Getting To The Point – Digital Payment Platforms For New Economies


Here is my keynote at the recent “Get to the point” payments conference in Auckland, New Zealand.

The subject is very close to my heart: digital financial services platforms that are scalable, secure and affordable for poor people – in one word, inclusive.

What are they, who do they serve, how to deploy them in countries such as Nigeria, Pakistan, India, Bangladesh and Indonesia? What are the barriers to their deployment? Who are the key stakeholders to work with? All these questions, and more, are answered in this 20 minute video. Included is a video clip envisioning a society empowered with digital financial services.

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The Digital Disruption Of Financial Services


I’m lucky to have a job where I have the opportunity to meet a lot of innovators in financial services and fin-tech. As a consequence I build up a sense of the state of the industry and the key trends ahead, and I love to share these insights on this blog.

Of course, I had the finger on the pulse of the fin-tech startup community in my Innotribe job in the last 4 years. Now, working for the Bill & Melinda Gates Foundation, I focus on building financial payment platforms for the poor people and thus meet a wide range of stakeholders – governments, banks and central banks, telcos, mobile money operators, technology giants and startups. I can tell it makes for a very wide perspective and I do spend considerable time thinking and integrating this rich input.

I love doodling as well, so when inspiration comes I take my iPad and my faithful Jot pen and I try to capture this in a drawing. Here’s the latest one – a cartoon depicting in a funny way what I think is the state of the consumer financial services industry.

Image

I’ve posted it on Twitter and it generated an incredible amount of interest, so I thought I’d share some more about the underlying thinking, and also some additional insights coming from the numerous comments on Twitter.

philip1 Well, optimist that I am, I really thought of my drawing as a cartoon, exaggerating a situation to make a point. Philip rightly points out that sometimes real life is itself an exaggeration!

jorge

Indeed, I don’t think someone will acquire a global bank with 2 trillion US dollars in its balance sheet. But the point is not about acquisition, it is about who will eat these bank’s lunch if they don’t pay attention. Telcos are tempted to provide financial accounts, even though it makes them getting into the murky (for them) waters of financial regulation. In fact, in my focus countries (Nigeria, Indonesia, India, Pakistan and Bangladesh), telcos are probably best placed to reach out to poor people in remote, rural areas.

By delivering financial accounts and person-to-person payments, telcos and other mobile money operators are developing the next generation of low cost payments platforms. My belief is that these new platform will simply prevail in the traditional financial system (often referred to as “the rails”) – why in the world would we continue to use more complex and costly variants? In other words, if banks don’t embrace these new recipes for lower cost rails, they will be in dire straits. The readers of my book (“The Castle And The Sandbox”) will recognise this argument – banks will need to step out of their established “castles” and innovate and experiment in “sandboxes” to understand and adopt these new platforms.

The bounty, the vision, is the volume that will be brought in the system by the 2,5 Billion people who are currently out of any financial system.

alexey

nacho

Agreed, the predators are everywhere. Just to prove the point that banks can indeed step out of the castle, Simple was recently acquired by BBVA. I knew this when I drew the cartoon, and voluntarily included Simple in the “startups” cloud, just to show that nothing is really simple in the fin-tech eco-system 🙂

benjamin

daniel

There is a show on French TV (“On n’est pas couché”) that used to start by introducing who is NOT invited to the show. Similarly, I’ve had a number of comments about who is not shown in the cartoon, and notably Paypal, Visa and MasterCard.

For me, the core business of these companies is really part of the current “rails”, so in my mind they are included in the “banks” cake in the cartoon. I know this is a big shortcut, and I can hear all the objections coming. But hey, as the author of the cartoon, I can choose who to invite in, right? 😉

More seriously, I do think Paypal, the card companies, and indeed many banks do have innovative products and services “on the rails”. If you are following my blog you know that I’m a big fan of Paypal for international payments.

