If Bitcoin becomes “too big to fail”, who will be at the rescue table?

Posted on August 20, 2014 by Charmaine Oak

As we continue to experience regular occurrences of Bitcoin volatility, I wonder if and when Bitcoin might become too big too fail. As it continues to go mainstream if its Achilles Heel of Volatility gets further exposed, and the worst happens, who will care? If we visualise the rescue meeting, who is likely to accept a seat at the table?

Bitcoin, together with Altcoins and alternative currencies continues to excite interest across multiple segments around the world. In spite of warnings from CFPB, FATF, EBA and other regulators, news of Bitcoin related conquests continue to come thick and fast.

One thing that experts seem to agree about is that this is not going away any time soon. But as the movement gathers momentum and becomes increasingly entwined with mainstream ecosystems, a lot more businesses and consumers could potentially stand to lose if the services were to fail.

Reportedly Bitcoin is making strides in Australia. Living Room of Satoshi reports that Australian residents have paid $150,000 toward BPAY-enabled utility bills, electricity bills, school fees and tax payments through their service. BPAY is an important bill-payment system in Australia and supports innovative ways to pay through digital banking, QR Codes and more.

Bitcoin bill payments is also happening in Canada, and elsewhere in the world too, Bitcoin is becoming a part of everyday life. Overstock plans to launch International Bitcoin Payments on September 1st. Yet, more bill payment and more retail payment may not necessarily translate to Happy Days. Retailers need fiat currency, and the more the mainstream services, the more the potential exposure to currency quirks.

As prices declined this week, and Bitcoin experienced one of the most volatile periods this year, reportedly going into a 38% free fall in some areas yesterday, I wonder whether the industry is already showing signs of age. Still in the first flush of growth, the industry must nevertheless go through all the growth phases of its predecessors, however different they may seem. But when teenage angst gives way to middle age worries, who will take care of Bitcoin?

Studying trends in Digital Money as we do, it seems as if each wave of new entrants and services seems indomitable at first, but may be brought down by some of the very factors that at first made it successful. Mobile money services can find it hard to support the very high volume low value transactions that are their reason for being. Money transfer operators feel the heavy burden of compliance due to the highly specialised nature of their business and their sprawling agent networks that made them successful for so long. And we all know what happens when banks become too big to fail: every one gets roped in to take care of them. But more importantly processes exist for detection and correction in these industries, and remedial action can proceed along well understood lines.

As the Cryptocurrency industry enters it’s sixth year, some of the processes have already been streamlined for efficiency. However this very maturity is exposing its Achilles heel of Volatility in new ways. The fact that it is possible to attack a pool more easily than the same number of independent miners, for instance, raises new possibilities for attacks as we saw recently. At the start of the month one hacker was revealed to have stolen $83,000 over four months by targeting a mining pool and using a vulnerability in the border gateway protocol.

A number of incidents, such as Mt. Gox have brought home the vulnerabilities of doing business involving Bitcoin. When traditional businesses fail, there are fall backs typically at the country or economic zone level. If the industry is to grow out of adolescence is it possible to put trusted guardians and a protection mechanism in place?

Cui Bono? Although it is clear that everyone stands to benefit from their being such a mechanism, it is not clear who stands to benefit from being such a mechanism.

Yet this will be vital for when cryptocentric systemically critical services such as Bitcoin need to be stabilised or bailed out. Otherwise the knock-on effect to other parts of the ecosystem will increasingly translate the shock onward, not just to Litecoin, Darkcoin and other cryptocurrencies as recently happened, but even to external entities that may seem totally disconnected at present.

What is Trade Based Money Laundering (TBML) and how it impacts India

Posted on August 4, 2014 by Charmaine Oak

Can India step up action on TBML? Considering the crying need for India to profitably export to support the needs of her vast population, cleaning up this area could be a huge win but involves a fine balancing act.

The Reserve Bank of India (RBI) has just been notified by the Directorate of Revenue Intelligence (DRI) of a high incidence of Trade-based money laundering (TBML) being used by Indians to get remittances into accounts in Hong Kong.

With the change of government in India, I hope we will hear more about this shortly and so thought it worth reflecting a little on TBML and where it fits within overall Money laundering (ML) scenarios.

TBML is defined by FATF as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins. While a lot of attention was on use of the financial system and cash movement, TBML received little attention until in 2006 FATF announced results of their Trade Based Money Laundering study.

