Paper cheques & Bank of Banks [Nov'20 edition]
Spontaneous dollarization in the age of Politics & Pandemics
November has been a perfect month to understand the interoperable synergies between politics, pandemic and economy.
Joe Biden’s unprecedented win in the U.S. presidential election, followed by (or was it a timely play?) some positive news on COVID vaccination from Pfizer and Moderna catapulted the loonie (CAD) to its strongest level against the U.S. dollar since October 2018 (USD/CAD trading at 1.2937 at the time of this writing). This coupled with the Bitcoin boom and Gold plateau has led everyone to believe in the monetary (r)evolution happening right now.
Toronto went into a second lockdown in November angering small businesses and citizens alike. Likewise the onset of winter has brought about SAD (Seasonal affective disorder) among North Americans, however some eye catching fintech trends in the month of Nov has kept my spirits high.
Top Trends in November -
New Privacy bill in Canada
In line with GDPR and CPA, we’ve a new Canadian digital bill in the works :
"digital charter" that would include legislation to give Canadians "appropriate compensation" when their personal data is breached.
"right to be forgotten" or "right to erasure" law by calling for the "ability to withdraw, remove and erase basic personal data from a platform."
new regulations for large digital companies to better protect Canadians' personal data and encourage more competition in the digital marketplace
Regulation in data protection, user privacy and organizational compliance would have a profound impact on the way we develop our digital products and services. Taking it one step further, would I get paid for agreeing to share my sensitive data?
Would paper cheques become obsolete?
South Africa is officially phasing out the issuance, acceptance and collection of paper cheques from the national payment system, starting from Dec 2020.
Cheques are definitely an expensive payment instrument :
The ageing interbank cheque processing infrastructure proves challenging for the usage of cheques.
Additionally, the impact of the Covid-19 pandemic has led to its decline, in terms of both usage and acceptance.
WestPac also plans to cease cheque operations in New Zealand next year.
The phasing out of cheques would be gradual in most developing countries, and if I may say so, cheques may not entirely go out of existence in the next 10-15 years. We still do write snail-mail once in a while, don’t we? Overhauls are effective only if there’re stronger accessible alternatives in the market - are the electronic payment methods accessible to everyone (especially in a developing economy) to make the usage of cheques truly redundant - for all contexts and use-cases?
Bitcoin reaches a record time high
At 18K+ USD, we can expect it to reach the 20K+ mark in the next few months.
Fidelity Investments launched a Bitcoin fund, Public companies Square Inc. and MicroStrategy Inc. recently invested in the coin. And one of the most notable events for fans was PayPal Holding Inc.’s Oct decision to allow customers to access cryptocurrencies.
I may have already covered this in my previous newsletter, but PayPal now allows all US customers to buy, hold and sell cryptocurrencies.
Dharma is making de-fi (decentralized finance) trading frictionless by allowing seamless conversion of your US currency holdings into cryptocurrencies through ACH (automated clearing house) processing. Basically you can now purchase tokens directly from a bank account at a 1.5% fee. This will solidify Dharma’s goal of being the ‘Robinhood for Crypto’, as they call themselves.
Apart from long term investing, I’m personally not pinning my hopes on bitcoin as an everyday retail currency. Stablecoins might just be the middle ground for that.
Personal Finance through Google
Google is slated to launch a digital banking account called Plex in 2021 with a strong emphasis on personal finance.
Google is partnering with 11 banks to launch a new kind of bank account in 2021. Called Plex, these mobile-first bank accounts will have no monthly fees, overdraft charges or minimum balances. The banks will own the accounts but the Google Pay app will be the main conduit for managing these accounts. The launch partners for this are Citi and Stanford Federal Credit Union.
..strong emphasis on helping you manage your personal finances - ability to pay friends (P2P) and businesses really fast, split bills with friends, explore card-linked offers and rewards, manage receipts and get insights about your spending so you can stay on top of your money
This is inherently going to be a blow to smaller fintechs who rely on providing amazing digital frontend experiences to customers. Partnerships between Google/Apple + <Banks> are inevitable in the next few years for such integrated experiences.
