Disruption Banking Magazine, June 2018 by Disruption Banking

FINTECHMAGAZINE by DIGITALSTARTUP JUNE 2018 | VOLUME 2 | ISSUE 2

Collaboration is the key to success

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A WHOLE NEW BALL

GAME Blockchain technology helps football clubs engage with their fans p.04

Simplifying PAYMENT

EASING THE PATH TO CRYPTO PAYMENTS STARTUP NATION: SWEDEN p.38

THE

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ECOSYSTEM

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WELCOME #DisruptionBanking is a global Fintech and economic affairs magazine, dedicated to Fintech startups and the global banking community. The publication offers a unique blend of technological and economic observations, as well as exploring the challenges posed by disruption in banking. Published monthly, the magazine already reaches over 10,000 readers and will eventually be available online only for a small subscription fee. Keep up to date with our latest news by following #DisruptionBanking on Twitter, Facebook and LinkedIn.

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THE DISRUPTION TEAM

anging out and writing about Fintech StartUps and Banking has been a bit of a passion of mine for the last few years.

have worked with Banks and Consulting companies in various locations over the last 15 years from working with Barclays in London back in the early 00s to helping Banks with their near-shoring and off-shoring strategies in the recent past. With some experience of writing about and studying Politics from my time at Keele University in Staffordshire, I’ve found it much the same when writing about Fintech with Banks and StartUps at the opposite ends of the spectrum much like it is covering political parties, and it’s no less passionate either.

Welcome

to the second edition of Disruption Banking magazine. We’ve been overwhelmed by the positive response to our debut issue and look forward to bringing you insights, interviews and opinions on the world of fintech well into the future. As we continue our exploration into the rapidly evolving world of financial technology, we’ve been struck by a recurring theme: the importance of collaboration and partnerships. This subject is evident in several of this month’s articles – for example, as we report on the ways in which industry giant Nasdaq is working with partners to embrace blockchain within existing and new services. Meanwhile, in our interview with Mash CEO James Hickson, the former Morgan Stanley executive director enthuses about how his company’s partnership with Verifone is delivering a cutting-edge solution in the payments arena.

ANDREW SAMU CHIEF EDITOR

have been a creative person all my life, I love helping customers become “Digital”, but today I actually know that I can make a difference as well, whereas before I was just another marketing person helping prepare another marketing concept. Today, in the world of Fintech, we are all collaborators and I am delighted to be able to help you all explore how Bitcoin, Global Finance and Debt impacts on our futures and how we all together can become more aware of how better to survive and grasp opportunities as individuals during this Digital Revolution.

ANDRZEJ PESZEK CREATIVE DIRECTOR

For startups and large financial institutions alike, partnership and collaboration is essential as both work towards introducing new products and services to a fastmoving market. Navigating the path to glory can be daunting, but help is at hand in our essential guide to collaboration models for both new players and traditional firms. With the global television audience for the FIFA World Cup expected to reach 3.4 billion, it’s safe to say that much of our readership has been taking a keen interest in matters in Russia, as well as looking ahead to the resumption of domestic football leagues. Our cover story offers a fascinating insight into the London Football Exchange – an innovation that aims to transform how clubs engage with their fans, with the aid of blockchain technology, including offering supporters a chance to become part-owners. A whole new ball game, indeed.

Andy Editor-in-Chief

highly experienced editor and writer, Barry honed his professional skills at Radio Times, The Observer and Emap, before joining international partnership publisher Newsdesk Media.

ising to the position of Editor-in-Chief at Newsdesk Media, he became responsible for the production and calibre of the company’s entire publishing output, producing at least 25 international industry, trade and investment titles annually for a range of prestigious government and private-sector clients.

BARRY DAVIES EDITOR

have been working with emerging businesses for few years, and I do not think, that there is anything better than growing something fresh. FinTech and Blockchain have been in my area of interest for a while. Finally, I have an opportunity to work on exactly what I am passionate about A young person working in a young industry I hope that we will grow together.

³ñçx z !X!R | SALES MANAGER

YOUR

ADVERT Contact Us | szymon@digital-startup.com

CONTENTS 06 A whole new ball game

26 Embracing blockchain

– Nasdaq leads the way

The London Football Exchange aims to transform how clubs engage with their fans, wherever in the world they reside

Simplifying the payment ecosystem Mash CEO James Hickson shares the secrets of his company’s success and his views on the fintech future

The key to success In this month’s special feature, we explore the various collaboration models that startups and financial institutions can employ

The multinational financial services corporation is a front-runner in adopting blockchain and exploring its transformative potential

Easing the path to crypto payments How Lithuania-based CoinGate is enabling businesses to accept a wide range of cryptocurrency payments, risk-free

38 Fintech Nation: Sweden Our regular feature focuses on the flourishing startup scene in the Scandinavian country and its capital, Stockholm

Volume 2 / Issue 2 – June 2018 Editor-in-Chief Andrew Samu Publishing Manager Barry Davies Creative Director Andrzej Peszek Published by Digital Startup Ltd Level 39, One Canada Square Canary Wharf London E14 5AB United Kingdom Inquiries | hello@disruptionbanking.com Orders | order@disruptionbanking.com

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www.disruptionbanking.com © 2018. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. The views and opinions expressed by independent authors and contributors in this publication are provided in the writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of Disruption Banking or Digital Startup Ltd and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by Disruption Banking or Digital Startup Ltd of products or services referred to therein.

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A WHOLE NEW BALL GAME With the aid of blockchain technology, the London Football Exchange promises to transform how football clubs engage with their fans

n myriad ways, professional football (‘soccer’ to those English speakers outside the UK) is barely recognisable from the sport that fans enjoyed, and sometimes endured, not even 30 years ago. The advent of vastly increased TV coverage in the early 1990s brought untold riches into the game, attracting audiences of armchair fans in their millions and propelling the biggest clubs to even greater ǝƺǣǕǝɎɀ ɯǣɎǝ Ɏǝƺ ƏƳƳǣɎǣȒȇ Ȓǔ ɀɖȵƺȸɀɎƏȸ ȵǼƏɵƺȸɀ ƏɎ ǣȇˢƏɎƺƳ ȵȸǣƬƺɀِ The matchday experience of fans has also been transformed, with shiny new stadiums to replace the old-fashioned and sometimes cramped (or even unsafe) grounds of decades gone by.

# D I S R U P T I O N B A N K I N G

Football has become big business, so much so that individuals and consortiums with deep pockets have eagerly acquired clubs as an investment and, perhaps in some cases, as a vanity project. However, despite the hugely improved ‘product’ on offer, football fans frequently express that they feel divorced from the ownership of their clubs, often ˡȇƳǣȇǕ Ɏǝƺɵ Əȸƺ ƺɴƬǼɖƳƺƳ ǔȸȒȅ Əȇɵ ƳƺƬǣɀǣȒȇ‫ٮ‬ȅƏǸǣȇǕ ȵȸȒƬƺɀɀ ƏȇƳ ǝƏɮƺ little engagement.

áǝǣǼƺ Ɏǝƺ ɯȒȸǼƳɀ Ȓǔ ƫɖɀǣȇƺɀɀ ƏȇƳ ˡȇƏȇƬƺ Əȸƺ ƏƬɎǣɮƺǼɵ ƺɴȵǼȒȸǣȇǕ Ɏǝƺ ȵȒɎƺȇɎǣƏǼ Ȓǔ blockchain, such technology may not seem like the most obvious way to improve the connection between football fans and their clubs. However, one UK-based company has devised a (literally) game-changing way for supporters to feel more involved with their favourite team or, potentially, any other club around the world. (ƺɀƬȸǣƫƺƳ Əɀ ‫ٹ‬Ɏǝƺ ɯȒȸǼƳ‫ټ‬ɀ ˡȸɀɎ ǔȒȒɎƫƏǼǼ ɀɎȒƬǸ ƺɴƬǝƏȇǕƺ ƏȇƳ ǔƏȇ ȅƏȸǸƺɎȵǼƏƬƺ‫ ًٺ‬Ɏǝƺ nȒȇƳȒȇ Football Exchange (LFE) will soon enable fans to participate in a whole new football experience, using tokens to purchase anything from matchday tickets and merchandise to stadium tours and exclusive VIP experiences. Supporters will also have the opportunity

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Below: Blockchain technology is set to provide an unlikely connection between football fans and their clubs

to become fractional owners of one or more clubs. The LFE’s blockchain technology will include a personalised mobile app that will allow real-time updates of purchases and the value of tokens held. “The initial idea for the London Football Exchange arose from work I was doing with football clubs around debt service products,” explained LFE founder Ben Leigh Hunt to the recent Soccerex convention in Zhuhai, China. “It got me thinking about new methods in which equity could be raised for clubs in a sustainable way. I knew that this meant more transparency and accountability around ˡȇƏȇƬǣȇǕ ȅȒƳƺǼɀ ƏȇƳ ƏǼɀȒ ɎǝƏɎ ɯƺ ǝƏƳ ɎȒ ˡȇƳ better ways to involve supporters. Without fans there are no clubs and many want to play a role in their club’s ownership.” There is no doubt that the potential market for the LFE is enormous, with around four billion fans following the world’s most popular sport, which is currently estimated to generate annual revenue of $33 billion. For clubs, their reach is no ǼȒȇǕƺȸ ƬȒȇˡȇƺƳ ɀȒǼƺǼɵ ɎȒ their country of origin, with supporters of the biggest teams spread right around the world.