Now, on to the “hot” topic!

philippe

tomasz

I hope Philippe will comment on this post and explain more. I love the way Tomasz has captured my meaning – “Bitcoin slowly but surely heats up the pan”. I’ve written here why I think Bitcoin is important for the fin-tech industry – in a nutshell it’s not about the Bitcoin currency (which may or may not become one of the trading currencies on par with the RMB or the USD) but about the bitcoin (lowercase) inspired technology: the bitcoin blockchain and its massively distributed architecture. I believe this architecture will influence how the financial transactions are performed in the future. I used the opportunity of this post to add Ripple to the cartoon – I’ve also written about how this company uses the bitcoin blockchain architecture to perform very low cost international money transfers.

gigi

Gigi has the last word on bitcoin – financial technology, all electrons that it is, needs to contribute, as all other industries, to the massive ecological problem we are facing as a civilisation.

daniele

sam

Danièle, Sam, and all the numerous others who have retweeted and favorited my tweets – many thanks for your kind words!

And I give the final word – pardon, picture – to Jorge. And Jorge please comment below and tell us more on your thinking!

jorge1

 

The Next Billion People


In the recent months, since I joined the Bill & Melinda Gates Foundation, the word “billion” has acquired a life of its own in my mind.

More than one billion people live in extreme poverty.

There are in excess of 2.5 billion people who have no access to a financial account.

More than half of the world population (more than 3.5 billion people) live in Asia (source: Washington Post).

population-map

By 2030 there will be billions of people who will have been lifted out of extreme poverty.

One percent of the U.S. budget is about $30 billion a year.

And more and more. The word “billion” keeps coming back in many conversations.

Sometimes it sounds ominous or daunting – what can we, what can I, do about these billions?

Most recently, in Bill and Melinda Gates Annual Letter 2014, the topic is more factual and optimistic – we should not be daunted by the task of helping these billions of poor people, and we should not be afraid of the billion-surpopulation.

You will know me as an optimist, and I whole heartedly subscribe to the positive view. In fact, I got thinking – what will  the next billion people bring to this planet?

The next billion people, in my opinion, will be connected people – connected to the internet and connected to each other and a billion devices. A great majority of them will still be poor, but they will be able to make a difference by being connected – they will have a voice they don’t have now. So they will make more of a difference than now.  My job is to help them make this difference.

Here is my attempt to describe this new generation.

BbjNjptCYAAzZiT

How do you think about the next billion people?

Imagining The Future With “Shift 2020”


I’m excited to announce my contribution to a new book project – shift 2020: How Technology Will Impact Our Future. It’s a self-published book curated by Rudy De Waele which includes foresights on how technology will impact our future from some of the world’s leading experts.

The idea of shift 2020 is based on Mobile Trends 2020, another collaborative project Rudy launched early 2010. It’s one of the highest viewed decks on Slideshare (in the Top 50 of All Time in Technology with +320k views). Reviewing the document a couple of weeks ago Rudy realised that many of the predictions were becoming dated, and asked the original contributors for an update on their original predictions and for new foresights for the year 2020.

Rudy broadened the scope of the new book and asked new contributors to give their vision and foresights on a number of additional topics, including 3D Printing, AI, Apps, Biotech, Cloud, Connected Living, Crowdfunding, Data, Education, Entrepreneurship, Enterprise, GreenTech, Health, Hyperconnectivity, Maker Movement, Media, Retail, Robotics, Sensors, Smart Cities, Social Media, Society, Surveillance, Transport and Wearables.

shift 2020 is designed by Louise Campbell, an award winning UX and design technology professional.

The book includes 80 pages of original content, featuring most of the original Mobile Trends 2020 contributors in addition to some 40 new contributions from around the world – prominent futurists, trend-predictors and industry leaders. There are also opportunities for companies to personalise the cover of the book with their name and logo.

shift 2020 includes quotes, paragraphs and essays from confirmed contributors, such as:

Neelie Kroes (VP of the European Commission), Douglas Rushkoff, Salim Ismael (Singularity University), Loic Le Meur (LeWeb), Shannon Spanhake (Innovation Officer San Francisco), Adeo Ressi (The Founder Institute), Boris Veldhuijzen (The Next Web), Saul Klein (Index Ventures), Aubrey de Grey, Sunny Bates (Kickstarter / Jawbone), Carlos Domingo (Telefonica Digital), David Rowan (Wired Magazine), Laurent Haug (Lift), Martin Recke (next), Will Page (Spotify), Scott Jenson (Google), Gerd Leonhard (The Futures Agency), Yuri Van Geest, Russell Buckley, Russ McGuire (Sprint), Kwame Ferreira (Kwamecorp), Delia Dumitrescu (Trendwatching.com), Georgie Benardete (Shopbeam), Hans-Holger Albrecht (Millicom), Tariq Krim (JoliCloud), Dr. James Canton, Andrew Hessel (Autodesk), Christian Lindholm (Korulab), Eze Vidra (Google Campus), Harald Neidhardt (MLOVE), Raina Kumra (Juggernaut). Robin Wauters (Tech.eu), Nicolas Nova, Gianfranco Chicco, Shaherose Charania (Women 2.0), Ken Banks, Marc Davis (Microsoft), Felix Petersen, Kelly Goto, Erik Hersman (Savannah Fund), David Risher (Worldreader), Glen Hiemstra (Futurist.com), Jessica Colaço (iHub), Mark Kanji (Apptivation), Rohit Talwar (Fast Future), Priya Prakash (Changify), Andrew Berglund (Geometry Global), Alan Moore, Martin Duval (Bluenove), Maarten Lens-FitzGerald (Layar), Andrew Bud (mBlox/MEF), Andy Abramson, Fabien Girardin, C. Enrique Ortiz, Raj Singh (Tempo AI), Inma Martinez, Robert Rice, Ajit Jaokar, Jonathan MacDonald, Tony Fish, Dan Applequist, Redg Snodgrass (Wearable World), David Wood, Mark A.M. Kramer (razorfish Healthware) , John Kieti (m:lab), Aape Pohjavirta, Kosta Peric, Blaise Aguera y Arcas (Microsoft) , Michael Breidenbruecker (Reality Jockey), Tricia Wang, Louisa Heinrich (Superhuman), Mike North (UC Berkeley), Mac-Jordan D. Degadjor, Kate Darling, Simon White, Chris Luomanen (Thing Tank), Ariane Van De Ven (Telefonica), Ed Maklouf (Siine), and many others.

The eBook version is now available and the printed books most likely in the new year. Check the shift2020 website for latest updates and additional information.

The Real Technological Revolution Is Yet To Occur In Financial Services


(adapted from my article in SWIFT’s Market Infrastructures Forum Magazine, published in September 2013)

Innovation is virtually synonymous with technology. In financial services, where digital technology pervades every aspect of the industry, this claim has achieved the status of a truism. But the real technological revolution has yet to occur in financial services. Technology has so far made it possible to accelerate the pace and volume of transactions, but it has not transformed the relationship between the industry and its customers in the same way as it has in, say, retailing, publishing, television and film, or popular music.

In other industries, the exponential increase in bandwidth, computing power and storage sizes is now combining with hyper-connectivity – namely, permanent connection to the Internet via smartphones and tablets – to transform the relationship between the providers of services and consumers of services. Erik Kruse, Networked Society Evangelist at Ericsson, borrows the phrase of MIT technologist Kevin Ashton to capture how the Internet is now linked to all aspects of the physical world: the “Internet of Things.”

The bar coding of items in shops is an obvious instance of this, but paying for those things by debit or credit card is another. Similarly, consumers now use Internet technology to obtain information, order goods, move money between accounts, purchase foreign currency, buy insurance, compare prices, and so on. Inevitably, this is having a profound effect on the behaviour of consumers. Industries which were primarily supply led (whatever they claimed to be) are becoming demand-led.

This is especially true of the next generation of consumers. The Internet is now more than 20 years old, which means that anyone under 40 has never known a social or working life without it. As a result, younger consumers come to the market with different expectations of service providers. Instead of technology being used to hold them captive, they expect service providers to use technology to empower them to determine not only how services will be provided, but what services  will provided.

That trend has implications for the financial market infrastructures that service the payments and securities industries. “Infrastructure-based models are at a big fork in the road,” says Andrew Davis, global head of e-commerce strategy and innovation at HSBC in Sydney. “Not only is the wave of change – shorter processing times, always-on connectivity, accumulation of data – requiring the providers of market infrastructure services to revamp platforms and open up their service offering, but the overall role and purpose of any ‘infrastructure layer’ needs to be re-defined and turned on its head.”