My bet is on Apple exploring this model as well and redesigning their Apple Wallet. Imagine Apple Pay tapping into bank transaction data, allowing data aggregation across all cards that you’ve on Apple Wallet, thus providing you expense insights, splitting pay with friends, p2p payments, what have you! You’ll still use your underlying respective bank account/s, but Apple will reduce/nullify the need for you to log into your individual bank mobile apps. It’ll mean -
“One” digital bank for the consumer (Bank of Banks?), while reaping the benefits of underlying products/services/rewards/offers extended by individual banks/fintechs.
Open banking will further amplify this ecosystem.
Visa partnerships
tokenization as a service
Fintech Paynetics would be tapping into Visa’s tokenization services to unlock various payment functionalities for its customers.
democratization of data flow
In a role reversal, Visa has tapped into the fintech Codat to help Visa’s clients bring new digital journeys for their own SME customers.
Visa’s clients will have access to capabilities including, onboarding, underwriting, account and portfolio management, with a single point of connectivity between their customers’ accounting platforms and data sources.
Through its single API, Codat enables financial service organizations to integrate with a range of accounting, banking and commerce integrations platforms.
partner toolkits
Visa’s Fast Track program helps emerging fintechs accelerate their growth. This in addition to their new program ‘Visa Ready’ for FinTech Enablers would make it easier for FinTechs to connect with certified partners for digital issuance and other key services by offering a “certification process for FinTech enablers.”
This is the first step in opening up your services to others, paving the way for open banking, open standards and shifting mindsets from competition to shared collaboration.
Faster payment protocol & settlement systems
FastPay, a new payment protocol proposed by a trio affiliated with Facebook’s Novi wallet, could potentially facilitate more than 160,000 transactions per second (TPS), which is seven multiples faster than the current Visa payments network. FastPay’s speed means it is applicable to point-of-sale payments too.
Current RTGS (Real-time gross settlement systems) are limited in their capacity making them unsuitable for settling low-value high-volume retail payments directly.
Facebook’s Libra (and other cryptocurrencies) might be a contender to cross FastPay along with fiat currencies.
Datapoints
Whether you use data to verify your customer’s identity or to help boost their credit scores, companies are trying to find new ways to leverage significant datapoints to enhance the customer experience. Two cases in point -
Online Trust & Reputation
Mati has a Plaid like API to help you verify not just your identity, but also your digital reputation through various data points such as residency, income and taxes.
Mati can help you connect to a government database or a utility provider to download and share data from those services directly.
Credit score & credibility
Experian would now allow Brits to use their Netflix & Spotify subscriptions to enhance their credit scores.
Similarly NatWest would enable you to report your rental payments to the credit bureau.
The Rise of Brazilian Fintech ecosystem
Brazil is rapidly emerging as an innovation hub, with Brazilian government publishing a National Innovation Policy (NIP) setting out plans to encourage and develop innovative products, processes and services across the country.
Regulatory Sandbox for Experimentation
This sandbox for controlled test environments for financial and payment innovations would promote new business models and competition in Brazil’s fintech space.
Instant Payment system PIX
The Brazilian central bank has reportedly launched its previously announced instant payments system in the country dubbed ‘Pix’.
Faster P2P payments and money transfers with retailers without requiring a credit or debit card can unveil a host of new usecases for Brazilians.
Expected to be fully operational by Oct 2021, Brazil’s Open banking ecosystem is a sign for future finance revolution in Brazil.
Merging banking with ecommerce - superapp
SoftBank-backed fintech Banco Inter launched an app offering clients direct access to more than 60 stores selling products from appliances to sneakers to beauty products. This Ecommerce meets banking usecase might just make our heads turn in the future.Just as Amazon can’t help but become the next banking superpower, would banks aim to replicate Amazon’s eCommerce successes?
Spontaneous dollarization
Necessity breeds Disruption.
And Venezuela is a case in point demonstrating the hacks people create to solve drastic economic uncertainty.