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REAPING THE BENEFITS As well as providing greater engagement for fans ɯǝƺȸƺɮƺȸ Ɏǝƺɵ ȸƺɀǣƳƺً Ɏǝƺ nI0 ǔȒȸƺɀƺƺɀ ȅƏǴȒȸ ƫƺȇƺˡɎɀ for clubs that adopt its token-based approach. It reports that discussions are in progress with more than 50 clubs, including those from the English Premier League and prominent clubs in Europe, the United States and Australia. “Clubs will have a direct connection with fans from across the world in a frictionless marketplace,” says Ben Leigh Hunt. “It opens up numerous possibilities to expand their relationships with fans and offer services with lower transaction fees, thereby freeing-up more resources to be invested back into developing the football product, such as improved facilities, more youth training, and, wherever possible, savings being passed on to fans.” The Exchange will also offer a chance for clubs, particularly those outside of the highest echelons, to raise capital via equity sales to fans, in return for ǣȇƬȸƺƏɀƺƳ ƏƬƬƺɀɀ ɎȒ Ɏǝƺ ƬǼɖƫ ƏȇƳ ƺɴƬǼɖɀǣɮƺ ƫƺȇƺˡɎɀِ “The LFE intends to be a ‘one-stop market place’ for clubs of all sizes to raise capital via equity sales and also offer LFE contributors a variety of fan experiences and social engagement,” explains LFE Executive Board member Jim Aylward. “Clubs will be encouraged to offer some equity through the LFE and be required to offer a set number of unique experiences or offers so that real fans can feel closer to their favourite clubs.”

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Clubs will have a direct connection with fans from across the world, in a frictionless marketplace

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Adopting payment via LFE tokens will also enable clubs to move away from current ticketing technology, which sees them pay fees of up to 8% in commission to external contractors, thus enabling more revenue to go back into the club, instead of this money leaving the sport altogether.

TACKLING THE TECHNOLOGY The LFE has lofty ambitions to build and deliver the ƫƺɀɎ ǣȇ ƬɖɎɎǣȇǕ‫ٮ‬ƺƳǕƺ ɎƺƬǝȇȒǼȒǕǣƬƏǼ ƏȇƳ ˡȇƏȇƬǣƏǼ solutions to the football world. “Our vision is to use blockchain technology to create a tokenized ˡȇƏȇƬǣȇǕ ǣȇǔȸƏɀɎȸɖƬɎɖȸƺ ǔȒȸ ǔȒȒɎƫƏǼǼ ƬǼɖƫɀً ƺȇƏƫǼǣȇǕ

DISRUPTION BANKING

clubs to access lower cost funds” says Edwin Carlson, LFE’s COO. In order to deliver on these goals, LFE is selecting industry-leading partners to provide state-of-the-art solutions based on blockchain technology. The exchange will also provide interoperability with other exchanges to offer dynamic liquidity to our assets classes, such as football equity. To raise funds to develop the Exchange’s ecosystem of services, develop further partnerships and build its community, the LFE is currently holding an Initial Token Offering (ITO). Four billion tokens are being be generated, with 2.4 billion available to purchase. “We have been delighted at the initial response to the ITO by the football community,” said Ben Leigh Hunt. “It is clearly an idea that appeals to both football clubs and their fans. The ITO is proceeding well and we are now in detailed discussions with key partners to take the project forward.”

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We have been delighted at the initial response to the ITO by the football community

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Top: Explaining the LFE to delegates at the recent Soccerex in China, now the world’s fastest growing football market Bottom: LFE’s Jim Aylward explains to FIFA General Secretary Fatma Samoura how the blockchain can empower football fans

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European firm Mash has been at the leading edge of payments technology for several years, offering fast, flexible payment solutions to merchants and consumers. Former Morgan Stanley executive director James Hickson, who joined Mash as CEO in May 2017, shares his perspectives on the companyâ&#x20AC;&#x2122;s success and the future of the banking industry in the fintech age

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Simplifying PAYMENT ECOSYSTEM

THE

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For those who are unfamiliar with Mash, what do you offer as a service? We’re in three business lines: traditional consumer loans, credit cards and pay-later solutions. We’re one of only two European companies that have an international presence providing pay later, both online and in-store. Last year, we did a deal with Verifone, through which we’re looking to distribute our pay-later solutions to hundreds of thousands of merchants across Europe. For customers, this means they enter a store and decide to pay later for the solution or product they’re purchasing. There are three options on the terminal: debit, credit or Mash. They push the Mash button, and then at the same speed as a credit card transaction we on-board them to the KYC and approve them or not for credit. They then take the goods home. We’re unique in that we don’t charge the merchant a fee. We settle with the merchant instantly, and we own the credit risk. Within 14 days, the customer has the choice to pay for the goods in full or pay later. We provide transparent pricing for different options. We see this pay-later solution as a way to attract customers to other services – from an instalment plan to using a revolving credit line. On the merchant side, our goal is to enable merchants to deliver focused solutions to their customers. Our aim is to help merchants rather than charge them. We settle instantly and cover the credit risk. Thanks to that, we sell 80% of the calls we make, which is helping us to scale rapidly. We already have a presence in thousands of stores across Europe and we’re growing that footprint quickly. Our USP is that we have a very different distribution strategy in comparison to our competitors. We’re leveraging the Verifone network to help us grow, and that’s a really strong partnership.

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DISRUPTION BANKING The partnership with Verifone is a great example of collaboration in fintech. How are you working together to expand the reach of Mash?

to do is send an invoice, which you can look at in the comfort of your own home. If you don’t like the options, you can pay the invoice off in full or choose another option.

Fintech talks a lot about partnership, but I think a lot of partnerships in the industry today are more like service contracts. From our perspective, when we met with Verifone’s leadership team we were looking at being a services company, and now we’re offering a great service, which is empowering merchants to grow revenues. Mash is unique – it’s free and a simpler solution. Our focus was not on distribution, but rather how to simplify the payment ecosystem.

As always, if we deliver a fantastic service to merchants, and a fantastic service to consumers, we’re going to be in a position to add value, make consumers happy and help grow bottom-line revenue for merchants.

Verifone has been fantastic. They’re a market leader in Europe and it’s a partnership of equals. We deliver Ə ƬɖɎɎǣȇǕ‫ٮ‬ƺƳǕƺ ˡȇɎƺƬǝ ɀȒǼɖɎǣȒȇ ƫɵ knowing exactly how to distribute. Looking ahead, we plan to build additional services to expand and enrich the merchant experience. With merchants empowered to expand their business, what are the benefits on the consumer side? The whole process is faster than a credit card transaction. It’s streamlined. When you have to sit down and go through all your details to access consumer ˡȇƏȇƬƺً ɵȒɖ ȅȒɮƺ ƏɯƏɵ ǔȸȒȅ Ɏǝƺ point of sale, you move away from the decision. What we found is that merchants actually promote the service heavily. For example, we’ve got dentists in IǣȇǼƏȇƳ ɯǝȒ ɀƺȇƳ ƏǼǼ Ȓǔ Ɏǝƺǣȸ ǣȇɮȒǣƬƺ ˢȒɯ to us. It’s just so easy and they have no credit risk. It takes them away from selling. We’ve got a solution for that: we’ll ‘mash’ this transaction. But that isn’t a decision to pay credit – it’s a decision to choose later what you want to do. All we agree

What countries are you currently operating in, and what direction are you taking in terms of expansion? áƺ ǝƏɮƺ ȒǔˡƬƺɀ ǣȇ IǣȇǼƏȇƳً ³ɯƺƳƺȇً Poland, Spain and Luxembourg. We want to get the markets right. There’s a danger at the growth stage in trying to do everything at once, and that’s a mistake we’re not going to make. Our current focus is on the markets we already have. It’s important to maximise what we’re doing in each market, making sure we have the right local solution for all three product types. As we get to a place of comfort, we can continue to harvest the growth we have and then think about other markets. We’ll use our partnerships to help us go from market faster and at a lower cost, all while adding value for our partners and customers. It’s about balance.