They found that global trade in goods and services exceeded US $11 trillion a year. This offers fertile ground for tax evasion. By over or under-invoicing imports and exports, companies and their affiliates in low-tax and high-tax jurisdictions use tailored transfer prices to shift company profits and thus reduce worldwide tax payments. Some of this also represents capital flight, where currency restrictions are circumvented by pricing of imports and exports.

However while these two practices may involve legitimate funds, TBML is even more concerning, as it involves proceeds of crime.

It took 6 years more for the Asia/Pacific Group on Money Laundering (APG) to bring out their report, that investigated why so few cases of TBML were being detected in spite of expectedly serious incidence in the region.

Most customs agencies inspect less than 5% of cargo shipments entering or leaving their jurisdictions. Further, they tend to monitor exports less than imports. Consequently under-invoicing exports is a classic TBML ploy. What DRI would have detected would include cases of Indian exporters shipping a higher value of goods and services, with part payment received in India, and the balance deposited into a bank account, in this case in Hong Kong.

Money-laundering (ML) is typically carried out in three stages. Firstly, in the Placement stage, ‘dirty’ cash is placed into the financial system. Multiple smurfs (individuals or businesses) are used to repay loans, manage gambling scenarios, smuggle currency and blend funds into legitimate business.

Secondly, in the Layering stage, an attempt is made to move funds electronically, often between countries, in an attempt to obscure the source and links to the original misdeeds that are associated with the funds.

Thirdly, in the Integration stage the criminal receives possession of the funds from apparently legitimate sources. This could be done by buying property, cars, paintings and other high-valued items.

The cases that were highlighted in the FATF and APG surveys illustrate how placement, layering and integration take place through TBML. Case 7, a particularly complex one provided by India involved multiple ways in which trade was misused, with Dubai-based Indian national “A” laundering funds for drug cartels in Asia and South America.

FIGURE: A Case Study provided by India in the 2012 APG Report illustrates a complex case of TBML

Mr A established companies such as A1, A2 and A3 spread across Europe, Asia, Africa and USA. In Dubai Letters of Credit (LCs) were opened by these companies for importers such as I1, I2 and I3 in Dubai. Beneficiaries of the LCs were exporters such as E1, E2 and E3. By creating LCs for amounts much higher than the value of the goods, drug money lying with A was remitted to India. All that remained then was to integrate the funds – Exporters E1, E2 and E3 kept the price of the goods and transferred the surplus to R1, R2 and R3, family members of A in different parts of the world.

This case study helps in visualising the kinds of cases DRI must have highlighted to RBI. Considering the crying need for India to profitably export to support the needs of her vast population, cleaning up this area could be a huge win but involves a fine balancing act. Export has already been a highly controlled area for more years than I can remember. This already dissuades genuine small exporters. So I believe this is likely to be more a case of appropriate action than awareness. I look forward to more on this announcement, sooner rather than later.

A word about the format of The Digital Money Game

Posted on July 31, 2014 by Charmaine Oak

Thanks very much for your kind support and interest in The Digital Money Game. I am deeply touched.

A number of you have asked whether you could have a printed copy. I wanted to explain why we chose to publish an e-book, how to get it no matter where you are worldwide, and how to use it and get updates.

First of all I do strongly empathize with your sentiments. I myself love to have a physical book to hand. But…

I could hardly write a book that advocates the ‘7C’s of digital money and then ignore those when publishing the book. That would be inconsistent.
I want the book to be available at a price point that is accessible to everyone across the world as I want this to be a resource that people pick up when they are making life choices about their career.
I want to be able to update it frequently as this is such a fast changing space, and have the new version made available to existing customers. So don’t be surprised when you get an e-mail from Amazon notifying you that an update is available. It is FREE and all you will need to do is enable updates on your reader.
And most important of all, I had to get it out fast to every part of the world. That is where Amazon Kindle really comes into its own. You should be able to download it in minutes, no matter where you are.

You do not need to have a Kindle device. Just download the free Kindle reading app. The Kindle for PC supports you in reading the book on your computer.

Some of you felt that they were unable to buy on Amazon. I have received an assurance from the Amazon team that customers living in countries without a localized Amazon website can order it on www.amazon.com. No matter where you are it should be accessible to you.

