Enabling Lower Cost Peer-To-Peer Money Transfers

Enabling lower cost money transfer and access to new financial services to billions of individuals in developed and developing markets, using mobile technology platforms.

This is the – noble – mission that P2P Cash set for themselves. They may be a startup, but they are aiming high.  P2P cash is one of the winners, in the “early stage startup” category, of the Innotribe Startup Challenge. As such, they will participate to the big final, which is part of the Innotribe@Sibos stream ofSibos in Osaka, 29 Oct – 1 Nov 2012.

Tom Meredith, the company’s chairman and CEO, and I were talking recently about my favourite subject  when it comes to startups – their story. Here is the story of P2P Cash, as told by Tom in answering my questions.

What is P2P Cash delivering?

Tom:  ”P2P Cash is working with partners to create and propagate mobile banking standards to enable 3 Billion consumers worldwide to access low cost financial services via their cellphones.Through the Trusted Agent Network (TAN), P2P Cash enables businesses and consumers  to send and receive mobile payments securely, conveniently and cost-effectively.”

Where does such an ambitious goal come from?

Tom: “we initially wanted to solve the music industry peer-to-peer file sharing problem, from both a security and a payment perspective. We came up with a synthetic form of online cash that could tracked between any two people without being managed by a server; in other words, we invented a form of “Electronic Cash” or eCash. Despite years of negotiating with Hollywood content owners, we lost out to a much larger company who presented a closed server-based system. That company was Apple and the product was iTunes.

Instead of folding our tent, we sought out another market where we could leverage our intellectual property: the international remittance or money transfer industry. Here was an extremely fragmented $500 Billion industry that could greatly benefit from a secure, universal peer-to-peer transaction solution. Economics 101 tells us that this is exactly the type of industry in which the banks could gain economies of scale and create tremendous value by consolidation around open industry standards and a common technology platform.

With the widespread adoption of the mobile phone, especially in the developing world, we saw an opportunity to leverage our technology and significantly lower the cost of money transfer. This approach puts more money into the pockets of those who needed it most: the immigrant worker and their families back home. This also struck us as a much nobler use of our technology to bring inexpensive banking services to upwards of 3 billion people rather than simply making music easier to share.”

Sounds great – but it looks to me as one of the many initiatives in the m-payments space. What are you doing different?”

Tom: “Indeed, we found two hurdles to unifying money transfers around a universal technological standard.

In every developing country, you can find hundreds of software engineers in their apartments working on mobile “Wallets.” In other words, there are too many competing mWallet solutions in the marketplace. More critically, the telecom carriers are getting mobile phones into the hands of just about everyone in just about every country, but established financial institutions are not current with new banking technology and are therefore, unable to capitalize on this dynamic new business channel.

So we shifted our business model again. Instead of competing with the various mWallets with our own mobile wallet, P2P provides the clearing and settlement BETWEEN all the various proprietary mWallets. Leveraging our peer-to-peer technology we became the central hub linking the many banks and THEIR proprietary mobile wallets to the trusted payment delivery agents to solve the looming inter-wallet communication nightmare ahead of time.”

What have you got to show me?

Tom: “This approach is getting traction, with projects in process in Africa, Asia and the Caribbean.

Through contacts in Africa, P2P was fortunate to find Morris Mwanga who was completing his Computer Science Master’s Degree in the US after spending three years building out the most widely used clearing and settlement system in Kenya. P2P leveraged Morris’ expertise to build a world-class clearing system that is capable of 100,000 transactions per second.

We have since added a universal mobile wallet that enables ANY retailer to set themselves up as an ATM location for cash delivery in almost any country without significant capital investment. We designed the architecture to be flexible and it turns out to be a perfect means to route any mobile payment using the new ISO 20022 standard promoted by SWIFT and their SWIFTRemit program.”

You said something intriguing earlier on, about established financial institutions not innovating enough with new banking technology. What can you bring to the table to help?

Tom: “we can combine our third-generation software design and mobile processing expertise with the reach of the SWIFT to over 10,000 of the world’s largest financial institutions. This a perfect marriage of technology and standards from which every financial institution can benefit.”

Your key message?

Tom: “Billions of individuals in developed and developing markets will greatly benefit from significantly lower money transfer costs and access to new financial services that mobile technology platforms can offer.  Financial institutions can see this as an opportunity to access a far wider customer audience with the ability to sell a broad range of new targeted products and services perfect for this new market. I hope P2P Cash can help in this endeavour.”

Good luck to P2P Cash!

Open Source Software For Risk Analytics – A Valid Option

I love writing about startups, and as we are reaching the finals of theInnotribe Startup Challenge at Sibos in Osaka, I dedicate an entry on this blog to each of the winners of the regional challenges.

Each one has a story to tell. As story of overcoming business difficulties, funding issues, dealing with personal hardship. A story of how passion, patience and perseverance have won over many obstacles.