There are some obvious ways to redefine (and invert) market infrastructures, and some less than obvious ones too. An obvious opportunity is that the growing use of debit and credit cards creates scope for automated clearing houses (ACHs) to settle transactions between buyers and sellers in ways that are cheap for consumers but still profitable for banks, after taking account of capital as well as investment and processing costs.

In fact, in order to service the burgeoning opportunities in the global payments industry, a complex ecology has already emerged between ACHs, the real-time gross settlement systems (RTGS) run by central banks, a variety of batch payments processing systems, the multi-currency settlement system that manages inter-bank credit risk (CLS), messaging standards such as ISO 15022 and ISO 20022, and communications networks such as SWIFT. A high proportion of the payments processed through that complex ecology are generated by the securities industry, which has a networked eco-system of its own. It consists of stock exchanges and other trading facilities (where securities are traded between buyers and sellers), central counterparty clearing houses (or CCPs, which mitigate the credit risk between the parties to a securities trade), and central securities depositories (or CSDs, which manage the exchange of securities for cash).

The role which all of these market infrastructures have in common is that of intermediary: they are almost never the principal to a transaction, but instead stand between the buyer and the seller. It is in their nature to be in “the centre” of a transaction. Their intermediation aims always to reduce risk, accelerate processing, increase efficiency and enable transactions between financial institutions and their clients to be monitored.

An intermediary role also means market infrastructures link up a wide range of other intermediaries, and form links with each other. As “hubs” and “nodes” linking the different parts of a financial services industry heavily reliant on digital technology, market infrastructures are inevitably among the first institutions to be impacted by technological change. Their growing popularity with regulators is accentuating this effect, by forcing them to invest in technology that enables them to expand their range of duties.

Viewed from a strictly technological perspective, market infrastructures are applications that process transactions between participants in financial markets. From the point of view of those participants, market infrastructures appear as a number of applications available in the so-called “cloud.” These applications can be invoked either explicitly (for example, submitting a settlement order to a CSD) or implicitly (for example, a payment instruction is copied by the network provider to an RTGS for settlement and netting). The participants in market infrastructures play the role of the consumer in other industries. In fact, although they are intermediaries themselves, they are the consumers of market infrastructure services on behalf of their customers. And they are having effects on market infrastructures that are analogous to the effect that readers are having on the publishing industry, or viewers and listeners on the audio-visual industry.

First, financial market participants expect market infrastructures to use open, standardized application programming interfaces (APIs). These are the components that determine how digital components interact with each other, and consumers increasingly expect them to encounter no barriers to the combination of different applications at all. An obvious example of open APIs on the Internet is the way in which Google allows its maps application to be combined with and embedded in other applications.

Second, users expect market infrastructures to be able to establish their identity instantaneously, and so permit transactions to be processed without obstruction in real-time. With even one financial institution having multiple identities, which correspond to the various parts of its business, this challenge is far from straightforward. The authentication of a counterparty through standard digital identifiers (such as legal entity identifiers, or LEIs) without breach of confidentiality requires up-to-theminute data, processing power and impeccable authorization procedures.

Third, financial market participants expect market infrastructures to exchange information using international standards such as ISO 15022 and ISO 20022. These messaging standards now cover payments clearing and settlement, and pre- and post-trade clearing and settlement of securities transactions. Yet their adoption is still far from universal. If seamless and instantaneous exchanges of cash and securities are to be achieved, both consumers and market infrastructures need to adopt a common language.

Fourth, users expect market infrastructures to complete transactions in real-time, and on a gross basis. In other words, they are no longer satisfied by batch processing cycles, in which unsettled transactions accumulate for hours or days before being settled on a net basis. The modern user of a cash payments or securities settlement system expects transactions to be settled as they arise, and on an irrevocable basis, to eliminate counter-party exposure risk as soon as technologically possible.

Fifth, market infrastructures are increasingly expected to deliver data and reports to mobile devices, without any loss of security. Indeed, consumers no longer see mobile telephones and tablets as tools for the passive receipt of data. They expect to use them to initiate transactions, correct errors, and grant approvals. Consumers use their mobile devices in this way in their day-to-day lives, and expect the same degree of flexibility and convenience to be available at work, without confidentiality being compromised.