When you get to Amazon, if it says “Pricing information not available” , please look to the right of the page. You should see a box similar to the one below. This will direct you to the appropriate website for you.

We are not ruling out the possibility of offering printed copies. Once we have a few more books in the series out, if there is sufficient demand and we can find a way of making it affordable we shall certainly consider this.

Meanwhile thanks again, and please don’t hesitate to write to me or drop us an email at contact@shiftthought.com in case you have any questions. I hope you enjoy the book and greatly look forward to your feedback.

We will discuss your questions and feedback at The Digital Money Group on LinkedIn and you are all very welcome to join us there.

For background on this post please see Why I wrote The Digital Money Game.

Why I wrote The Digital Money Game

Posted on July 28, 2014 by Charmaine Oak

Thanks for the outpouring of support to me, on the publishing of my first book, The Digital Money Game, now available on Amazon sites around the world. After I last shared about it, A number of you asked me what made me want to write this book, so I’d like to say a bit about this today.

When I strayed into the world of payments, after being in Telecoms for many years, it opened my eyes to so many new possibilities. This was around 2005 and it seemed to be a no-brainer for a telecoms operator to build new revenue streams from payments.

This proved elusive though. Firstly it was a personal challenge to try to understand so many new areas all at once, and then be able to position the business case to top management in a way that communicated both opportunities and risks. All of us had spent our lives in Telecoms, IT and non-Payments functions, and we had to rapidly understand Payments, E-Money, Regulations, Prepaid, Cash Networks and all this across multiple geographies.

Regulations did not help. At the time I blamed myself, thinking there was something more I could do. Ten years later, having worked with a world leading bank and the largest money transfer operator in the world, I got to understand regulations so much better. Now I KNOW there was little else I could do: One depends on regulators, who themselves have such a difficult time coping with the large number of changes, with a heavy burden of responsibility on their shoulders.

The truth is, this is all new. We are all learning. But that doesn’t take away the stress of not knowing, as so many of you across the world would agree! I wish I had had someone to tell me what was happening, how it would affect me and what I needed to know to stay ahead. I wanted practical cases I could learn from, and reassurance that this was an exciting space to build a new career.

This is my chance to make that wish a reality for others, by sharing the lessons I learnt and offering some tips from over 10 years I have spent launching services of the different kinds discussed in this book. I hope it will help you in some small way, to reinforce decisions you have to make, to help you to put your case forward to management and most of all to feel good about yourself and what you are achieving in this highly competitive and changing space.

I would love to hear your feedback. Did this book help you? What further questions did it raise?

Click here to go to the Amazon site. To your right you will see a green panel suggesting the most convenient online store for you. Do let me know if you face any difficulty getting access.

The Digital Money Game– a multi-trillion dollar industry emerges

Posted on July 25, 2014 by Charmaine Oak

I have great pleasure in announcing the launch of my new book, The Digital Money Game. I describe the multi-trillion dollar emerging industry I term “Digital Money” from the perspective of very many different industries. It is not just meant for payment experts in large organisations, but for anyone who wants to understand how people pay, and how this is changing in each part of the world.

The penetration of mobile phones and smartphones is transforming the way in which consumers interact with brands and greatly facilitates a move towards non-cash payments around the world. To play the game properly though, one needs to understand the changes in a much wider set of fundamentals - identity, security, authentication, regulations, technologies and more, so as to create appropriate vision that goes across channels, services and market segments. That way you have a more effective roadmap with respect to new entrants, and a better chance that what you plan now will still be relevant when your projects go live. I share more about why I wrote The Digital Money Game here.

The book is based on Shift Thought research in markets around the world, and my interviews with experts from all the different industries that now participate in payments and financial services. I did my first set of interviews in July 2011. Four years later, the wisdom that they, and countless others shared with me has helped to shape this book. This is the first book in The Digital Money Series and we are currently working on others in the series.

Since then I have learnt so much from so many conversations that unfortunately it is impossible to thank each one of you by name – I hope you will recognize your contributions when you read the book!

The book is designed to help you to spot opportunities and gain confidence and insights to channel your work in a way that benefits you, and the markets you serve. It addresses multiple functional areas and levels: Chief Executives, Technologists, Business Development, Market Development and Product Development executives from Banking, Cards, Money Transfer, Telecoms, Payments, Technology, Retail, and Venture Financing Industries.