So, here’s the story of OpenGamma, a startup focusing on financial risk analytics and which believes, as I profoundly do, that the open source approach to software is the most progressive and efficient approach in our hyper-connected world. I already wrote about open sourcing in the financial domain as a bold innovative move (see the story of Allevo). It is also the story of three entrepreneurs who have spotted an opportunity while working in financial institutions, and decided to do something about it.

OpenGamma was one of the winners of the Belfast regional showcase of the Innotribe Startup Challenge. We will thus see them, along with 14 other startups,  in the upcoming finals at Innotribe@Sibos in Osaka (29 Oct- 1 Nov, 2012), which promises to be amazing (register here to participate to Innotribe@Sibos). I’ve met Kirk Wylie, CEO of OpenGamma, and asked him to contribute his story and the story of OpenGamma for this blog.

Giving the floor to Kirk.

—

The idea of OpenGamma came from a need I noticed while working in the risk and front office technology for financial services firms.

My job was building generic infrastructures,  but infrastructure for which there wasn’t a viable commercial offering. With financial services firms looking for cost reductions in every part of their operations, it seemed absurd that most of their IT budget was spent on building and maintaining expensive in-house systems that didn’t hold any proprietary value to the company. Trading and risk analytics systems are plumbing; as long as it works you shouldn’t notice it

So why should every firm build their own from scratch? Why shouldn’t there be an open source solution out there available to all?

This thought triggedred an email to the other two co-founders, and the idea for OpenGamma was born. After the credit crunch, Jim Moores, Elaine McLeod and I set out to turn our vision of a single unified platform for analytics across financial services firms into reality. We were frustrated with the state of financial technology, and we wanted to change it.

“Is anyone going to buy this?”

In building our flagship product, the OpenGamma Platform, we’ve taken all the lessons that the combined team has learned working in hedge funds and investment banks, as well as pure tech firms outside financial services.

From the very beginning, we also dedicated a lot of time to grassroots market research. We met with people in technology, on the trading and risk desks, and in senior management, to talk about their experiences with analytics and risk technology. We wanted to build something that technologists would love to deploy, end users would love to use, and procurement departments would…well, accept.

When we got to the point where we had people willing to go on record saying “If you build what you say you’ll build, and you have the business model you say you will, we’d buy it”, we realised it was time to start building.

Defining open source

One of the most common questions we get is: “What do you mean by open source?” We use the term open source in its full sense: all code freely downloadable online, along with full documentation, user forums, bug tracking, and so on. There aren’t any catches here. To date, every component that we’re legally allowed to release under an Open Source license has been.

However, although our approach is radical in the industry, our goal was never just to build open source technology. We wanted to build the best platform for financial analytics and risk management possible. We’ve released it under an open source license because that’s what the market told us they want.

In the past, the industry has had three choices: buy a traditional, siloed trading system and spend years trying to get it to do what end users wanted; pay for an expensive, opaque external service; or build everything from scratch. With choices like that, it’s no wonder the preferred choice has been to build from scratch. Over and over. Within the same firm, across firms, developers keep building the same components because vendors haven’t given them what they need.

These traditional choices don’t work anymore.

Of course, open source software has often been championed as the low-cost option. While it’s by no means free, it allows firms to focus their IT effort on what’s specific to their trading strategies, which is perhaps only 10-15% of the overall technology stack. Allowing our clients to do this type of budget optimization has been one of our main goals in building OpenGamma.

When everyone knows what’s going on under the hood, users can feel confident in trusting the results that they get out of the system—and not just take a vendor’s word for it.

Investors with a shared vision

We knew what we wanted to build, but we also knew it was a massive undertaking. How would we actually finance it?

 

While I’m generally in favor of bootstrapped business models for most startups these days, we knew that we were building something far too large to be done in that fashion. The sheer scope of what we needed to present as a minimum viable product meant that we needed external capital to get started.

When I first moved to the UK in 2004, I’d met with Bruce Golden and Kevin Comolli of Accel Partners. In 2009, when we decided to launch, I knew they would be perfect partners in building OpenGamma. Accel believed in our vision, we raised a Series A round from them, and Bruce joined our board.

We’ve since raised two additional rounds: Series B, led by FirstMark Capital in 2010, and Series C in August 2012, led by ICAP plc. Without investors who share our vision of radical disruption in the quantitative finance market, there’s no way we would have been able to build a system as comprehensive as the OpenGamma Platform. 

We are now moving our first customers from evaluation into full production installations. This is perhaps our most important milestone to date: some of the largest, most sophisticated capital markets participants are using our technology to manage some of the most complex derivatives portfolios in the world. Having these companies as clients is the strongest possible indication that our software works.

As with any open source project, remaining independent, and truly open, is paramount to us. Customers greatly value the neutrality and transparency that open source players contribute to the industry. We need to continue being extra vigilant not to let them down.