Money of the Future

Money of the Future
MAJOR FINANCIAL INNOVATIONS Q1 2014
lifesreda.com/hot
contents
—
Largest FinTech deals of Q1 2014
7
Finovate Europe 2014 Conference Results
8
mPOS — FinTech development driver force
10
Development of new ecosystem around T-Commerce
13
mWallets: easier and more functional
15
eWallets: growth of Russian market
19
P2P, mobile payments and money transfers
20
Online lending industry continues quick growth
24
Online acquiring in e-commerce: moving to the mobile side
27
Crowdfunding and crowdinvesting: on the threshold of the most
29
important event in the industry history
Bitcoin and other crypto-currencies: area of contradictions
34
Services for SME — still in the «blue ocean» zone
40
PFM & PFP: new round of development
43
© Life.SREDA VC, 2014
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Media materials from the following websites have been used in this study: finovate.com, mywishboard.com, simple.com,
moneydesktop.com, money2020.com, qiwi.ru, ncausa.org, privatbank.ua, lacaixa.es, citibank.com, alfabank.ru, padaread.
com, square.com, mpowa.com, sumup.co.uk, izettle.com, life-pay.ru, t3n.de, hipsterwall.cloudsmaker.com, life-pad.
ru, lifesreda.ru, en.wikipedia.org, kickstarter.com, crowdtilt.com, angel.co, fundersclub.com, hippflow.com, spark.ru,
jumpstartupper.com, mota.ru, mint.com, simplee.com, saveup.com, nextgenerationfinance.de, commons.wikimedia.org,
cringely.com, lamassu.is, plastiq.com, iyzipayments.com, zooz.com, wepay.com, zopa.com, lendingworks.co.uk, prosper.
com, welend.hk, fundingcircle.com, daric.com, instabank.ru, ubank.ru, rocketbank.ru, amazon.com, walletkit.com,
zenpayroll.com, kabbage.com, my-apps.com, bellycard.com, ernglobal.com, swipely.com, motifInvesting.com, etoro.com,
fidor.de, moven.com, thinktwice.ru and others.
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Introduction
—
In January 2014 venture firm Life.SREDA presented the second annual research «Money
of the Future — Major Financial Innovations in 2013 and Trends of 2014 1». The research was
presented at Finovate Europe conference in London and received a lot of positive responses
in mass media and social networks. Within the first month after publication the digital
version of the report was downloaded for more than 7 000 times by users throughout the
world. Life.SREDA continues the tradition and presents a new research — interim quarterly
Explore the previous report:
report «Money of the Future Q1 2014».
http://lifesreda.com/research/
One of the key elements predetermining development of projects in FinTech industry still
remains attitude of customers to quality and range of services provided by traditional banks.
Modern users are tired of overloaded interfaces, unfriendliness and non-transparency of
bank services and tools.
Within three years consulting company Scratch questioned 10 000 representatives
of Generation Y (millennials — people born between 1981 and 2000) in order to find out
which industry required changes first. The result was not a surprise: four of ten most
hated brands for millennials belong to leading banks. Participants in the survey believe
that methods of interaction with money will change drastically in the next five years. «As
consumers millennials are slow enough in saving up funds. As a rule they have huge debts.
They are facing unprecedented unemployment. Banks gave never paid special attention to
them. And suddenly we see sharp growth of purchasing capacity of millennials exceeding
already $1.3 trillion», says Ross Martin, Scratch Vice President. As a result this technically
grounded segment of users looks for bank service suppliers in the technological sector. A
half of responded said that startups might become serious competitors to banks. Three
fourth said that they would be glad if suppliers of financial and bank services were such
companies as Google, Amazon, Apple or PayPal 2.
One of the most important news of the first quarter of 2014 was also the news that
American bank The Bancorp became a platform bank for the cellular colossus T-mobile
having the customer base of 45 million clients! The operator already has its mobile wallet
and new partnership will allow him to issue plastic cards, to provide full scale management
of its accounts and to provide other bank products.
For T-Mobile customers issue and use of cards will be absolutely free. The only chargeable
service for users is cash withdrawal in ATMs of other banks. T-Mobile mobile application
allows to pay for purchases, to refill accounts using the remote deposit capture function,
1
http://lifesreda.com/research/major-financial-innovations-2013-2014/
2http://www.fastcompany.com/3027197/fast-feed/sorry-banks-millennials-hate-you
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Introductio n
to transfer funds, to check balances and to see payment history. Taking into account the
operator’s huge customer base T-Mobile may become one of the largest providers of financial
services in the USA market. It is necessary to point out that the company considers 68 million
Americans who still do not have bank accounts the target audience of the company. «We’ve
already transformed how Americans use and pay for phones, tablets and wireless service; why
stop there?» — T-Mobile CEO John Legere says 3.