The digital money approach described in this book can help you create products and services that are secure, convenient and empowering to a whole range of consumers and merchants, across a variety of channels. The goal is to create a shift in thinking – from merely addressing the new opportunity provided by mobile phones, to launching holistic services that build solid brands.

My book is available on Amazon stores around the world, priced in local currency and immediately accessible as an Amazon Kindle download that works across Kindle for PC and a host of commonly used devices. In case it says “Pricing information not available” just look to the right of the screen to select the Amazon site in your country.

In the first 2 days that the book has been available I am delighted to say that it has already been bought from many countries around the world. Thank you so very much for your support and kind words.

Have you bought my book? I would love to have your feedback and can direct you to further resources that may be of interest. Do drop me a line at contact@shiftthought.com.

The Swiss say yes to Bitcoin

Posted on July 12, 2014 by Dr. Neeraj Oak

Following on from our webinar about Bitcoin in Switzerland, there’s been some movement in the Swiss Bitcoin space. The Swiss regulatory authority, FINMA, has chosen to authorize SBEX, the Swiss Bitcoin Exchange. SBEX, founded in February 2014, operates an offline brokerage service for buying and selling Bitcoins, but has ambitions to expand its service to include an online brokerage and an extensive network of Bitcoin ATMs.

As a result of FINMA’s ruling, Bitcoin transactions can now be considered to be a payment, and deposits of Bitcoin can be considered as bank deposits. It is, in a sense, fitting that Switzerland should be an early mover in regulating Bitcoin; its reputation as a safe but confidential banker to the world will add credence to Swiss Bitcoin brokers and may spur other governments to make similar moves.

However, Switzerland must be careful not to allow exchanges such as SBEX to self-regulate too freely. Should such services be found to have enabled illegal or undesirable transactions, the fallout could cause problems for Swiss foreign relations, especially in the wake of recent tensions over tax evasion.

On a related note, the European Banking Authority (EBA) have issued an official opinion document on virtual currencies (VCs). In terms of regulatory advice, the EBA takes a cautious line, encouraging long term legislation and a short term avoidance strategy. The EBA wishes to shield currently regulated financial services from VCs until legislation and governance experience can catch up with the strides made by the new technology.

In the meantime, the obligation for legal requirements such as the EU Anti-Money Laundering Directive should, in the opinion of the EBA, be put on the operators at the interface of conventional and virtual currencies. In other words, brokers such as SBEX. It’s clear that European and Swiss regulators are trying their best to balance the risk of virtual currency with the potential reward it could hold. This is especially true for the Swiss, who could potentially find their vital financial services sector bypassed by these new technologies.

The opinion document by the EBA takes a classic ‘wait-and-see’ approach, mirrored by the earlier report of the Swiss Federal Council, which decided not to propose new statutory provisions. The reasons given were that ‘virtual currencies like Bitcoin are of only marginal economic significance and are not in a legal vacuum’. We certainly agree with the former for the moment, but the latter reason is a bit more nuanced. The Federal council also assert that ‘virtual currencies carry substantial risks of loss and abuse for users’.

What we’d be interested to know about is the specific legislation they might consider in future. But this might yet take a great deal of time and debate to emerge.

From smartphones to super wallets: how a new breed of applications is changing mobile banking

Posted on July 10, 2014 by Charmaine Oak

This is an interesting time in the development of the digital payments market in Poland. The leading banks are collaborating to launch mobile payment services that potentially bypass the card schemes, allowing consumers to pay directly from their bank accounts. As a follow on from our previous blog, Transforming the way people pay in Poland Charmaine Oak interviewed Tomasz Krajewski, Head of mCommerce at eLeader. SuperWallet claims to be the first wallet to combine mobile banking, mobile payments and mobile commerce services. Tomasz shares his thoughts on the Polish payments market, as well as other markets in which eLeader has been active.

CO: Tomasz, thanks for taking the time to share with us your thoughts on the development of mobile commerce, in Poland and elsewhere in the world. To start with, could you kindly give us a short introduction on the achievements of eLeader. In which markets do you now operate, and who are your main customers?

TT: eLeader is a leading mobile software company, with experience that dates back to the origins of the smartphone industry. Our services are used in over 70 countries worldwide and clients include Grupo Santander, Unicredit Group, mBank, Danske Bank, Raiffeisen, the National Bank of Kuwait and Orange/T-Mobile.