With rapidly depreciating currency and runaway inflation, US firm Zelle has been able to democratize financial access for Venezuelans.
(Venezuela ) their own currency, the bolívar, is now about as valuable as Monopoly money,
inflation, as measured by a Bloomberg index pegged to the price of a café con leche, is running above 4,000%. The largest currency note, the 50,000-bolívar bill, is equivalent to less than a dime.
A disastrous 15-year experiment with capital controls gave rise to a thriving black market for dollars. Maduro’s government initially turned a blind eye when corner stores, restaurants, and hair salons began accepting greenbacks as tender. Then last year the president publicly endorsed use of the gringo’s money, partly in the hope that it would help tame inflation and help stabilize a crumbling economy. “I don’t see it as a bad thing … this process that they call ‘dollarization,’ ”
More than 60% of all transactions in Venezuela are now in dollars. Zelle allows customers of its member banks to send money to friends and merchants, often at no charge, via a mobile phone app.
Digital dollarization via services such as Zelle has been able to take off in Venezuela because its citizens enjoy continued access to the U.S. financial system.
And here are some random ramblings to end this newsletter with -
Favourite local business
ZipLunch is a new local food delivery service in Toronto that I’m obsessed with. Its value proposition rests on a few salient pain-points -
decision fatigue of making micro-decisions every single day
over complicated laundry list of choices available on food delivery apps
small local restaurants and eateries can’t afford to pay exorbitant markup fees to UberEats, DoorDash and SkipTheDishes to leverage their delivery logistical networks, nor can they cater to highly customized individual orders during busy lunch/dinner hours, thus reducing their speed and efficiency.
Ziplunch was thought of as an -
antidote to decision fatigue with an app that caters to a limited menu from maximum 4-5 local restaurants everyday, making it extremely simple to choose and order.
highly subsidized option compared to other food delivery companies, with meal prices reduced by as much as 30-40%, with no delivery fees and no requirements for tips.
extremely convenient way to support local eateries, restaurants and businesses at this time of economic uncertainty.
The business model is so innovative to the point of being obvious :
Ziplunch places bulk orders at select (4-5) restaurants for pre-determined timeslots and for pre-determined delivery locations (condos, office towers etc.) to bring down the meal cost significantly. This allows restaurants to streamline their operations, cut costs and create a compelling revenue generating channel.
the end consumer loves the simplicity of limited choice, pays highly subsidized rates, gets their food delivered at the concierge downstairs and can order the smallest of the small item on the menu without an order minimum.
Wedges & Vision
The team at a16z made an interesting observation in this article : “wedge” and the “vision.”
The wedge is a narrow product offering that solves an acute problem, allowing the startup to achieve momentum and benefit from increasing returns and preferential attachment. The vision represents the scaled, long term outlook for the product, and ideally shows maturation and expansion around the wedge.
Because momentum is so incredibly important for startups — indeed, the only way to will them into existence is through a focused and compounding product strategy — these two areas are given equal weight.
David & Goliath
One of the lessons from the book ‘David & Goliath’ by Malcolm Gladwell was how normalcy operates. The most devastating changes become commonplace, to the point of becoming the new normal. Any further incremental changes (eg. our second wave of lockdowns) don’t really bother the common man, until an even stupendous calamity wakes us from our complacency.
We saw a wave of disruption around payments - the way we spend, the form factor we use during spending, the types of goods we spend our money on.
However with the second series of lockdowns, people are going to town (looking at you : Black Friday & Cyber Monday!) with the purchase of big ticket items. People aren’t (at least for now) panic-buying anymore. Almost every one of us is pretty resigned (or elated) to continue working from home. And most important of all, people aren’t afraid of COVID anymore. Once the fear goes out, laxity sets in.
I wonder what the next decade has in store for us - what kind of economic-health-political-digital-technology calamity awaits? Would we contemplate Martian-Lunar currency, or simply go back to basics?
Great newsletter!
Great article! The writing is clear, the research is detailed, and the synthesis of all this information into what feels truly like knowledge -- well, that feels like a gift. This is one of the finest example of news curation that I have seen. Thank you!