Many fintech start-ups are embracing cryptocurrencies and blockchain technology. What effect do you see these having on Mash and on banking and finance in general? I believe there is a problem to be solved by digital ledgers as blockchain technology scales. We’re starting to see some issues now, especially around trust in the payment ecosystem. For new platforms, it makes sense to use blockchain. But on the institutional banking side, it’s going to be very

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DISRUPTION BANKING ƳǣǔˡƬɖǼɎ ǔȒȸ Ə ǼȒɎ Ȓǔ Ɏǝƺ ƫǣǕ ƫƏȇǸɀ ٫ ɯǝȒ typically have a 5% refresh rate, that is there’s only 5% new technology every year – to jump on the bandwagon of digital ledgers. We’re exploring what we might do with issuing a cryptocurrency bond, and then using some of the features around smart ƬȒȇɎȸƏƬɎɀِ ÁǝƏɎ‫ټ‬ɀ ƳƺˡȇǣɎƺǼɵ Ə ȵǼƏƬƺ ɯǝƺȸƺ we think there are some interesting approaches, in terms of overall capital, for debt raising. However, I think we’re three or four years away from really seeing a true commercial product. Is the banking industry doing enough to adapt to a changing playing field in terms of product offerings, and do you consider fintech partnerships to be a solution here? Banks rely on their ability to be nimble and to respond to customer concerns. Their story isn’t one of technology, but rather of replicating technology. I think banks are under attack on many fronts, and the only way they’re going to win is if they start thinking like entrepreneurs. They’ve spent the past 10 years ensuring there’s a strong culture of compliance, which is essential, but now they’re playing catch-up in digital terms. Many banks talk about an ability to offer digital solutions, but we’re yet to see anything truly innovative from a bank. That’s where the partnership ecosystem comes in. I’ve sat on both sides of the table, and I can see an issue in banks ƬȒȇɎǣȇɖǣȇǕ ɎȒ ɎǝǣȇǸ Ȓǔ ˡȇɎƺƬǝɀ Əɀ ɀƺȸɮǣƬƺ providers, there to help them solve ɀȵƺƬǣˡƬ ȵȸȒƫǼƺȅɀِ Áǝƺɵ ɮƺȸɵ ȅɖƬǝ ǝƏɮƺ a “we know what we’re doing here” mentality. The decision-makers are hidden somewhere up in the stack. Banks have a lot of energy behind them, but they’re not set up to be successful here. There’s a real dissonance between what the industry and merchants need and what the banks provide.

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What issues do you see in banks versus fintech start-ups adapting to shifting expectations from different demographics? There’s a challenge in taking a oneproduct strategy, which is the approach of many banks. It’s about customer retention. But it’s very easy for us, as a ǔƏɀɎً ȇǣȅƫǼƺ ˡȇɎƺƬǝ ƬȒȅȵƏȇɵً ɎȒ ƏƳƏȵɎ to what our customers want. I don’t envy banks, although I do think they have an extraordinary opportunity. I’ve yet to see one that engages well and has the right internal structure to really enable and drive innovation. You’ve been at Mash as CEO for just over a year. How are you finding it and how does your role compare with previous positions? I love every day – I should have done this sooner! I was previously at Morgan Stanley for 15 years, and I loved my time there, but now I get to work on the biggest challenges every day. I get to think entrepreneurially and work with an amazing team doing really big things. And it’s fun, being able to close these big deals and meet with global partners, and try to create a brand that you believe in. When you hear people on the street talking about Mash, or see them using Mash, it’s really exciting. I look at the results we have and it’s been record growth. I’m really proud of that. Some of that comes from my experience at Morgan Stanley, and some from working within a great team here, and with a great board. We’re well on track to be the next European unicorn. But that’s not what drives me – I’m driven by phenomenal customer solutions, merchant solutions, and wowing customers one transaction at a time. The rest will follow.

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THE KEY

TO SUCCESS

As we enter a fast-moving new era for ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀً ȒǼƳ ƏȇƳ ȇƺɯ ȵǼƏɵƺȸɀ Əȸƺ ˡȇƳǣȇǕ ɯƏɵɀ ɎȒ ɯȒȸǸ ɎȒǕƺɎǝƺȸ ɎȒ ƺȇɀɖȸƺ Ɏǝƺǣȸ ɀɖȸɮǣɮƏǼِ áƺȇƳɵ ɎǸǣȇɀ ƺɴȵǼȒȸƺɀ Ɏǝƺ ɯƏɵɀ ǣȇ ɯǝǣƬǝ ɎȸƏƳǣɎǣȒȇƏǼ ǣȇɀɎǣɎɖɎǣȒȇɀ ƏȇƳ ˡȇɎƺƬǝɀ ƬƏȇ ƬȒǼǼƏƫȒȸƏɎƺ

ǝƺ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ɀƺƬɎȒȸ ǣɀ ƺɴȵƺȸǣƺȇƬǣȇǕ Ə ȸƺɮȒǼɖɎǣȒȇِ áƺ‫ټ‬ɮƺ already witnessed a similar process in other industries, such as music and retail. Faced with the prospect of new technologies and platforms changing consumer habits and offering more customerƬƺȇɎȸǣƬ ɀƺȸɮǣƬƺɀً ɎȸƏƳǣɎǣȒȇƏǼ ˡȸȅɀ ǝƏɮƺ ƫƺƺȇ ɀǼȒɯ ɎȒ ɯƏǸƺ ɖȵ ƏȇƳ move with the times. The music industry is a case in point: rather ɎǝƏȇ ƺȅƫȸƏƬǣȇǕ ƳǣǕǣɎƏǼ ɀɎȸƺƏȅǣȇǕ ɯǝƺȇ Ɏǝǣɀ ˡȸɀɎ ǝǣɎ Ɏǝƺ ȅƏȸǸƺɎً it unsuccessfully tried to shut the technology down and ended up putting itself on the back foot.

This transformation of long-standing institutions is something that ǣɀ ƺɴɎƺȇƳǣȇǕ ǣȇɎȒ Ɏǝƺ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ɯȒȸǼƳً ɎȒȒِ IǣȇɎƺƬǝ ɀɎƏȸɎɖȵɀ Əȸƺ ƬȒȅǣȇǕ ǣȇ ƏȇƳ shaking up a sector that was traditionally dominated by old – and often formidable – organisations. Today, both sides bring something important to the party, and there is a ǕȸȒɯǣȇǕ ǔȒƬɖɀ Ȓȇ ƬȒȅƫǣȇǣȇǕ Ɏǝƺ ɀɎȸƺȇǕɎǝɀ Ȓǔ Ɏǝƺ ɎȸƏƳǣɎǣȒȇƏǼً ǼƏȸǕƺ ˡȇƏȇƬǣƏǼ ˡȸȅɀ ɯǣɎǝ smaller, more agile start-ups, to capitalise on the synergies of both and to roll out products ƏȇƳ ɀƺȸɮǣƬƺɀ ɎǝƏɎ Əȸƺ ˡɎ ǔȒȸ Ɏǝƺ ‫׏א‬ɀɎ ƬƺȇɎɖȸɵِ ɀ ȇƺɯ ɎƺƬǝȇȒǼȒǕǣƺɀ ƏȇƳ ȵǼƏɎǔȒȸȅɀ ǝƏɮƺ ƫƺƺȇ introduced, we’ve experienced the democratisation and decentralisation of services, which has made it easier for smaller players to enter the market.

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Keeping up with regulatory DISRUPTION BANKING requirements can be quite daunting for fintechs, and this is where cooperation with traditional financial firms can pay dividends

ÁȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ˡȸȅɀ ȇȒɯ recognise that they need to remain relevant if they are to survive into the future. They can draw on their existing strengths: loyal customers, an ability to scale and navigate a complex regulatory environment, risk management, ǣȇǔȸƏɀɎȸɖƬɎɖȸƺً ƏƬƬƺɀɀ ɎȒ ˡȇƏȇƬǣƏǼ ȸƺɀȒɖȸƬƺɀ ƏȇƳ ǝǣǕǝ ǼƺɮƺǼɀ Ȓǔ ǸȇȒɯǼƺƳǕƺ ƏȇƳ ƺɴȵƺȸǣƺȇƬƺِ However, their weaknesses – such as drawn-out decision-making processes, a silo mentality, a conservative attitude to change and an inward-facing culture – make it ƳǣǔˡƬɖǼɎ ɎȒ ƫƺ ƳɵȇƏȅǣƬ ǣȇ Ə ǔƏɀɎ‫ٮ‬ȅȒɮǣȇǕ ȅƏȸǸƺɎِ ÁǝƏɎ‫ټ‬ɀ ɯǝɵ Ɏǝƺɵ Əȸƺ Ǹƺƺȇ ɎȒ ˡȇƳ ɯƏɵɀ Ȓǔ ɯȒȸǸǣȇǕ ɯǣɎǝ ˡȇɎƺƬǝɀً ɯǝǣƬǝ Ȓǔǔƺȸ Ɏǝƺ ȵȒɀǣɎǣɮƺɀ Ȓǔ ǼƺƏȇً ƳɵȇƏȅǣƬ ȒȵƺȸƏɎǣȒȇɀ ƏȇƳ ǔȸƺɀǝ ƏȵȵȸȒƏƬǝƺɀ ɎȒ ƬǝƏǼǼƺȇǕƺɀً ƫɖɎ ɯǝǣƬǝ ƳȒȇ‫ټ‬Ɏ ǝƏɮƺ Ɏǝƺ ɀƬƏǼƺ Ȓȸ ˡȇƏȇƬǣƏǼ ȸƺɀȒɖȸƬƺɀً ƏȇƳ may not be able to keep up with new regulations or enjoy the trust and loyalty of customers. According to PwC’s Global Fintech Report, 82% of incumbents expect to ǣȇƬȸƺƏɀƺ Ɏǝƺǣȸ ˡȇɎƺƬǝ ȵƏȸɎȇƺȸɀǝǣȵɀ ǣȇ Ɏǝƺ ȇƺɴɎ Ɏǝȸƺƺ ɵƺƏȸɀِ

