your health, with blood samples and otherRead More
Bank Innovation
#Federal #Reserve governor Lael Brainard delivered a major speech on #blockchain today.
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