Sixth, client service can no longer be restricted to a help line or even a call centre whose operatives are online to answer the telephone within three rings. Users of market infrastructures are not interested in internal organizational matters of that kind. They are familiar with the use of social media in other aspects of their lives and business, and expect market infrastructures to equip them with online tools that enable them to find the cheapest or safest way of settling a transaction, monitor the status of a transaction, and to talk to them regularly via video and newsletters.

Seventh, market infrastructures are coming under increasing pressure from their users to add value to the data generated by their core operational processes. Knowing that a sum of cash has moved from one account to another, or that securities were safely delivered, will in future become the raw material of sophisticated business analytics services. In combination with data from other sources, it will enable users of market infrastructures to benchmark their operational performance against a peer group, identify bottlenecks and inefficient customers, and adapt their prices.

Market infrastructures need to embrace some or all of these trends. The question is how to do this. Importantly, investment in technology or revised processes is the least important response. All seven of the trends represent opportunities to innovate not within the market infrastructure as an application in itself, but at its edge. In other words, successful adaptation to the seven trends depends on changing how the application is accessed and used, not on changing what it actually does.

Altering access and use is obviously far riskier and more complex than investing iin a new technology platform. Collaborating with other organizations from inside and outside the market infrastructure industry enables experiments to take place without putting the core operations at risk of disruption. My own term for this is the “sandbox”, where innovations can be tested in a non-competitive and safe way.

One good candidate idea for the sandbox is a “cloud of applications” for market infrastructures, helping them adopt collectively the seven trends described earlier. In this view, market infrastructures would be able to subscribe to share applications to help them adopt and cope with the seven trends described above, but without the cost to understand and implement them themselves.

“Just the word itself, infrastructure, conjures up images of steel and concrete, heavy, immovable building blocks, which once put in place will last the test of time,” concludes Andrew Davis of HSBC. “But these characteristics are now the very reasons why they are at risk of becoming redundant. Infrastructure needs to claim a new space, to be a conduit for the design and delivery of new models and new services across an eco-system.

One could think of it like laying down a spider’s web, which can mould and shape itself to the environment: invisible to the untrained eye, flexible to accommodate change, whilst bringing strength and certainty to those that use it. That is both the challenge and the opportunity that lies ahead.

If Cash Is King, Then The King Is Dead!


These are the words of Vincent Kiyingi of Pride Microfinance in Uganda.

Vincent is featured in a short movie produced by Ericsson, titled “On The Money”. I have the privilege to be a contributor to the movie too. You can watch it on YouTube.

The movie shows deep disruptions to the real world brought by the parallel, networked digital world. It talks about different ways the technology is changing us – digital money (rather than cash), crowd sourcing as a way of investing (rather than the traditional exchanges), online value and trust and reputation (based on social network connections rather than real world credit ratings).

(the rest of this post can be read on my @gatesfoundation Impatient Optimist blog)

Trust On The Internet – The Solution Is Ahead


There is a need for a user-centric identity, privacy and trust on the internet, to power the digital economy. It’s a major issue, and a solution that relies on crowd-sourcing is being proposed by Respect Network.

Let’s first look at how trust works in the real world “brick & mortar” economy, then understand the issues with trust on the internet, and finally the Respect Network solution.

Trust and the “brick & mortar” economy

How do you ascertain of the identity of somebody? For example, when signing a contract? Or making sure somebody has the legal age to transact?

You will probably rely on some form of government or bank issued credentials – an identity card, a passport, a driver’s licence, a debit card, or something that an institution you trust (the local public library for example) has issued.  And, for sure,  you will attach varying degrees of trust to each of these tokens of identity. A debit card, with its pin, is a good proxy  in many day-to-day financial transactions. A passport is probably the token you will trust most in travel or real estate transactions.

Furthermore, once someone’s identity is clear, how do you establish whether you can trust him to perform the agreed action – such as paying the bill, delivering the goods, etc? In the real world, this is one’s reputation – is she paying regularly her bills? Is the company you’re dealing with healthy and reputable?  There are many possible ways to establish trust, going from personal opinions to rating agencies.

Trust and the open internet

Let’s now look at the online world. One immediate and major difference is that the online world is, by design, global. The person you are dealing with may be in your neighbourhood or may be on the other side of the planet. Establishing the identity, and the associated trust, is made very difficult because there are no central and inter-operable agencies or bodies, as we have in the real world.