Wall Street Journal says that Apple plans to expand to the payment and mPOS market
and in the nearest future will allow users to pay for purchases through iPhones using existing
iTunes accounts. The company already allows to purchase goods in its sales outlet using
various accessories enabling to scan barcodes and to read credit cards through iPhones of
its sales managers. Apple also intends to step out of its stores. Such giant as Uber is already
among possible partners. According to the last year data Apple has the customer base of 600
million users with linked credit cards (for comparison — PayPal has the base of 137 million
users). In light of this implementation of TouchID into latest iPhone 5S looks the most logical
step since the fingerprint scanner is the perfect tool to authenticate transactions 4.
The news about T-Mobile and Apple confirms forecasts of numerous experts about
high interest and soon participation of large IT companies in the financial services and tools
market.
VLADISLAV SOLODKIY
CEO, Managing Partner Life.SREDA
ALEXANDER IVANOV
CFO, Partner Life.SREDA
DMITRY MUZHIKOV
CCO Life.SREDA
3http://www.bankinnovation.net/2014/01/the-bancorp-scores-private-label-deal-with-t-mobile-ohand-t-mobile-has-45m-customers/
4http://techcrunch.com/2014/01/24/apple-preparing-for-push-into-mobile-payments-for-physicalgoods-wsj-reports/
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Largest FinTech
DEALS of Q1 2014
—
COMPANY
AREA
TRANSACTION TYPE
PRICE
INVESTOR/BUYER
Simple
mWallets
Acquisition
$117M
BBVA Group
Borro
Online Loan Facilities
Investment Round
$112M
Victory Park Capital
Pozitron
mWallets
Acquisition
$100M
Monitise
Stripe
Online Acquiring
Investment
Round (С)
$80М
Founders Fund, Khosla Ventures, Sequoia Capital,
Allen&Co
SoFi
P2P Lending
Investment
Round (С)
$80M
Discovery Capital Management, Wicklow Capital,
Peter Thiel
OnDeck
Online Loan Facilities
Investment
Round (E)
$77M
Tiger Global Management, Venture Partners,
RRE Ventures, SAP Ventures, Google Ventures,
First Round Capital and Peter Thiel
Tradeshift
Services for SME
Investment
Round (С)
$75M
Scentan Ventures
WorldRemit
Payments and
Transfers
Investment
Round (A)
$40M
Accel Partners
IndieGoGo
Crowdfunding
Investment
Round (B)
$40M
Institutional Venture Partners and Kleiner Perkins
Caufield & Byers
CAN Capital
Online Loan Facilities
Investment
Round (C)
$33M
Meritech Capital Partners, Accel Partners,
Ribbit Capital, QED Investors
Zopa
P2P Loan Facilities
Investment round
$25M
Arrowgrass Capital Partners
Crowdtilt
Crowdfunding
Investment
Round (B)
$23M
Andreessen Horowitz, SV Angel, Sean Parker,
Matt Mullenweg, Oliver Jung, DCM, Felicis Ventures,
Naval Ravikant, Alexis Ohanian, Elad Gil
Xapo
Bitcoin
Investment
Round (A)
$20M
Benchmark, Fortress Investment Group,
Ribbit Capital
ZenPayroll
Services for SME
Investment
Round (A)
$20M
General Catalyst Partners, Kleiner Perkins
Caufield&Byers
Kreditech
Online Loan Facilities
Debt Financing
$15M
Kreos Capital
Azimo
Payments and
Transfers
Investment
Round (A)
$10M
Greycroft Partners, Accion’s Frontier Investments
Group, eVentures, TA Ventures, RI Digital Ventures,
KRW Schindler Investments
Kantox
Payments and
Transfers
Investment
Round (A)
$9M
Partech Ventures, Idinvest Partners,
Cabiedes&Partners
Ezetap
mPOS
Investment
Round (B)
$8M
Helion Advisors, Social+Capital, Berggruen
Holdings. AMEX Ventures
Fundera
Online Loan Facilities
Investment
Round (A)
$3.4M
Khosla Ventures, First Round Capital, Lerer
Ventures, SV Angel, Strauss Zelnick, Rob
Wiesenthal, David Rosenblatt, David Tisch
Wallmob
T-Commerce
Acquisition
unknown
Visma
IND Group
PFM & PFP
Acquisition
unknown
Misys
Acquisition
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Finovate Europe 2014
Conference Results
—
In February the regular two-day Finovate Europe conference dedicated to prospective
financial technologies ended in London. Over 60 companies from around the world gathered
together in the FinTech European capital.