Our innovations have allowed us to achieve a number of awards and high ranks in industry reports, including a mention in the Top worldwide mobile banking vendors report (Juniper Research, 2012), Technology Fast 50 CE (Deloitte, 2008) and the Top technology companies in Europe (Red Herring, 2013).

CO: How has eLeader gained such a leadership position in Mobile Banking?

TT: You can say that going against the current is in eLeader’s DNA. We launched in 2000 with mobile solutions to support employees to work remotely, from outside the office. In those days in Lublin, where we are based, few people had even heard about smartphones, and many felt that this was a crazy idea. And perhaps so it was, but the product was a total success.

We started to invest into mobile banking in 2006 and that was the time when people were speaking about the brilliant future of WAP protocol, forgotten today. Back then, few had heard of smartphones. The iPhone and Android had not yet made a mark. Nokia had a dominant position in the market. At that time, we believed that native apps would be the future of mobility also in the banking industry.

Our first mobile banking platform was revealed in 2007 and it was based on native apps for 3 platforms: Symbian, BlackBerry and Pocket PC. As far as we can tell, ours could well have been a world first solution, with native apps individually designed for all the major OS platforms, accounting for over 95% of the smartphone market.

Raiffeisen Bank became our first customer in Poland. I remember meeting with the President of the bank. Instead of showing a slide deck, our CEO, Dobromir Piekarski, handed him a Nokia smartphone with our banking app – without any instructions. He played with the app in silence and just asked a simple question: How much? After a negotiation of just one minute they shook hands on it. The legend is that this could have been one of the fastest decisions in the banking industry, ever!

CO: What were some of the challenges you encountered on the way?

TT: The biggest challenge was our first implementation. As mentioned earlier, we started at a time when the mobile banking industry was in its infancy. There was a lack of best practices and useful benchmarks. We had to convince the clients to use our solution, without any projects in the portfolio, armed only with cold calling. Can you imagine what that was like?

We had to design a new concept of application interface, UX and security measures.

Most banks were generally skeptical about native apps at that time; many said that we are going in the wrong direction. Fortunately very soon the iPhone changed the whole industry and attitudes to mobile apps. Native apps went main-stream, and became the norm.

Another milestone was reached when we entered foreign markets. By that time we had something to show in our portfolio, but still needed to prove that an unknown Polish company was able to make great applications and that too without any branches in the client’s country.

CO: In what way is Innovation in mobile banking held back by compliance requirements?

TT: Did you know that when the financial crisis came to Poland none of the banks have announced bankruptcy?It seems that none of them have even been in danger of such a situation.

To some extent this is thanks to Polish banking supervision which is very strict in terms of control. However, on the other hand regulations are so far-reaching that they do not allow banks to overstep clearly defined and legally imposed limits. This extends also to the sphere of innovation. You can say that from the regulator point of view, banking is for banks, and deviations from this principle are not allowed.

For instance, take the most used mobile banking functionality – checking one’s bank account balance. Because this is considered disclosure under banking secrecy, bank should require that the user authenticates before gaining access to balance information. Some of banks will ask you to login. Other banks will show you only the percentage of funds left in your account. There is also a bank which lets users choose which of the options would suit them best. You may say this is not a big innovation, but it clearly shows that users want the simplest solutions possible.

Non-bank start-ups are not subject to banking regulations, which is undoubtedly their competitive advantage in the market.

CO: In what areas do you see mobile security improving over the next 3 years?

TT: The trend to watch is certainly biometrics. My voice will be my password to mobile banking. Gartner predicts 30% of organizations will use biometric authentication on mobile in 2016 so this is worth watching.

CO: What has caused the Polish market to develop more rapidly than some other European markets in recent years?

TT: Polish people don’t use checks, and we never did. When in the 90s Poland entered capitalism after the communist era, emerging banking industry implemented only the newest IT solutions, leap frogging the old payment systems. This is one of the reasons why today we lead in contactless payments globally, and can transfer money from one bank to another in just 30 seconds, thanks to the Elixir Express standard.

Contactless penetration in Poland is higher than anywhere else in Europe or the Americas. This is largely because Visa and MasterCard have invested to subsidize contactless readers, so as to transform Poland into a showcase market for contactless payments. We are at the forefront not just in penetration of cards with a contactless function (20 million, 57.7% of all cards on the market) but also in number of POS accepting contactless payments (in the fourth quarter of 2013 this was already 170 thousand, or 52.1% of all the devices on the market).