A good example of this is the eBay reputation.  As a regular user of eBay, I’m very conscious of my reputation there. On eBay, one’s reputation is gradually built by the people one transacts with. Buyers will hopefully recognise a good seller (goods corresponding to description, fast shipping) or sellers will recognise  a good buyer (fast payment). In my case, the reputation of a seller of something I’m interested in is a key factor on whether I will bid for the item or not.

In other words, the eBay reputation is an asset with a lot of value, even if is not expressed in monetary terms. This is fine if you only deal with eBay. However, looking at this more broadly brings the following issues –

– there is no inter-operability. The eBay reputations is not something that can be easily used on, say, Amazon.com. So, people have to build these relationships all over again in many contexts. It’s the same with Twitter and Google+. When Google+ launched, many people went through the pain of re-building their Twitter relationships on Google+. Many people didn’t bother, as it can be a lot of work and time to do that.

– there is a potential lack of privacy. Indeed your assets end up residing in many places, and the more places, the more risk there is for these assets to be compromised.

– there is a lack of control and there is a missed opportunity. What do the companies that store you assets do with them?  Some of them are actively selling your assets for various commercial purposes, and, as far as I know, you as the owner never see any of that money.

The digital economy and the Respect Network

So, how can we establish trust on the internet? This is where Respect Network comes in.  It is a little bit of a complex construction of organisations and companies. Below is an overview, and why this is interesting for Innotribe and me.

Trust on the internet is the focus of OIX  (Open Identity Exchange),  a non-profit company organization founded by Google, Paypal, AT&T and others. Their business is to establish, standardise and manage “trust frameworks” – legal, business and social rules that enables parties unknown to each other to trust their respective digital identities. The trust frameworks are designed to be public, standardised and inter-operable, so that people and companies can play various roles in the framework and still manage trusted relationships.

Among the three trust frameworks currently available, an intriguing one is the “Respect Trust Framework”. The idea of this framework is to not only establish a digital identity, but also to provide individuals control over ownership and sharing of their data on the internet. The key to the framework is the use of a crowd-sourced, peer-to-peer reputation system. It’s really very simple – people can vouch for you (for example, say “I vouch for John Smith’s innovativeness”), or complain about you (“I complain about John Smith’s stubbornness”). Similarly to eBay’s reputation system, the peer-to-peer reputation system grows over time, and the more vouches and complaints about a particular person, the more precise the information is and therefore the trust level in this person increases or decreases.

Respect Network  is a project run by Respect Network Corporation and which uses OIX’s Respect Trust Framework to implement the first trusted personal data network. Notable partners include Neustar and Swisscom, and Innotribe is involved.

Users of this network own their data (unlike centralised social networks such as Facebook and eBay). Users then establish secure channels between their personal data clouds, under very strong privacy and security rules. All the software and protocols uses are open to encourage inter-operability and to prevent any single company taking control.

Respect Network also establishes a crowd-sourced peer-to-peer reputation system, implemented through a service called Connect.me (Connect.me is in private beta now and will be launched soon. You can request access on theconnect.me website).

The architects of the Respect Network include an impressive number of people, among which Drummond Reed (who is also a co-founder of connect.me), Doc Searls, Craig Burton, Phil Windley who I have all met at Innotribe events and respect enormously.

The peer-to-peer reputation network establishes naturally a chain of trust. The chains begin with a number of known people, called Founding Trust Anchors, who provide credibility. These are people whose identity is publicly verifiable – members of the Internet identity, security, and privacy communities who believe in the power of a peer-to-peer, socially-verified reputation network. Others are early users of the Connect.Me private beta. Others still (you?) will emerge over time.

Peter Vander Auwera of the Inntoribe team and I have been extensively involved over the last couple years with many of the above companies, organisations and people. Peter and I have the honour to have been elected Distinguished Trust Anchors – nominated by other people and trust anchors as individuals that “exemplify the spirit and principles of the Respect Trust Network”.  Proud to be in such company!

Peter’s and my readers will also probably recognise that many of the above concepts and components are part of Innotribe’s Digital Asset Grid project. The information on this project is now in the public domain.