REGULATIONS kƺƺȵǣȇǕ ɖȵ ɯǣɎǝ ȸƺǕɖǼƏɎȒȸɵ ȸƺȷɖǣȸƺȅƺȇɎɀ ƬƏȇ ƫƺ ȷɖǣɎƺ ƳƏɖȇɎǣȇǕ ǔȒȸ ˡȇɎƺƬǝɀً ƏȇƳ Ɏǝǣɀ ǣɀ ɯǝƺȸƺ ƬȒȒȵƺȸƏɎǣȒȇ ɯǣɎǝ ɎȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ˡȸȅɀ ƬƏȇ ȵƏɵ ƳǣɮǣƳƺȇƳɀِ IȒȸ ƺɴƏȅȵǼƺً standard compliance can include rules covering peer-to-peer lending, M&As, the General Data Protection Regulation (GDPR), Basel, Dodd-Frank, the Comprehensive Capital Analysis and Review (CCAR), the Markets in Financial Instruments Directive (MiFID), the Payment Service Directive (PSD2), AML and KYC. The relentless pace of innovation has also put the role of regulators under the spotlight. Although regulatory constraints have traditionally been seen as a barrier to entry to the ɯȒȸǼƳ Ȓǔ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀً Ɏǝǣɀ ǣɀ ȇȒɯ ƬǝƏȇǕǣȇǕ Əɀ ƳǣɀȸɖȵɎƺȸɀ ɀɎƏȸɎ ɎȒ ƬǝƏǼǼƺȇǕƺ Ɏǝƺ ȸǣɀǸ‫ٮ‬ ƏɮƺȸɀǣȒȇ Ȓǔ ɎȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ˡȸȅɀِ Xȇ Ɏɖȸȇً ȸƺǕɖǼƏɎȒȸɀ ɀƺƺ Ɏǝƺ ƏƳɮƏȇɎƏǕƺɀ Ȓǔ ƬȒǼǼƏƫȒȸƏɎǣȒȇɀ ƫƺɎɯƺƺȇ ˡȇɎƺƬǝɀ ƏȇƳ ɎȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ǣȇɀɎǣɎɖɎǣȒȇɀ ƏȇƳ Əȸƺ ȵǼƏɵǣȇǕ Ə ȸȒǼƺ in facilitating them. Some partnerships and innovations occur quite opportunistically. For example, the IIF, Center for Financial Inclusion and Action’s report, ‘How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines’, reveals how MicroBank, a subsidiary of Spain’s CaixaBank, connected with Entrepreneurial Finance Lab (EFL). It says that the bank’s risk director was intrigued by psychometric testing, so decided to pursue a ȵƏȸɎȇƺȸɀǝǣȵ ɯǣɎǝ 0In ɎȒ ƺɴȵƏȇƳ xǣƬȸȒ ƏȇǸ‫ټ‬ɀ ǼƺȇƳǣȇǕ ȵȒȸɎǔȒǼǣȒ ɎȒ Ɏǝǣȇ‫ٮ‬ˡǼƺ ƬɖɀɎȒȅƺȸɀِ Áǝƺ report also describes how the head of innovation at India’s ICICI Bank had read a book that highlighted blockchain company Stellar. The bank asked Stellar if it would be interested in a. partnership, and a new digital wallet was born. Fruitful collaborations rely heavily on traditional institutions’ ability to assess whether partnership candidates have the necessary characteristics for sustained success ƏƬȸȒɀɀ ǔȒɖȸ ƏȸƺƏɀ‫ ي‬ȵƺȒȵǼƺً ˡȇƏȇƬƺً ƫɖɀǣȇƺɀɀ ƏȇƳ ɎƺƬǝȇȒǼȒǕɵِ ÁȒ ƏɎɎƺȅȵɎ ɎȒ ƏƳƳȸƺɀɀ Ɏǝǣɀ ƬǝƏǼǼƺȇǕƺً !ƏȵǕƺȅǣȇǣ ǝƏɀ ǼƏɖȇƬǝƺƳ Ə ³ƬƏǼƺÈȵ !ƺȸɎǣˡƬƏɎǣȒȇ

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process, a tool that creates an industrialised model for collaboration and mutual ɮƺȸǣˡƬƏɎǣȒȇ ɎǝƏɎ ƺȇƬȒɖȸƏǕƺɀ ɀȅȒȒɎǝƺȸ ǼǣȇǸ‫ٮ‬ɖȵɀ ƫƺɎɯƺƺȇ ɎȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ǣȇɀɎǣɎɖɎǣȒȇɀ ƏȇƳ ˡȇɎƺƬǝɀِ

business models by collaborating to drive innovation while retaining customer trust. Without an agile and committed collaboration partner, both traditional and ˡȇɎƺƬǝ ˡȸȅɀ ȸǣɀǸ ǔƏǣǼɖȸƺِ‫ ٺ‬

Industry experts are clear about the importance of collaboration. Anirban Bose, head of Capgemini’s Financial Services Global Strategic Business Unit and member of the group executive board, pointed out in Capgemini/LinkedIn World Fintech «ƺȵȒȸɎ‫ٹ ي‬áǣɎǝ ȅȒȸƺ ɎǝƏȇ ‫ ۏדו‬Ȓǔ ˡȇɎƺƬǝ ˡȸȅɀ ǣƳƺȇɎǣǔɵǣȇǕ Ɏǝƺǣȸ ȵȸǣȅƏȸɵ ƫɖɀǣȇƺɀɀ objective as collaborating with traditional ˡȸȅɀً ǣɎ ǣɀ ƺɀɀƺȇɎǣƏǼ ɎǝƏɎ ƫȒɎǝ ˡȇɎƺƬǝɀ ƏȇƳ ɎȸƏƳǣɎǣȒȇƏǼ ˡȸȅɀ ɎȸƏȇɀǔȒȸȅ Ɏǝƺǣȸ

xƏȇȒǴ kƏɀǝɵƏȵً ǕǼȒƫƏǼ ˡȇɎƺƬǝ ǼƺƏƳƺȸً ȵƏȸɎȇƺȸً ¨ɯ! È³ً ƏǕȸƺƺɀِ Xȇ Ɏǝƺ ˡȸȅ‫ټ‬ɀ JǼȒƫƏǼ Fintech Report, he says: “Innovation is happening outside of the organisation, with emergent technologies being leveraged by ɀɎƏȸɎɖȵɀً ƏȇƳ ǣǔ ˡȇƏȇƬǣƏǼ ǣȇɀɎǣɎɖɎǣȒȇɀ ɯƏȇɎ to speed up their innovation they need to ɀǣǕȇǣˡƬƏȇɎǼɵ ǣȇƬȸƺƏɀƺ Ɏǝƺǣȸ ƬȒǼǼƏƫȒȸƏɎǣȒȇ ɯǣɎǝ ˡȇɎƺƬǝ ƬȒȅȵƏȇǣƺɀِ‫ ٺ‬

IN ACTION A number of successful collaborations have targeted new customer segments. In emerging markets, some of the poorest people, who had traditionally been unbanked, now have access to new and affordable products and services. For example, Mastercard, Grindrod Bank and Net1 have collaborated to change the way in which social grants are distributed to a largely unbanked population in South Africa. In West Africa, Société Générale is collaborating with TagPay to build the YUP digital banking brand. And in India, Ujjivan and Artoo are partnering for low-income customers. Meanwhile, AXA is working with MicroEnsure to provide insurance coverage to low-income customers in several African and Asian markets.

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So how do you f ind the best partner and engagement model to ensure long-term success? And how do you avoid the pitfalls? Fintechs and banks need a good understanding of the different cultures and processes within each ȒɎǝƺȸ‫ټ‬ɀ ȒȸǕƏȇǣɀƏɎǣȒȇɀِ IȒȸ ƺɴƏȅȵǼƺً ˡȇɎƺƬǝɀ ɀǝȒɖǼƳ be aware that the collaboration process could be lengthy and banks’ priorities might change or ƬȒȇɎƏƬɎɀ ȅǣǕǝɎ ȅȒɮƺ ǴȒƫɀِ ƏȇǸɀ ȇƺƺƳ ɎȒ ˡȇƳ ways of creating processes that improve time to market. Those involved in such partnerships report that they have learned to speed things up by:

» insulating a partnership from other parts of the institution;

» ensuring clear mandates, budgets, time frames and limited sets of approvals are established;

» moving partnerships through limited due

diligence to take a product to pilot stage quickly – full due diligence can be carried out after the pilot;

» creating incentives and timelines to keep a project on track.

It is also crucial to agree the exit mechanism at the end of a project. According to a report from The CityUK, Santander UK and Shearman & Sterling – Transformation and Innovation: a ǕɖǣƳƺ ɎȒ ȵƏȸɎȇƺȸɀǝǣȵɀ ƫƺɎɯƺƺȇ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ǣȇɀɎǣɎɖɎǣȒȇɀ ƏȇƳ ˡȇɎƺƬǝɀ ٫ Ɏǝǣɀ ȵȸȒƬƺɀɀ ɯǣǼǼ ƳƺȵƺȇƳ on the original agreements about:

» who retains the rights to new and existing intellectual property;

» who retains the ownership of joint assets; » which party is responsible for maintaining compliance.