Other important favorable factors for Poland include the high mobile and internet penetration, the highly educated society and our continued economic growth. According to Person’s ranking our education is ranked 10th in the world and the last time we had a recession was at the beginning of the XXIII century.

CO: How does eLeader expect to continue to play a leadership role in Europe, and elsewhere?

TT: The year 2014 is critical for us, as it is the time for us to launch the new mobile solutions that we have developed through our focused Research & Development over the last few years.

The product we are now introducing to the market is the SuperWallet. It is a combination of m-banking, m-commerce and m-payments. The biggest innovation of these is our embedded in-app commerce services. These services allow users to, for instance purchase public transport tickets, shop for groceries with home delivery, pay for cinema tickets, order taxis and pizzas or book flights.

Our aim is to transform mobile banking into the first choice financial app for smartphone users by supporting them to perform all their daily activities. Recent SAS studies point out that, above all, users perceive mobile wallets as a way to buy goods online, pay bills and check bank accounts. All of these and much more can be achieved by one SuperWallet app.

Together with an ecosystem of integrated merchants, the SuperWallet is offered as a white label solution for banks in a PaaS (Payments as a Service) model.

This has already been successfully deployed by the biggest Santander Group bank in the CEE region, Bank Zachodni WBK, and is gaining popularity among its users. Because the SuperWallet has very flexible architecture and a wide array of capabilities, we are greatly excited to see how it will be used by banks from outside the CEE region.

I believe that the SuperWallet is at the cusp of an emerging market trend. Solutions that are similar but limited to in-app purchases can be found in ICICI Bank and PrivatBank offers.

CO: Tomasz, thanks for your time today!

This has been incredibly informative, and provided us with interesting insights into the payments scene in Poland. Above all, what you have achieved at eLeader is most inspiring and I take this opportunity to wish you the best of success with your plans for the SuperWallet and beyond.

Tomasz Krajewski is Head of mCommerce/Superwallet at eLeader. He is responsible for development of SuperWallet, which claims to be the first wallet to combine mobile banking, mobile payments and mobile commerce services, thus adding value to mobile banking. The first SuperWallet was deployed in November 2013 in BZ WBK (the biggest bank of Santander Group in CEE). eLeader is one of the world's top mobile innovators in the smartphone business software market, used by global and national companies in over 70 countries worldwide.

Nurturing Mobile Money ecosystems to scale

Posted on June 24, 2014 by Charmaine Oak

For a service to reach scale one needs to create a healthy ecosystem in which all the key stakeholders can thrive. While it is vitally important that consumers get services at the right price, we should not lose sight of the requirements across the entire ecosystem.

While mobile money ecosystems have grown and reached scale in many African countries, the model has proved hard to replicate outside of Africa. Indeed, for a while it was hard to get the model to work beyond M-Pesa in Kenya. This month I took stock on the services we monitor on the Shift Thought knowledge base, and I depict below some of the key services now available in Africa.

As of today the GSMA registers over 242 deployments, with over 13 deployments having more than a million active accounts.

In “Can Mobile Money be 'Free'?” the last of an excellent series of posts of business models for mobile money, CGAP authors Kabir Kumar and Toru Mino discuss whether and how mobile money can be “free”. They argue that “free” could lead to greater profits as offering everyday transactions could drive adoption. Indirect benefits of mobile money – cost savings on airtime or retained ARPU from churn reduction — become significant drivers of profitability only at greater levels of adoption.

Unfortunately as every mobile operator in a country offers their own service, the argument regarding churn (customers changing operator) tends to lose it’s charm. We get a different perspective from GSMA in their “Insights into mobile money agent networks” . That report quotes a manager of a successful mobile money service :

“If I could have done just one thing differently,

I would have gone to market with higher tariffs”

As substantial amounts move through mobile money platforms, another key stakeholder, the government, starts to be concerned about what providers charge. In Uganda with an estimated 5 million active mobile money users, people opting for bank accounts continues to drop. The Uganda Revenue Authority (URA) continues it’s campaign to get more mobile money agents to register and pay tax (See: Mobile money agents set to enter tax net).

As more of the money flows through the new systems, the expectation of taxes from these systems begins to move higher on the agenda. Indeed there have been cases in the recent past where governments have intervened as price wars reached a crescendo, in one case actually forbidding a provider from pricing that involved scrapping certain fees.