Traditionally each project had only seven minutes to draw attention of the public and
to present itself. The event also provided projects with perfect opportunity for networking
since numerous participants represented large financial organizations or influential venture
capitalists.
Among winners there were services for private investors, Internet banking solutions and
PFM services. This time Russia was presented by three projects — LifePay, MyWishBoard
and Luxoft company which became the first Russian company winning at Finovate and
receiving the prize not only for its product but for original presentation as well. The company
presented application for investors iStockTrack which allows to track movement of all
customers’ assets in one screen: bank and pension accounts, broker commission amounts,
etc. The customer may contact bank office pushing one button only. The presentation was
conducted by a ten-year-old boy: thus the company successfully demonstrated that their
product was so simple that even a child could use it.
Dutch company Backbase participating in Finovate not for the first time, again received
the prize for its solutions for Internet banking. The new platform allows to easily create and
administer multifunctional interactive web portals and mobile applications. The audience
also pointed out the solution for registration in a mobile bank which activates all capabilities
of mobile devices: for instance, in order to fill in necessary forms it is sufficient to take
pictures of all customers’ documents and information will automatically be entered in the
bank’s database.
Solutions aimed at replacement of passwords as authorization means become more and
more popular. Winners — Behaviosec — presented the product based on authentications
with user’s gestures. Beside standard perception of gestures the solution can also memorize
how owners of devices move and interact with the devices. It is also necessary to point out
Feedzai, the product providing possibility of authentication on the basis of data from social
networks. One of the ideas is that if a user checks in, for instance, in a New York restaurant, a
transaction performed in any other place may be a fraud attempt. The question is: will banks
provide such products with access to personal information of their customers?
Dynamics Inc. received recognition from the public for its improved smart electronic
card ePlate allowing to combine up to 50 various cards of different banks and companies
in one plastic card. Switching from card to card is carried out using built-in buttons. It is also
necessary to point out that the card fully complies with the EMV standards; that makes it
universal.
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Finovate E urope 2 0 1 4 Confere nce Results
Lithuanian company Etronika received the prize for the solution developed in cooperation
with Banktron. This is a multi-channel ecosystem which includes Internet bank, mobile bank,
tablet application, terminal system, call center, etc. The product allows to modify a personal
account taking into consideration interests and needs of each particular customer.
Multinational corporation MISYS having its headquarters in London received the
prize for creation a bank service for different generations. The company was also noted
for its interesting presentation. Its seven-minute video showed three generations of bank
customers: father, grandfather and capricious immature girl. The girl wanted to use her
mobile phone for P2P payments, father — for checking family finance and grandfather —
for mobile payments in a convenient way. MISYS informed that its software allowed banks
to integrate all these services. It is also necessary to point out that the product presented
at Finovate was developed by IND Group. But literally several days prior to the event MISYS
announced an acquisition of IND Group and the IND team replaced the logo of its booth for
MISYS immediately before the event started.
Several representatives in the area of PFM and PFP solutions were awarded with prizes.
Swedish startup Tink was acknowledged for its mobile solution with perfect user interface
allowing the user to keep up with his expenses from anywhere. The system collects data
about expenses from any linked bank account for the last two years. The main peculiarity
of the system is its simplicity and similarity with Instagram. Tink takes away everything
unnecessary and focuses on what is really important therefore providing some intellectual
comprehension of user’s finance. Toshl is based on gamification of the process and turns
the saving process into a funny game. Project MoneyHub of British Blue Speck Financial
provides user with complete control of the whole financial life helping to trace various
accounts — insurance, pension, medical ones as well to control tax payments and to save
money for various purposes.
It is also necessary to point out one of the most successful PFM suppliers to Europe–
Meniga which presented new solutions for small business allowing to use demographic
data for identification of new business opportunities in the market. The system
demonstrates the sales level, business profitability and many other data in comparison
with competitor’s data therefore helping businessmen to response timely to opportunities
arising in the market. This is not exactly PFM in its usual meaning but it may be exactly
what the market needs today.