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DISRUPTION BANKING

Fintechs and banks need a good understanding of the different cultures and processes within each otherâ&#x20AC;&#x2122;s organisations JUNE 2018

COLLABORATION MODELS Áǝƺ ȸƺȵȒȸɎ ǣƳƺȇɎǣˡƺɀ ɀƺɮƺȇ ƬȒǼǼƏƫȒȸƏɎǣȒȇ ȅȒƳƺǼɀ‫ ي‬ȵȵǼǣƬƏɎǣȒȇ programming interfaces/sandbox; Hackathon/entrepreneur in residence; Startup corporate accelerator; Fintech product sourcing; Fintech joint venture/venture builder; Corporate venture capital; and Mergers and acquisitions. In the Application programming interface/sandbox model, ǣȇɀɎǣɎɖɎǣȒȇɀ Ȓǔǔƺȸ ˡȇɎƺƬǝɀ ǼǣȅǣɎƺƳ ƏƬƬƺɀɀ ɎȒ ɀȒȅƺ Ȓǔ Ɏǝƺǣȸ ǣȇǔȸƏɀɎȸɖƬɎɖȸƺ or services through public APIs, sandbox development environments or anonymised samples of customer data. Those using this approach tend to take a hands-off approach to innovation. Another approach is the hackathon. Here, institutions present a ƬǝƏǼǼƺȇǕƺ ƏȇƳ ǣȇɮǣɎƺ ˡȇɎƺƬǝɀ ɎȒ ƬȒȅƺ ɖȵ ɯǣɎǝ Ə ɀȒǼɖɎǣȒȇ ǣȇ Ə ǼǣȅǣɎƺƳ time. However, all stakeholders need to understand how intellectual property rights will be handled and respected. Also popular is the Startup corporate accelerator and incubator ȅȒƳƺǼً ƳƺɀǣǕȇƺƳ ǔȒȸ ˡȇɎƺƬǝɀ ɎȒ ɀƬƏǼƺ ǣȇȇȒɮƏɎǣȒȇِ IȒȸ ƺɴƏȅȵǼƺً Visa Europe’s Collab innovation hub is a 100-day innovation funnel ɎǝƏɎ ɎƏǸƺɀ ǣƳƺƏɀ ǔȸȒȅ ǣȇǣɎǣƏǼ ɀƬȒȵǣȇǕ ƏȇƳ ȷɖƏǼǣˡƬƏɎǣȒȇ ɎǝȸȒɖǕǝ market testing and design to proof of concept. This approach gives institutions a chance to capitalise on the most exciting ideas, while those selected gain access to expertise, support and a captive customer base. Such programmes sometimes operate on equity Ɏƺȸȅɀً ɀȒ ˡȇɎƺƬǝɀ ȇƺƺƳ ɎȒ ƫƺ ɀɖȸƺ Ɏǝƺɵ ɖȇƳƺȸɀɎƏȇƳ ɯǝƏɎ Ɏǝƺɵ Əȸƺ offering and what they have agreed. Fintech product sourcing involves a product or service that is marketready. The institution will test the product with limited segments of its customer base; if successful, they will scale it up business-wide. This

As we approach 2020, there is no longer a battle for market dominance between traditional financial firms and startups. Instead, we are moving into an era where survival requires collaboration between the old and the new 24

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lowers the cost and time involved to trial a proposition or product. However, both parties need to understand where they stand with intellectual property rights and exclusivity. The ˡȇɎƺƬǝ ǴȒǣȇɎ ɮƺȇɎɖȸƺٖɮƺȇɎɖȸƺ ƫɖǣǼƳƺȸ model sees an institution establish its own standƏǼȒȇƺ ɀɎƏȸɎɖȵِ ɵ ɀƺɎɎǣȇǕ Ɏǝǣɀ ɖȵ ǣȇ ȵƏȸɎȇƺȸɀǝǣȵ ɯǣɎǝ Ə ˡȇɎƺƬǝ Ȓȸ Ə ɮƺȇɎɖȸƺ ƫɖǣǼƳƺȸً ǣȇɀɎǣɎɖɎǣȒȇɀ may bring in specialised skills and investment. However, stakeholders need to be clear about ownership and control of the new company, as well as rights ownership and exclusivity. The Corporate venture capital model is also well used. In this case, an institution takes a ȅǣȇȒȸǣɎɵ ɀɎƏǸƺ ǣȇ Ə ˡȇɎƺƬǝ ɎȒ ɀƺƬɖȸƺ ǣȇɀǣƳƺȸ ƏƬƬƺɀɀ ɎȒ ǣȇȇȒɮƏɎǣȒȇɀ Əɀ Ɏǝƺɵ Əȸƺ ƳƺɮƺǼȒȵƺƳِ Áǝƺ Transformation and Innovation report says this is a straightforward investment where legal considerations are standard for large businesses. The mergers and acquisitions (M&A) model is viewed as one of the most complex because ǣȇɀɎǣɎɖɎǣȒȇɀ ƏȇƳ ˡȇɎƺƬǝɀ ȅɖɀɎ ƏǕȸƺƺ Ȓȇ ɮƏǼɖƏɎǣȒȇɀ ǔȒȸ Əȇ ǣȇɀɎǣɎɖɎǣȒȇ ɎȒ ƫɖɵ ȒɖɎ Ə ˡȇɎƺƬǝ and secure access to innovations. It is also possible to adopt a hybrid approach and agree a ɎƏǣǼȒȸƺƳ ǔȸƏȅƺɯȒȸǸِ Áǝǣɀ Ȓǔǔƺȸɀ ǕȸƺƏɎƺȸ ˢƺɴǣƫǣǼǣɎɵ ƏȇƳ Ɏǝƺ ȒȵȵȒȸɎɖȇǣɎɵ ɎȒ ƏƬǝǣƺɮƺ Ə ɯǣƳƺȸ ȸƏȇǕƺ of partnerships. However, it could also result in greater legal complexity. As we approach 2020, there is no longer a battle for market dominance between ɎȸƏƳǣɎǣȒȇƏǼ ˡȇƏȇƬǣƏǼ ˡȸȅɀ ƏȇƳ ɀɎƏȸɎɖȵɀِ XȇɀɎƺƏƳً ɯƺ Əȸƺ ȅȒɮǣȇǕ ǣȇɎȒ Əȇ ƺȸƏ ɯǝƺȸƺ ɀɖȸɮǣɮƏǼ requires collaboration between the old and the new. Companies from two very different cultures can work together to take advantage of the strengths of each, while legal and regulatory frameworks will continue to adapt to minimise risks and uncertainty. This way, customers will be well placed to take advantage of truly modern products and services ɎǝƏɎ Əȸƺ ˡɎ ǔȒȸ Ɏǝƺ ǔɖɎɖȸƺِ

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EMBRACING BLOCKCHAIN â&#x20AC;&#x201C; NASDAQ LEADS THE WAY

As the disruptive potential of blockchain continues to be explored by the biggest players in the financial world, Nasdaq is setting the pace in adopting and experimenting with blockchain technology, working with partners to transform the services it provides around the globe 26

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MUSCIUNT, IDIGNAT. QUAM IN PORAE SIM NASDAQ IS THE WOR SECOND-LARGEST EX BY MARKET CAPITAL CUM HARUM DISRUPTION BANKING

When the Nasdaq (National Association of Securities Dealers Automated Quotations) Stock Market began trading on 8 February ‫ ً׏וח׏‬ǣɎ ƫƺƬƏȅƺ Ɏǝƺ ˡȸɀɎ ƺǼƺƬɎȸȒȇǣƬ ɀɎȒƬǸ market in the world. Today, Nasdaq is the world’s second-largest exchange by market capitalisation. It delivers technology to more than 90 exchanges across the globe, and in over 50 countries provides technology for at least 100 market infrastructure organisations, from exchanges and clearing houses to central securities depositories and regulators. XɎ ɯȒȸǸɀ ɯǣɎǝ ƫɖɵ‫ٮ‬ƏȇƳ‫ٮ‬ɀƺǼǼ‫ٮ‬ɀǣƳƺ ˡȇƏȇƬǣƏǼ ˡȸȅɀً Əɀ ɯƺǼǼ Əɀ ȵɖƫǼǣƬ ƏȇƳ ȵȸǣɮƏɎƺ ƺȇɎǣɎǣƺɀِ But it is not stopping there. ɀ Ɏǝƺ ˡȇƏȇƬǣƏǼ ǣȇƳɖɀɎȸɵ ɯȸƺɀɎǼƺɀ ɯǣɎǝ Ɏǝƺ ɎȸƏȇɀǔȒȸȅƏɎǣȒȇƏǼ ƺǔǔƺƬɎɀ Ȓǔ ȇƺɯ ˡȇƏȇƬǣƏǼ technology and networks, Nasdaq has positioned itself among the leaders in introducing blockchain into the operations and market technology it delivers the world over.

Áǝƺ ȵȒɎƺȇɎǣƏǼ ƫƺȇƺˡɎɀ Əȸƺ ȇɖȅƺȸȒɖɀِ As well as enabling savings for involved entities by reducing the duplication of processes, blockchain technology reduces settlement time, collateral requirements and operational overheads. It minimises the ȇƺƺƳ ɎȒ ɀƺɎ ƏɀǣƳƺ ˡȇƏȇƬǣƏǼ ȸƺɀȒɖȸƬƺɀ ɎȒ ɖɀƺ for counterparty risks and delivers higher anti-money-laundering standards.