In my view it is critical that such timely interventions do take place to help to maintain the balance in these ecosystems. This week a survey by MicroSave and The Helix Institute of Digital Finance reports that Kenyan agents are finding it hard to survive, with 17% not profitable, and close to half anticipating to exit the business, in this, the largest mobile money market in the world today.

If prices are to remain low enough to keep the services accessible, yet high enough to sustain agents and keep the systems secure and scalable, we at Shift Thought see only one real way forward. That is to introduce shared processes, services and infrastructure, certainly within the countries but also across countries. We see other such models developing in markets we’ve recently studied, and visualise rich possibilities from interoperability. We therefore welcome the GSMA Interoperability initiative in which over 9 high profile telecoms companies already participate. The signing of the first interoperability agreement between Tigo, Airtel and Zantel in Tanzania this month opens the possibility of further co-operation, that we hope will help to create equations that add up for every major stakeholder, as only then can these systems thrive and grow.

Come join us on the new Digital Money Group on Linked In where we regularly share the latest Shift Thought research. We welcome all our readers to post interesting discussions, to make payments “come alive” for all of us.

A digital wallet-fuelled disruptive model disrupts London traffic

Posted on June 24, 2014 by Charmaine Oak

Around the world the way people pay for travel is changing as people pay without pulling out a wallet. But does this work for everyone? In London this month chaos reigned as the London black cabs protested over the Uber app. This app works so well for passengers and for the new breed of private vehicles that use it that it cuts to the heart of the London back cab model, a business model that dates back to 1834. Although incumbents know that change is on the cards, it is not always easy to adjust.

London, UK – June the 11th 2014. The height of the tourist season in historic London. But I’m glad I was not out on the town that day. Here is what tourists generally enjoy.

By Arriva436 (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

Sadly this picture of tourist heaven was rudely shattered when the black cabs went on strike. Who were they protesting against and what were they protesting about? Why did they have to strike to get their voices heard?

Horses disrupted

Back in 1834, London black cabs themselves disrupted horse drawn carriages, the first hackney-carriage licenses that date back to 1662. UK regulations define a hackney carriage as a taxicab allowed to ply the streets looking for passengers to pick up. The Uber app targets their competitors, the private hire vehicles (sometimes called minicabs), which may pick up only passengers who have previously booked or who visit the taxi operator's office.

The coming of the digital wallet

At Shift Thought we term 2011 as the year of the digital wallet. In the transport world we saw the launch of digital hailing applications for cabs in many parts of the world, including USA, India, China, Canada and even Azerbaijan. These operate through smartphones and include not just Uber, but a number of other such services GetTaxi and Hailo. Many of these applications also facilitate payment and tracking of the taxicabs. They are made possible because of the new access that consumers have through smartphones and digital wallet payment mechanisms.

The Uber App

The Uber App provided to private minicabs aims to provide a seamless experience to travellers, to enhance the experience of travelling through London. You can see how much a trip is expected to cost and book it with your smartphone app. You can see who will pick you up and when, on a map. Yet you don’t need to pull out your wallet to pay. It’s a card-on-file application that means no cash changes hands. Just one of the ways in which travel is going cashless in London.

A marketplace for cabs

Just as eBay created a marketplace for buyers and sellers on the Internet, and Amazon lets us sell those books we no longer need, the Uber App and others like it empower a new category of providers, lowering the entry barrier and letting the new entrants create massive value for customers.

Let’s relook at the framework of the “7 Cs”, a model we at Shift Thought created back in 2011, to consider how to build services that please both consumers and merchants.

The Uber app ticks many of the boxes for the consumers and for the new set of cabbies it serves. A journey across London cost a mystery passenger from the Express.co.uk half the price of a black cab. For private cabs, it requires much less knowledge of streets as there is an app for that. It makes it easy for passengers to get a cab, trust a cab and make payments. I wondered if tips were down. Perhaps the new app does not make it easy to tip? But no, in actual fact a default tip of 20% is automatically added by the intelligent designers of this app. Here is what Uber advises on Tipping :

So merchants and happy. And customers are happy: Well those who travel regularly enough to use the app and have a payment card that they can register. The Uber app is like Oyster-on-steroids as it is tightly linked to an inexhaustible supply of real money. Created by Travis Kalanick and Garrett Camp, Uber now operates in 37 countries.