LifePay, leader of the mPOS acquiring market in Russia and one of portfolio companies
of Life.SREDA firm, gave at Finovate the floor to one of its customers. The project was
presented by Elena Spirina, one of famous Russian designers of author’s T-shirts. She
told like using LifePay integrated with e-store builder My-Apps.com she could in minutes
create her own T-shirt store for mobile devices, maintain customer statistics and to receive
payments using newest EMV readers. Both Elena’s speech itself and results of sales using
LifePay were accepted by the audience very positively. It is necessary to remind that by the
end of 2014 the company plans to distribute in Russia 100 000 new type readers.
The audience was very enthusiastic with the idea to use capacities of social networks in
financial services. Project MyWishBoard into which Life.SREDA invested last fall allows users
to create wish lists and their Facebook friends — to club together to fulfill these wishes.
Alexander Borodich, Chief Dream Officer, describes the company as combination Pinterest
+ AmazonWishList.
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mPOS —
FinTech development driver force
—
Mobile acquiring remains one of the most popular areas in FinTech. Mastercard in its
second annual «MasterCard Mobile Payments Study» also called mPOS one of the most
promising trends capable of gathering other services around it since its growing is the fastest 5.
Smart Insights analyzed the situation in the world’s payment market and published a
report according to which the quantity of mPOS devices will increase in the several coming
years. Annual rate of increase will be up to 40%. Due to this in 2018 the volume of supply of
mPOS terminals will exceed 52 million units. At the present moment the Asia and Pacific Region
demonstrates the most intensive growth of quantity of these devices. Since the technology is
permanently and is becoming more mature, mPOS terminals become excellent solution for
small businesses interests in complete rejection of traditional POS systems. Growth of the
number of mobile terminals by 2018 will favor decrease of supplies of regular POS terminals
by more than 9 million units. Accordingly, suppliers of regular terminals will face decrease of
profit by 30%. By 2016 supplies of mPOS devices will considerably exceed supply volumes of
traditional terminals. Therefore by 2018 the number of installed mobile terminals will exceed
the base of already globally operating POS solutions 6.
Development of mPOS solutions in emerging markets is conditioned with progressive
growth of quantity of smartphones and their use by small retailers who, prior to this, have
had no experience in payment with cards in order to expand the customer base and to serve
customers in large cities where bank cards are widely spread 7.
Square, the leader of the world mPOS market, not long ago informing about its IPO
decision, declared that the public offering was postponed and would hardly take place
in 2014 8. Apparently this is conditioned with the wish of the company to diversify and to
stabilize its income sources. In order to reach this goal Square is actively starting a lot of
new initiatives. Among them there is launching of the pilot online factoring platform for
own customers Square Capital 9 announced in the beginning of March. Another service of
the Company, Square Cash, now will allow to go borrowing from several friends at once by
email. In order to use this service the borrower and his friend should link one of their bank
cards either to the system or to the mobile application 10.
Another Square’s step towards the so-called «going out of limits of intra-store sales» is
the pilot project launched in 11 San Francisco restaurants, called Square Pickup. It allows
users to order and to pay for food through Square mobile application. The following logical
step would be to open Square Delivery that sooner or later would result in expansion
of delivery service for retail customers and that, in its turn, would be offence against the
Amazon territory 11.
Square has also launched a national TV campaign in order to attract SME customers 12 and
has made its service available for Hispanic community numerous in the USA 13. Namely such
5http://www.inc.com/abigail-tracy/positive-mobile-payement-sentiment-increasing.html
6
http://www.smartinsights.net/Smart-Insights-Reports/mPOS-Expansion-Shakes-the-Sales outletIndustry
7http://www.pymnts.com/company-spotlight/2014/mpos-tracker-march-14-2014/
8http://www.entrepreneur.com/article/231896
9
http://recode.net/2014/03/03/with-square-capital-square-begins-offering-controversial-merchantcash-advances/
10http://www.inc.com/jill-krasny/square-cash-debuts-payment-request-feature.html
11http://www.bankinnovation.net/2014/02/square-and-levelup-extend-platforms-beyond-in-storesales/
12http://techcrunch.com/2014/02/23/squares-new-tv-ads-focus-on-attracting-new-merchants/
13http://techcrunch.com/2014/03/24/square-releases-spanish-version-of-pos-app-to-support-latinobusinesses/ 10
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mP OS — FinT ech development driver force
steps as well as the largest sales team form the basis of the company’s success 14. This step
may be considered as urge towards expansion to Latin American markets that we may see in
the nearest future. It is also necessary to point out that the famous accessory manufacturer
Griffin and Square have declared start of their cooperation and have presented the first joint
product — case with built-in reader for iPhone 15. Besides that Square and AIDS charitable
organization (RED) have launched special red readers for which receipts with the link and
details for charitable contributions to the organization are formed 16.