Streamlining transactions In 2015, Nasdaq launched its Nasdaq Linq blockchain ledger technology, which completes and records private securities transactions for Chain.com. Last year, it joined forces with Citi to announce an integrated payments solution using a distributed ledger to record and transmit payment instructions. The technology streamlines transactions among parties, overcoming challenges of liquidity in private securities. JUNE 2018

.VID MENDA RLD’S XCHANGE LISATION

NASDAQ JOINED FORCES WITH CITI TO ANNOUNCE AN INTEGRATED PAYMENTS SOLUTION USING A DISTRIBUTED LEDGER TO RECORD AND TRANSMIT PAYMENT INSTRUCTIONS DISRUPTION BANKING

For Nasdaq, focus on blockchain means looking at how it can provide marketplaces for digital currencies. Johan Toll, head of Blockchain Product Management with Nasdaq’s market technology business and winner of FinTech Person of the Year from the Financial Technology Forum, told attendees at May’s Bloxpo conference in Stockholm that the exchange is assessing when it can offer safe and robust markets to trade cryptocurrencies in the same way that other assets are traded. It is also exploring ways in which it can improve markets using blockchain – how it could have more transparency and reduce risk, how it could share information more easily, and what potential it has to disrupt and change business models, particularly in terms of improving and streamlining processes. In part, this is to satiate global hunger for more stable ɎƺƬǝȇȒǼȒǕɵ ɎǝƏɎ ƺɴƬƺǼɀ ƏɎ ˡȇƏȇƬǣƏǼ ɀɖȸɮƺǣǼǼƏȇƬƺ ƏȇƳ ȅȒȇǣɎȒȸǣȇǕِ With hype building around cryptocurrencies, Toll says Nasdaq is receiving requests from crypto-based markets seeking more proven, stable technologies. Such requests form part of a shift from so-called technology validation mode – the stage of ɀɖƬƬƺɀɀǔɖǼ ȵȸȒȒǔ Ȓǔ ƬȒȇƬƺȵɎɀ ǣȇ ˡȇƏȇƬǣƏǼ ɀƺȸɮǣƬƺɀ ٫ to commercialisation. JUNE 2018

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Focus on collaboration Toll says Nasdaq has blockchain teams spread across the globe, all focused on improving deliverable technologies based on blockchain. He stresses the need for collaboration when it comes to delivering blockchain technology. “It’s very important to work with your peers, partners, customers and clients, and see how could we, together, do something better with the help of this technology. It really invites collaboration.” Nasdaq also works with research institutions to ensure relevant, interesting research is being undertaken in this arena, and invests in partners. “We have a venture arm at Nasdaq which invested in companies that we believe really have the edge of various technologies. This is because we want to understand what the markets will look like tomorrow,” says Toll. Nasdaq has positioned itself as a supplier of products and market solutions based on blockchain technology. Last year, it was selected as a provider to NYIAX, an ad exchange that will use the technology to track trades and positions. Nasdaq has also collaborated with SEB, launching a project to create a working prototype for a mutual fund issuance and settlement platform based on blockchain. The project ǣɀ ƏǣȅƺƳ ƏɎ ǣȇƬȸƺƏɀǣȇǕ Ɏǝƺ ƺǔˡƬǣƺȇƬɵ ǣȇ Ɏǝƺ ȵȸȒƬƺɀɀǣȇǕ Ȓǔ purchases and sales of fund units. Blockchain technology ɀǣȅȵǼǣˡƺɀ ƏȇƳ ɀɎȸƺƏȅǼǣȇƺɀ Ə ȵȸȒƬƺɀɀ ɎǝƏɎ ɖȇɎǣǼ ȇȒɯ ǝƏɀ largely been characterised by manual routines that can be Ɏǣȅƺ‫ٮ‬ƬȒȇɀɖȅǣȇǕً ǣȇƺǔˡƬǣƺȇɎ ǣȇ Ɏƺȸȅɀ Ȓǔ ƬȒɀɎً ƏȇƳ Ȓȵƺȇ ɎȒ risks. The exchange has also launched its own framework for settling issues and securities in a blockchain world. Yet blockchain has its limits. “We primarily see blockchain being really good at keeping track of who owns what and to transfer that ownership. We don’t see blockchain as good at providing the capabilities of advanced marketplaces,” explains Toll. At its core, blockchain relies on data-sharing. In the Bitcoin blockchain, for example, everyone can see who’s involved in a transaction and the amounts involved, making it fully transparent. But Nasdaq stresses how the level of transparency in a blockchain depends on the use case. Chain, for example, created an environment in which all assets, transactions and account details can be encrypted. It also implemented a system whereby auditors or regulators could access transaction data where necessary through unblinding keys. This concept of sharing and collaboration is a product of the new sharing economy. Toll says Nasdaq is among ɀƺɮƺȇ ƬȒȅȵƏȇǣƺɀ ɯȒȸǸǣȇǕ ɎȒǕƺɎǝƺȸ ɎȒ Ƴƺˡȇƺ Ɏǝƺ ǣȇǣɎǣƏǼ

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business scope, the rules and the regulatory framework for blockchain technology in the funds industry. “We believe that if we can agree on a scope for this solution that we are prepared to invest in, we can move into the third phase where we invite the rest of the industry to participate. The aim is that we should gather everybody in the funds industry to work together on this.” Toll is keen to stress that although blockchain will change markets – some dramatically – it’s not a silver-bullet solution. Yet it also has applications in unexpected areas. For example, blockchain has potential to be used for secure voting, such as required at company AGMs, which opens JUNE 2018

up avenues for the technology to eventually play a role in political elections, for example. Nasdaq’s work emphasises the immense scope of blockchain, which may well ƏƳɮƏȇƬƺ ƫƺɵȒȇƳ ˡȇƏȇƬǣƏǼ ȅƏȸǸƺɎɀِ ÁȒ ensure success, hurdles such as scalability, common standards, regulation and legislation must be overcome – bringing us to an endpoint of revolutionised global systems.

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EAS ING THE PA T H TO C R Y P TO P A Y MEN TS EASING

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P A T H T O C R Y P T O P A Y ME NT S

As the adoption of cryptocurrencies gathers pace, the means by which businesses and their customers can buy and exchange Bitcoin and altcoins, and use them to make payments, is becoming increasingly important. Among the fastest-emerging of these services is Lithuania-based CoinGate

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DISRUPTION BANKING Compliant with local and European Union regulations, CoinGate is a payment gateway for blockchain payments that enables businesses to accept cryptocurrency payments worldwide and free of risk. The company’s system aims to make Bitcoin and altcoin transactions a practical option for merchants, increasing adoption of cryptocurrencies globally by providing reliable, accessible and convenient payments infrastructure that caters for the needs of both businesses and their customers. Additionally, CoinGate also enables ǣɎɀ ɖɀƺȸɀ ɎȒ ƫɖɵ ƬȸɵȵɎȒƬɖȸȸƺȇƬǣƺɀ ǔȒȸ ˡƏɎِ Among the advantages that CoinGate offers ȅƺȸƬǝƏȇɎɀ ǣɀ Ə ˢƺɴǣƫǼƺ ɀȒǔɎɯƏȸƺ ɀȒǼɖɎǣȒȇ that enables payment using more than 50 cryptocurrencies in a single payment environment, with no added cost to the customer. Whether used by an ecommerce store or a physical shop on a city street, CoinGate’s API integration allows owners to accept payments without extensive technical knowledge and without exposure to volatile ƺɴƬǝƏȇǕƺ ȸƏɎƺɀِ xƺȸƬǝƏȇɎɀ Əȸƺ ƬǝƏȸǕƺƳ Ə ˢƏɎ ǔƺƺ Ȓǔ 1% to use the service. ɀ ǣɀ Ɏǝƺ ƬƏɀƺ ɯǣɎǝ ȅƏȇɵ ˡȇɎƺƬǝ ƬȒȅȵƏȇǣƺɀً Ɏǝƺ creators of CoinGate had initially been running various internet businesses together, as well as establishing a premium taxi company in the Lithuanian capital, Vilnius. The founding team of CoinGate – Dmitrijus Borisenka, Jonas Gilys and Irmantas Baciulis – became involved with Bitcoin ƏȇƳ ƫǼȒƬǸƬǝƏǣȇ ɎƺƬǝȇȒǼȒǕɵ ƏƫȒɖɎ ˡɮƺ ɵƺƏȸɀ ƏǕȒِ “We started building CoinGate in 2014, just the three of us,” recalls CEO Dmitrijus Borisenka. “There were few resources at the time, so it was really a ‘come on, let’s make it happen’ product. Today, we have the knowledge, a rapidly expanding customer base and already what we believe is a reputable brand. For me and my partners, our biggest achievement is the trust we have gained so far within the crypto ecosystem.” The increasing buzz around the topic of cryptocurrency has seen the platform gain a strong foothold in the market and the CoinGate team has now expanded to 14 people, having doubled in size over the past year. “The expansion of our team indicates we are moving in the right direction, and I see a lot of room for CoinGate to grow further,” says Borisenka.