Unfortunately it leaves the incumbent merchants, our existing highly experienced London black cabs feeling “short changed”.

So what can those disrupted do?

There are no easy answers. The immediate course of action London black cabs are taking is to argue that calculating the final cost only after the journey is complete is a metered ride, only allowed for black cabs. This does not unfortunately address the issues at the heart of what’s really causing them pain. And this is the case in the 36 other countries where Uber operates. Will we see the demise of the talented cab driver who knows London like the back of her hand? Like horse carriages, will these be the “premium rides” we only take as a treat, and to remember the good old days?

Come join our Digital Money (open) group on Linked in to have your say on this. Are you the disruptor or the disrupted in the Digital Money Game that’s being played out around the world? Check out the 1900+ examples of new payment methods that we share on this portal.

If you’d like to know more about the Shift Thought Digital Money model and framework just pop us a note at contact@shiftthought.com . We shared our recent research through presentations just delivered at the London PayExpo 2014:

(1) Digital Money in Retail

(2) Mobile Money around the world

Let us know if you would like a copy!

Cryptocurrencies and Bitcoin: size in context

Posted on June 23, 2014 by Dr. Neeraj Oak

Blog 8

Dr. Neeraj Oak considers the size of Bitcoin and its scope for the future compared with other players and industries.

In this post, I will provide a context in which the size of Bitcoin, both present and future, can be judged. The true size of Bitcoin is often skewed in the media through qualitative descriptions; I will look at it quantitatively, and compare it with other relevant organisations and markets.

Let’s start with the cryptocurrency industry. I will show values as squares, with the area of the square proportional to its value.

Using market capitalisation as a proxy for size, we can see that Bitcoin forms very nearly the entirety of the cryptocurrency industry. Perhaps this isn’t surprising, given the earlier start and greater publicity Bitcoin enjoys over the other 670 alternative coins in more than 50 exchanges. Moreover, many of the other cryptocurrencies use Bitcoin as a basis of operation or an intermediary; thus the growth of these currencies will actually spur growth in Bitcoin.

Let’s take a wider view. I’ve been asked about how cryptocurrencies could affect energy markets, as more computing time and energy goes into mining coins. The intrinsic link between the electricity used to mine a coin and its value was originally used to set the price of the first Bitcoin. It seems fitting to start by considering how Bitcoin compares to the world energy industry.

According to one estimate, the world energy market is worth around $5 trillion a year. Comparing this to cryptocurrencies by their market capitalisation isn’t a perfect analogy as they measure different things, but it’s enough to see that cryptocurrencies would have a very long way to go before they form a sufficiently large energy drain to cause any significant effects on the energy industry.

Beyond the energy industry, another great benchmark for size is the total size of the world economy. At this scale, the cryptocurrency squares are effectively invisible. But what’s that grey square on the left?

It turns out that the value of non-cash transactions made each year dwarfs even the global economy. This is the space which cryptocurrencies would wish to someday occupy- and it seems they have a fair way to go yet.

While we’re at it, let’s look at the number of users of Bitcoin in comparison to some of the other e-commerce services in the world.

From this perspective, Bitcoin isn’t quite as miniscule, but is still far smaller than any of the big established players. It’s interesting to note that the transaction volume of Bitcoin per user is actually much higher than that of established services such as Paypal; it’s possible that this is a sign of trust from users, but to my mind it’s more likely that it is just an artefact of speculative trading and the decentralised structure of a peer-to-peer market. Over the past 30 days, Bitcoin has averaged a transaction volume of around $65m per day, whilst Paypal averages $315m.

Bitcoin also fares favourably against international money transfers (IMT) in terms of transaction volume. This is another prime area in which cryptocurrencies could be used to bypass existing institutions, especially in developing economies.

So what do all these comparisons tell us? It’s clear that Bitcoin is still in its infancy compared to some of the alternative payment methods, but this also means that there is a lot more room to grow. For now, Bitcoin is unlikely to cause any price effects in the energy industry, but that isn’t to say it could never happen; if Bitcoin were to process even 1% of world non-cash transactions, the energy drain from miners would be worth taking into consideration for energy policy planners. But that would require Bitcoin to grow approximately 100-fold.

Join me for my next post, in which I look at the spread of Cryptocurrencies in Europe and North America.

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