In due course it is Square that may become the mobile payment standard. PayPal is
trying not to fall behind actively promoting its mPOS service PayPal Here which is already
present in the markets of USA, Canada, Australia, Hong Kong and Japan and is going to be
launched in UK in the form of a Chip & PIN reader 17. Even today the companies struggle for
the same customers. A good example is Starbucks which simultaneously uses potential both
of PayPal and of Square 18.
Canadian Shopify (analogous to Russian LifePAD + MyApps) has launched a new iOS
application allowing better sales of goods and receipt of payments using iPhone. Together
with the application the company offers a free mobile reader for plastic cards. It will allow
numerous customers already having Shopify tablets to receive payments from buyers
without services of such competitors as Square 19.
It is necessary to pay attention to a new player in the market — Barclaycard Anywhere.
mPOS solution presented by Barclays at Mobile World Congress in Barcelona will be
launched. The system is traditionally aimed at SME players and allows to accept chip cards
using a Chip & PIN reader 20.
Swedish mPOS startup iZettle which in due time received over $50M from investors
(including American Express Ventures and Master Card) and is already presented in the
European, Mexican and Brazilian markets, announced release of SDK. SDK will allow to build
in mobile payment solutions into applications of other developers 21.
On January 15, 2014 LifePay, leader of the Russian mPOS market, started free distribution
of portable chip card terminals among a pilot group of customers. A company has more then
12 000 clients. By the end of 2014 there will be 100 000 customers and 250 000 distributed
mini-terminals 22.
Indian startup Ezetap announced a new round of funding in the amount of $8M from
Helion Advisors, Social+Capital and Berggruen Holdings, and at the end of March the
company announced an additional round of funding from American Express Ventures (in
total $11.5M were raised). The Eztap basic business model is the same as the one of Square.
The company sells mobile dongles for $50 each and by this moment has already sold 12 000
devices. Their plans for the nearest include sale of over 100 000 readers in the Asian, African
and Middle East markets 23. It is necessary to point out growing activity of American Express
Ventures in the market. The company plans to launch a new funding program for startups
14http://techcrunch.com/2014/02/15/square-cuts-more-custom-pricing-deals-for-merchants-andramps-up-sales-hiring/
15
http://techcrunch.com/2014/01/05/square-and-griffin-debut-an-integrated-merchant-case-andholder-for-iphones-and-readers-will-create-more-accessories-for-sellers/
16
http://techcrunch.com/2014/02/19/square-and-red-fight-aids-with-special-edition-reader-anddonate-links-in-receipts/
17http://www.pymnts.com/news/2014/paypal-here-expands-mpos-in-australia
18http://www.bankinnovation.net/2014/02/which-mobile-payments-competitor-frustrates-paypalthe-most/
19http://techcrunch.com/2014/01/02/shopify-revamps-its-ios-app-with-a-focus-on-payments-andstore-management/
20http://www.newsroom.barclays.com/Press-releases/Barclaycard-to-showcase-new-mobileacceptance-solution-at-Mobile-World-Congress-2014-b22.aspx
21http://techcrunch.com/2014/01/23/izettle-europes-square-releases-an-sdk-for-direct-mobilepayment-integration/
22http://www.vedomosti.ru/tech/news/21322751/smartfon-vmesto-kassy
23http://techcrunch.com/2014/02/20/with-8m-in-fresh-funding-ezetap-is-more-than-just-a-squarefor-emerging-markets/
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mP OS — FinT ech development driver force
working in the area of improvement of financial services for population. Besides that they
intend to open own innovation laboratory 24.
Bangladeshi are also keeping up planning for the nearest future to launch a joint mPOS
venture. In 2013 financial institutions of this country issued over six million bank cards but
they are mainly used for cash withdrawal from ATMs. It is connected with unavailability of
the POS infrastructure in the country 25.
Notwithstanding growing popularity of mPOS among sellers transition to the new
system still requires some efforts from merchants. Loop aims for further simplification of
the payment acceptance process without installation of any equipment at sales outlets.