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CoinGate currently has around 50,000 registered users and more than 2,000 active merchants. These include large businesses such as watchmakers Louis Chevrolet and Chronoswiss. “We recently partnered with Louis Chevrolet to promote their exclusive line of Bitcoin limited-edition watches, sold for Bitcoin only, from which 10% of sales proceeds were donated ɎȒ Əȇ ȒȸǕƏȇǣɀƏɎǣȒȇ ˡǕǝɎǣȇǕ ȸƏȸƺ diseases called leukodystrophies,” ɀƏɵɀ !ǝǣƺǔ !ȒȅȅƺȸƬǣƏǼ ǔˡƬƺȸ Vilius Semenas. “We are really excited that such highly regarded companies are demonstrating innovative attitudes towards new technologies such as blockchain. Adoption is key for Bitcoin and other cryptocurrencies to become not only a viable, but also a popular, payment method.” In April 2018, CoinGate reached the milestone of 200,000 payments processed for merchants, and the rapid increase in the platform’s activity is evident in the statistic that half of these payments took place in 2018 alone. The company now ranks among the largest cryptocurrency processors globally by volume and is ƬȒȇˡƳƺȇɎ Ȓǔ ȸƺƏƬǝǣȇǕ Ɏǝƺ ɎȒȵ three. “While the cryptocurrency market has taken a downturn in terms of prices, we have not observed any decline in payment activity. On the contrary, more and more merchants are interested in accepting this payment method – not only for Bitcoin, but increasingly for other cryptocurrencies too,” says

C O I N G AT E C U R R E N T LY H A S AROUND 50,000 REGISTERED USERS AND MORE THAN 2,000 ACTIVE MERCHANTS

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Semenas. “We have been working on some huge developments these past few months and have launched native Litecoin payments, with Ethereum to come soon. At the same time, we decided to expand our range of offerings for trade, adding support for Litecoin and Ethereum, as well as Dash and Bitcoin Cash.” So far, CoinGate reports that most of its exchange customers hail from Europe, with the biggest trading volumes coming from the UK, France, Latvia, Poland and its home country of Lithuania,. For purchases via credit or debit card, the US leads the way, while its merchants are spread around the world, including Europe, India, Russia and the United Arab Emirates. Looking to the future, CoinGate is embracing the potential of Lightning Network (LN) payment processing to further develop its platform and adopt a Bitcoin scaling solution. The technology is still at its early stages and currently suited to advanced users ɯǣɎǝ ɀɖǔˡƬǣƺȇɎ ɎƺƬǝȇǣƬƏǼ ǸȇȒɯǼƺƳǕƺً ɀȒ !ȒǣȇJƏɎƺ ǣɀ ȸɖȇȇǣȇǕ ȵǣǼȒɎ integrations with selected merchants. “We strongly believe that LN is the next major upgrade to Bitcoin as a whole and, as a payment processor, we are excited about the potential impact it can have on Bitcoin as a currency,” explains Semenas. “We are very optimistic about a number of improvements that LN brings. The huge increase in network capacity will eventually bring down transaction costs and attract more people to use Bitcoin as a payment method. Plus the ability to make and receive payments near-instantly and securely, ɯǣɎǝȒɖɎ ɯƏǣɎǣȇǕ ǔȒȸ ȇƺɎɯȒȸǸ ƬȒȇˡȸȅƏɎǣȒȇɀً ɯǣǼǼ ȅƏǸƺ ȵƏɵȅƺȇɎɀ online and in retail locations much more convenient, both for merchants and shoppers.” !ȒǣȇJƏɎƺ ɀƺƺɀ ȒɎǝƺȸ ƫƺȇƺˡɎɀ ǣȇ nzً ɀɖƬǝ Əɀ ƺƏɀǣȇǕ Ɏǝƺ ǼȒƏƳ Ȓȇ Əȇ increasingly busy Bitcoin infrastructure. “We have been awaiting this upgrade since early 2017, not just because of the cost savings related to transaction fees, but also because we felt that reducing the strain our payment volumes place on the network was the right thing to do,” says Semenas. ‫!ٹ‬ɖȸȸƺȇɎǼɵً ƏȸȒɖȇƳ ˡɮƺ ɎȒ ɀǣɴ ɎȸƏȇɀƏƬɎǣȒȇɀ ǣȇ ƺɮƺȸɵ ǣɎƬȒǣȇ ƫǼȒƬǸ are coming to or from CoinGate – although this doesn’t seem like ȅƏȇɵً ɯƺ ƏǼȸƺƏƳɵ ǔƺƺǼ ɎǝƏɎ ǣɎ ȸƺȵȸƺɀƺȇɎɀ Ə ɀǣǕȇǣˡƬƏȇɎ ȵƏȸɎ Ȓǔ Ɏǝƺ network. We enjoy being at the forefront of technology in the Bitcoin space and being drivers for adoption of new technologies ǣȇ Ɏǝƺ ȵƏɵȅƺȇɎɀ ɀȵǝƺȸƺ Əɀ Ə ɯǝȒǼƺِ ƺƬȒȅǣȇǕ Ɏǝƺ ˡȸɀɎ ǕƏɎƺɯƏɵ ɎȒ integrate LN payments will allow us to showcase this.”

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Sweden’s well-established startup scene is focused on its capital, Stockholm, where the ˾ȇɎƺƬǝ ƬȒȅȅɖȇǣɎɵ ǣɀ Ə Ǹƺɵ ƺǼƺȅƺȇɎ ǣȇ Ə ɯȒȸǼƳ‫ډ‬ leading centre for digital innovation

ack in the 1990s, Sweden began investing heavily in its technology infrastructure. The government wanted all households and businesses across the country to have access to IT infrastructure and broadband to create ‘an information society for all’. High-speed internet lines were installed and citizens were given tax breaks to buy home computers. Schools adopted robust engineering programmes. Innovation became part of the national identity – a trait that has helped this small country stand out in the face of ˡƺȸƬƺ ǣȇɎƺȸȇƏɎǣȒȇƏǼ ƬȒȅȵƺɎǣɎǣȒȇِ

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As a new generation grew up equipped with the necessary skills to achieve in the tech economy, Sweden evolved into a nation of entrepreneurs and disruptors. The World Economic Forum soon named the country as the world’s most digital economy, and a cycle of inspiration and innovation began. A decade later and the government’s vision had been realised, but the journey didn’t end there. By 2014, Sweden had raced beyond being an information society and had become a hub for startups. That year marked a milestone for ǣȇɮƺɀɎȅƺȇɎɀ ǣȇ ³ɎȒƬǸǝȒǼȅ‫ٮ‬ƫƏɀƺƳ ˡȇɎƺƬǝ ƬȒȅȵƏȇǣƺɀِ ɎȒɎƏǼ Ȓǔ ‫ ההאڟ‬ȅǣǼǼǣȒȇ ɯƏɀ ǔɖȇȇƺǼǼƺƳ ǣȇɎȒ ɀɖƬǝ ˡȸȅɀً ƏȇƳ ǣȇɮƺɀɎȅƺȇɎɀ ȅƏƳƺ ǣȇ ˡȇɎƺƬǝ ƬȒȅȵȸǣɀƺƳ ‫ ۏאב‬Ȓǔ total investments made in privately owned Swedish companies that year. By 2015, Sweden had claimed the number-two spot in rankings of the world’s ȅȒɀɎ ȵȸȒƳɖƬɎǣɮƺ ɎƺƬǝ ǝɖƫɀِ JǼȒƫƏǼ ɎƺƬǝȇȒǼȒǕɵ XȇɮƺɀɎȅƺȇɎ ˡȸȅ ɎȒȅǣƬȒ reported that for every million people, the Scandinavian country was producing ‫ בِה‬ƫǣǼǼǣȒȇ‫ٮ‬ƳȒǼǼƏȸ ƬȒȅȵƏȇǣƺɀِ Áǝǣɀً ƬȒȅȵƏȸƺƳ ɎȒ ³ǣǼǣƬȒȇ àƏǼǼƺɵ‫ټ‬ɀ ‫ ׏ِז‬ƏɎ Ɏǝƺ Ɏǣȅƺً ȵǼƏƬƺƳ ³ɯƺƳƺȇ ˡȸȅǼɵ Ȓȇ Ɏǝƺ ɎƺƬǝ ȅƏȵِ ³ɎȒƬǸǝȒǼȅ ɯƏɀ ƏɎɎȸƏƬɎǣȇǕ ƏȸȒɖȇƳ Ȓȇƺ‫ٮ‬ ˡǔɎǝ Ȓǔ 0ɖȸȒȵƺ‫ټ‬ɀ ɎȒɎƏǼ ˡȇɎƺƬǝ ǣȇɮƺɀɎȅƺȇɎɀِ Áǝƺȸƺ ɯƏɀ ȇȒ ƳȒɖƫɎ ɎǝƏɎ Ɏǝƺ ƬȒɖȇɎȸɵ ǝƏƳ ȵȒɀǣɎǣȒȇƺƳ ǣɎɀƺǼǔ Əɀ Ə ǼƺƏƳƺȸ ǣȇ ˡȇɎƺƬǝ innovation. However, expansion required generating user numbers many times that of Sweden’s population of fewer than 10 million, and entrepreneurs looked beyond borders for growth.