LoopWallet operates with regular bank card reading devices which are installed in most
sales outlets in developed countries. The basis of interaction of the gadget and POS devices
is dongle similar to mPOS readers already present in the market. It allows to read bank, gift
and discount cards into a smartphone. Data is stored in the smartphone and is activated
with a pocket gadget. The price of the novelty is $39 for a compact device with phone plug
and $99 for a special smartphone case. The device distributes sufficiently strong signal so
classic bank card terminals may perceive in as a magnetic strip pass through the reader 26 27.
It is rumored that Coin which made a stir even before it was officially launched, allowing
users to combine their bank cards in one card, has a lot of difficulties. The company planned
start of supplies to summer 2014, but suddenly faced the Amazon patent for the so-called
Dynamic Payment Card filed as far back as 2012. So far it is not clear what Amazon is going
to do and what it will mean for Coin 28.
24
http://about.americanexpress.com/news/pr/2014/amex-startups-research-financial-inclusion.aspx
25http://www.mobilepaymentstoday.com/article/229881/Bangladesh-banks-expect-to-launch-mobilePOS-services
26http://www.inc.com/christine-lagorio/loop-future-of-mobile-payments.html
27http://www.forbes.ru/tekhnologii-video/mekhanizmy-i-gadzhety/251897-virtulnyi-koshelek-kakminiatyurnyi-gadzhet-zamenyaet
28http://recode.net/2014/01/27/could-a-pending-amazon-patent-doom-coins-all-in-one-paymentcard/
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Development of new ecosystem
around T-Commerce
—
Tablet-based mPOS systems continue to gather pace in developed markets. SMEs take
new devices not only as replacements for traditional terminals but as powerful, simple and
convenient business tool with possibility to be integrated into CRM and ERP systems. So
far large retailers consider such solutions an addition to traditional equipment but in some
cases — as fully-featured replacement to traditional terminals. They provide retailers with a
possibility to be closer to their buyers and to use received statistical information for increase
of sales and development of cooperation with partners.
Development of the T-Commerce market results also in a new phenomenon —
development of mPOS ecosystem. Tablet-based mPOS solutions push re-inventors towards
development of creative solutions for extension of relationship between sellers and buyers.
Such companies as LevelUP and Index are means to increase customer loyalty and allow
sellers not to only accept payments but to present special-purpose offers and special actions
to their customers.
Square has announced global cooperation with one of the largest American retail
chains, Whole Foods, which would be equipped with Square Stand presented last year.
The main idea of Square Stand launch was Square’s desire to attract medium and large
retailers to cooperation and, as experience demonstrates, this strategy works 29. Another
step to development of the Square Stand product is purchase of startup BookFresh 30 by
the company. BookFresh reminds of OpenTable but aside from restaurant tables it allows
reservation of almost anything from anywhere.
Amazon announced launch of Kindle Checkout System. Kindle tablets will be equipped
with bank card readers which will bring the company to the market new to it and will make
it a direct competitor to the above mentioned Square and PayPal. One of the competitive
advantages of Amazon will be the possibility to create and to provide customers with various
activities and discounts through Amazon.com 31. The company is also testing a new sales
channel for Kindle — vending machines. One of advantages of this channel is the fact that
rent of area for a machine is incomparable with the rent of retail space 32.
iPad-based POS terminals by Revel Systems now may accept payment in bitcoins. The
company explains this step with a lot of inquiries from its customers and its wish to offer all
payment means available today 33.
29http://techcrunch.com/2014/02/11/square-tapped-by-whole-foods-in-its-second-big-in-storepayments-deal/ 30http://www.inc.com/jill-krasny/square-acquires-bookfresh.html
31http://online.wsj.com/news/articles/SB10001424052702303743604579351123788256930
32http://www.wired.com/2014/01/kindle-vending-machine-shows-amazon-cant-resist-real-world/
33http://techcrunch.com/2014/02/11/revel-systems-adds-native-bitcoin-transactions-to-its-posoffering/
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D evelopment of new ecosystem around T- Commerce
Danish startup Wallmob has been sold to Visma, the leader among IT equipment
suppliers to retailers of North-West Europe. Visma explains this purchase with its desire
to strengthen its presence in the mobile solution market 34. iPAD-based POS solutions by
Wallmob replace standard CRM and ERP solutions and allow buyers to shop at any point
of retail space. The system may be also integrated with various e-сommerce solutions
and loyalty programs. The company was established with a view to the large retail market
and during a year and a half of existence has managed to start partnership with such
organizations as Jack & Jones, Selected and L’Oréal.
At international fair Mobile World Congress 2014 in Barcelona Intel and LifePAD
presented the LifePAD second generation prototype — device aimed at changing approach
to use of mobile devices. The presentation was attended by Minister of Communications
& Media of Russia Nikolai Nikiforov. LifePAD is one of the most ambitious Russian financial
and technological projects, it was created with investments of venture firm Life.SREDA in
July 2013 as a platform providing access to mobile technologies to the widest range of
Russian users. It is necessary to point out that devices are distributed for free: the LifePAD
business model is based on income from mobile application installed in devices and on
various content 35. Sales of tablets in Russia keep on growing every year; in 2103 6.7 million
devices were sold which is higher by 107% in comparison with the previous year 36.
34http://www.visma.com/Newsroom/Press-Releases/Archive/11022014---Visma-invests-in-mobilecheckout-solution/
35http://hi-tech.mail.ru/news/lifepad-2.html
36http://kommersant.ru/doc/2388422 14
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mWallets:
easier and more functional
—
Notwithstanding the fact that today in the USA each fifth user o mobile devices has
already installed a mobile wallet (it is about 29 million users), it is too far to active use of
mobile wallets. Bank cards are still very popular since they are very simple in use. That is
why use of mobile wallets should be ten times easier and more convenient than use of
bank cards.
For users payments functions of modern applications are not enough, they need a tool
which can completely move their physical wallet from the hip pocket to the smartphone.
Smartphone manufacturers realize needs of users, this is confirmed with creation if such
solution and the fingertip scanner in new Samsung Galaxy 5 and Apple iPhone 5S. BLE
(Bluetooth Low Energy) technology will also underlie real revolution in use of wallets 37.
At Mobile World Congress (MWC) in Barcelona in last February PayPal announced
that it would become the first international payment company which would use fingertip
authentication technology in new smartphones Samsung Galaxy S5. Owners of new
smartphones will be able to confirm purchases with one finger touch in all sales outlets
accepting payments with the PayPal mobile wallet. Therefore Samsung took the lead of
Apple which, as it was mentioned above, is only planning to use its TouchID for transaction
confirmation. Samsung became the first manufacturer using the new authentication format
FIDO (Fast IDentity Online) 38.
PayPal considers development of mobile wallets one of its priority projects. PayPal
President David Marcus accused employees of the company in insufficient passion to
products they manufacture. He pays attention to the fact that many employees are not
devoted enough to PayPal products and do not install manufacturers wallet application to
their smartphones. In fact some of them even do not remember passwords to their primary
accounts. This information accidentally leaked into mass media from David’s letter to his
employees. The letter is ended with this phrase: «If you are one of the folks who refused to
install the PayPal app or if you can’t remember your PayPal password, do yourself a favor, go
find something that will connect with your heart and mind elsewhere» 39.
PayPal also presented updated website design focusing on the Mobile First logic. At the
present moment this is the most global attempt of the Internet payment giant to transform
the company’s face since 1998, i.e. from the moment of incorporation 40.
American startup Simple into which venture firm Life.SREDA invested several
months ago was completely sold for $117М to Spanish bank group BBVA. Mobile
bank Simple was established in summer 2012 by entrepreneurs Joshua Reich and
Shamir Karkal. The application helps to control expenses, to save money and to
manage your finance. Simple uses the infrastructure of American bank TheBancorp
which provides financial startups with its banking license, back end, processing, etc.
Last year the volume of payments through the Simple system exceeded $1.5 billion.
The purchase is connected with the current BBVA group strategy focusing on search
and integration of best innovative bank products. BBVA group is widely present
in the markets of Spain, USA, Mexico, Argentina, Chile, Columbia, Paraguay, Peru,
Uruguay and Venezuela.
37http://www.pymnts.com/company-spotlight/2014/tsys-the-big-gap-between-mobile-wallets-and-itsusers/
38http://www.forbes.com/sites/anthonykosner/2014/02/25/samsung-and-paypal-move-againstapple-with-galaxy-s5-finger-swipe-payments/
39http://venturebeat.com/2014/02/11/paypal-chief-reams-employees-use-our-app-or-quit/
40
15
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mW allets : easier and more fu nctio nal
«The deal is extremely profitable for both parties: the founders of Simple have
received a good amount of cash to their hands and now they have the possibility for
extensive development on BBVA facilities all over the world. And BBVA group, which is
connected with our fund with long-time friendly relationship, have received one of the best
teams in the world in this area. Plus the service has been purchase with the coefficient of
about $1200 per a customer, while WhatsApp has been recently purchased by Facebook
with the coefficient of $42 per a user since financial services are monetized better than
messengers», — says Alexander Ivanov, CFO and partner of Life.SREDA fund.