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EUROPE’S UNICORN HUB In the past few years, the country has produced numerous globally recognisable names in ƳǣɀȸɖȵɎǣɮƺ ƳǣǕǣɎƏǼ ɀƺȸɮǣƬƺɀِ Iȸƺƺ ˡǼƺ‫ٮ‬ɀǝƏȸǣȇǕ ɀǣɎƺɀ Áǝƺ ¨ǣȸƏɎƺ Əɵً kƏɿƏƏ ƏȇƳ ɖÁȒȸȸƺȇɎ ɯƺȸƺ ƏǼǼ ǔȒɖȇƳƺƳ ǣȇ ³ɯƺƳƺȇِ àȒǣƬƺ‫ٮ‬ƬƏǼǼ ƏȇƳ ɮǣƳƺȒ‫ٮ‬ƬǝƏɎ ɀƺȸɮǣƬƺ ³Ǹɵȵƺ ƫƺƬƏȅƺ ³ɎȒƬǸǝȒǼȅ‫ټ‬ɀ ˡȸɀɎ unicorn – a startup valued at more than $1 billion – in 2005, when it was sold to eBay for ‫ הِאڟ‬ƫǣǼǼǣȒȇِ ³ǣɴ ɵƺƏȸɀ ǼƏɎƺȸً xǣƬȸȒɀȒǔɎ ƏƬȷɖǣȸƺƳ Ɏǝƺ ɀƺȸɮǣƬƺ ǔȒȸ Ə ƬȒȒǼ ‫ דِזڟ‬ƫǣǼǼǣȒȇِ Microsoft also bought Mojang, the video-game developer behind Minecraft, for $2.5 billion. Another game company, King – creator of the popular Candy Crush Saga, ɯƏɀ ƏǼɀȒ ǔȒɖȇƳƺƳ ǣȇ ³ɯƺƳƺȇ ƏȇƳ ǼǣɀɎƺƳ Ȓȇ Ɏǝƺ zƺɯ çȒȸǸ ³ɎȒƬǸ 0ɴƬǝƏȇǕƺ ǣȇ ‫ ה׏׎א‬ɯǣɎǝ Ə market capitalisation of $5.5 billion. In June 2015, the world’s leading music-streaming service Spotify was valued at $8.53 billion, just seven years after its launch. In February, it reported 159 million active users around the world, with 71 million premium subscribers. Other Swedish success stories include Klarna – an online payment service that works with e-commerce businesses and retailers. In 2017, Klarna announced that it had received a large investment from Permira, which bought a 10% stake. Though both sides kept quiet Ȓȇ Ɏǝƺ ˡǕɖȸƺً Ɏǝƺ IǣȇƏȇƬǣƏǼ Áǣȅƺɀ ȸƺȵȒȸɎƺƳ Ɏǝƺ ǣȇɮƺɀɎȅƺȇɎ ɮƏǼɖƺ ƏɎ ‫ ׎דאڟ‬ȅǣǼǼǣȒȇِ Xȇ ȵȸǣǼ this year, Klarna announced its integration with Magento Commerce as a Core Bundled 0ɴɎƺȇɀǣȒȇً ȒǔǔƺȸǣȇǕ ƬɖɀɎȒȅƺȸɀ ȅȒȸƺ ˢƺɴǣƫǣǼǣɎɵ ǣȇ ȵƏɵȅƺȇɎɀِ

By 2015, Sweden had the numbertwo spot in rankings of the world’s most productive tech hubs

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Investor appetite ŖƋƫ ƼŞŁ ȃƁƼŁĴŞ industry is high,

and that is helping to drive the exponential growth of startups in Stockholm iZettle is another prime example. The JP Morgan and Carnegie-backed company provides a commerce platform for small businesses in Europe and Latin America, offering tools for payment, sales and expansion. It recently announced plans to go for Europe’s biggest IPO in ˡȇɎƺƬǝ ƏȇƳ Əǣȅɀ ɎȒ ǣȇƬȸƺƏɀƺ ǣɎɀ ɎɖȸȇȒɮƺȸ ƫɵ ƏɎ ǼƺƏɀɎ ‫ ۏ׎ג‬ƺƏƬǝ ɵƺƏȸ ǔȒȸ Ɏǝƺ ȇƺɴɎ Ɏǝȸƺƺ ɵƺƏȸɀِ XȇɮƺɀɎȒȸ ƏȵȵƺɎǣɎƺ ǔȒȸ Ɏǝƺ ˡȇɎƺƬǝ ǣȇƳɖɀɎȸɵ ǣɀ ǝǣǕǝً ƏȇƳ ɎǝƏɎ ǣɀ ǝƺǼȵǣȇǕ ɎȒ Ƴȸǣɮƺ Ɏǝƺ ƺɴȵȒȇƺȇɎǣƏǼ growth of startups in the industry in Stockholm. Such growth has also inevitably led to rapid expansion in new working styles. Collaborative hubs and coworking spaces have appeared all over the city, providing casual meeting points where ideas can be shared and support can be found. A decade ago, these working communities didn’t exist in Stockholm, but now they’re so ȵȸȒǼǣˡƬ ɎǝƏɎ Ɏǝƺɵ ȸƺȷɖǣȸƺ ƳǣɮǣɀǣȒȇ ǣȇɎȒ ɀȵƺƬǣˡƬ ǣȇƳɖɀɎȸǣƺɀِ 0ȅƫƏɀɀɵً ǔȒȸ ƺɴƏȅȵǼƺً Ȓǔǔƺȸɀ ƬȒɯȒȸǸǣȇǕ ǼƏƫɀ ɀȵƺƬǣˡƬƏǼǼɵ ƳƺɀǣǕȇƺƳ ǔȒȸ à« ƏȇƳ ǕƏȅǣȇǕ ƬȒȅȵƏȇǣƺɀً ɯǝǣǼƺ R‫ א‬RƺƏǼɎǝ Rɖƫ ǣɀ a coworking space dedicated to digital health services. Elsewhere, ImpactHub and Norrsken IȒɖȇƳƏɎǣȒȇ ƏɎɎȸƏƬɎ ɀȒƬǣƏǼ ƺȇɎȸƺȵȸƺȇƺɖȸɀِ IȒȸ ˡȇɎƺƬǝ ƬȒȅȵƏȇǣƺɀً ³ɎȒƬǸǝȒǼȅ IǣȇɎƺƬǝ Rɖƫ ǣɀ Ɏǝƺ ȵǼƏƬƺ ɎȒ ƫƺِ XɎ ǣɀ Ɏǝƺ ˡȸɀɎ ɀȵƏƬƺ ǔȒȸ Ɏǝƺ ˡȇƏȇƬǣƏǼ ɎƺƬǝȇȒǼȒǕɵ ƺƬȒɀɵɀɎƺȅ ǣɀ ³ɯƺƳƺȇً ƏȇƳ Ɏǝƺ ɀƺƬȒȇƳ ƫǣǕǕƺɀɎ ˡȇɎƺƬǝ ǝɖƫ ǣȇ 0ɖȸȒȵƺِ Áǝƺ ǝɖƫ ǝȒɀɎɀ Əȇ ǣȅȵȸƺɀɀǣɮƺ ȇɖȅƫƺȸ Ȓǔ ˡȇɎƺƬǝ ɀɎƏȸɎɖȵɀً ǣȇƬǼɖƳǣȇǕ ǣǼǼƺƬɎƏً Ə ɀȒǼɖɎǣȒȇ for reconciling invoices and payments; Capin, which helps CEOs and risk managers work smarter by automating claims reporting and other manual processes; and Revolut, a digital banking solution that allows users to spend in any currency without incurring fees. Stockholm Fintech Hub has been such a success that in late 2017 it announced expansion ȵǼƏȇɀ ǔȒȸ Iǣȇȇǣɀǝ ƬƏȵǣɎƏǼ RƺǼɀǣȇǸǣِ Áǝƺ ǕȒƏǼ ǣɀ ɎȒ ƬȸƺƏɎƺ Ə ȵƏȇ‫ٮ‬zȒȸƳǣƬ ƏǼǼǣƏȇƬƺ Ȓǔ ˡȇƏȇƬǣƏǼ ɀɎƏȸɎ‫ٮ‬ ups, banks, service providers and other relevant players.

JUNE 2018

DISRUPTION BANKING ÈȇɀɖȸȵȸǣɀǣȇǕǼɵً ³ɎȒƬǸǝȒǼȅ ƏǼɀȒ ȵǼƏɵɀ ǝȒɀɎ ɎȒ ȇɖȅƺȸȒɖɀ ˡȇɎƺƬǝ ƺɮƺȇɎɀِ RƏƬǸƏɎǝȒȇɀً roundtables and forums are all on the calendar, with some events drilling down into ɀȵƺƬǣˡƬ ɎȒȵǣƬɀً ɀɖƬǝ Əɀ ɯȒȅƺȇ ǣȇ ˡȇɎƺƬǝً Ɏǝƺ ȅƺȸǕǣȇǕ Ȓǔ ǝɖȅƏȇǣɎɵ ƏȇƳ ɎƺƬǝȇȒǼȒǕɵً challenges and opportunities in the invoicing space, and the mindset of a tech investor. Last month, BLOXPO – Europe’s largest blockchain conference – arrived in Stockholm, bringing with it politicians, global blockchain experts and business players from a range of industries. BLOXPO is designed to inspire people and organisations to invest, build and launch companies with blockchain. September will see Blockchain & Bitcoin Conference Stockholm unite the world’s leading crypto experts. The conference focuses on implementing blockchain and cryptocurrencies, exploring the prospects for crypto business in Stockholm and considering trends in cryptocurrencies for 2018.

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Unsurprisingly, Stockholm also plays host to ƁǂƀŁƫƋǂƲ ȃƁƼŁĴŞ events. Hackathons, roundtables and forums are all on the calendar

JUNE 2018

DISRUPTION BANKING