Vladislav Solodkiy, СЕО and Managing Partner of Life.SREDA, believes that in the
nearest future mobile banks will be bought exactly as a whole and not in parts as it
is appropriate in the venture market:
«Today we see that on the one hand in the market there is a number of well-made
mobile banks, on the other hand there is a number of players who have realized that for
them it is cheaper to buy such startup and to integrate it than to waste time and human
resources for building of own similar solution. For instance, Square mobile wallet is worse
in functionality than all similar projects in our portfolio, and companies going to IPO no
matter what have to demonstrate that they can not only accept payments from cards
through readers but provide high quality services to end customers. I believe that in Russia
project of this type will be interesting to mobile phone providers — now they are actively
looking at provision of financial and payment tools to their subscriber, meanwhile their
developments are years behind from such startups , and for them it will be cheaper to
purchase such development and team then to try to catch up with yesterday».
Notwithstanding the fact that the project is already five years old its CEO Josh
Raich does not consider himself a banker. At the moment of start of this business
many people estimated his chances as doubtful, putting it mildly. He knew little about
banking but he realized exactly that he traditional services were making him crazy.
«I think if I knew more about banking business I probably would have been never
made this project», — Josh says commenting upon a lot of skepticism he met when
started Simple in 2009. «Almost everyone to whom I told about the project during the
first six months said that this was a stupid undertaking. Fortunately, I had a partner who
knew something about banking business but still he was far from being a banker».
Josh was building the business, first of all, on relationship with customers which
was drastically different from the business model of traditional banks. «Innovation
in the banking sector, as a rule, is an abusive word», Raich says. «Usually it is a way to
squeeze more from customers. I think we achieved much success declaring that we would
never try to deceive customers». Josh hopes that possibly banks will understand that
Simple chose such way of development not because they wanted to be hippies but
because that was the much better way to business development.
Notwithstanding skepticism of a number of experts Josh is sure that after
purchase of his company everything in it will stay in place and Simple will not change
its philosophy. «We believe in the same things ... they paid for us not because of our
customers and not for our technologies, they paid for the culture we had built — culture
of continuous innovations» 41.
Moven (into which Life.SREDA also invested in its time) made its application for
AppStore and Android officially available. Users may directly open bank accounts from their
smartphones and to replenish them with transfers or deposits. Moven’s developers as well
as Simple’s developers pay special attention to the interface and interaction with users. In the
mobile application users have access to online expense updates, analysis of all cards linked
to the account, possibility to send money to friends — through the application, Facebook,
e-mail or through the mobile phone number. They may also suspend and reinstate services
of their account directly from the application in case of loss or theft of the card. Integration
41http://www.fastcolabs.com/3027152/even-post-acquisition-simples-ceo-still-isnt-a-banker
16
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mW allets : easier and more fu nctio nal
with Facebook also allows users to see their storyboards and their correlation with the
expense pictures.
The idea underlying Moven reflects today’s requirements of users and their dissatisfaction
with services provided by traditional banks. Moven as well as Simple are targeted at one
user group but are slightly different in their functionality. The Moven application allows to
manage accounts opened in other banks and possesses expanded analytical functionality.
Starbucks has updated its mobile wallet. The new functionality allows giving tips,
contains information about user’s premium points and allows to display QR code in the
screen for scanning by the payment terminal by way of smartphone shaking 42. By hearsay
Amazon is also considering the possibility to launch mobile wallet in addition to the
announced Kindle-based mPOS system 43.
British Monitise specializing in operations with mobile banks purchased for $100M
Turkish supplier of mobile payment solutions Pozitron. The company plans to use this
acquisition in order to strengthen expansion of mobile wallets in this region. Pozitron
cooperates with such companies as Turkish Airlines, eBay, ING, BNP Paribas, GlaxoSmithKline
and Hepsiburada.com (Turkish analogue of Amazon) as well as with large regional banks 44.
Winner of numerous international prizes Polish mBank and mobile phone operator
Orange announced establishment of a joint mobile bank. Orange and mBank have been
cooperating in Poland since 2012, they have already established a joint service for noncontact payments. The applications will be released under the Orange brand; the company
will be also responsible for customer acquisition and marketing expenses. In its turn mBank
will provide banking services. The target audience for the application will be individuals as
well as SMEs. Bruno Duthoit, President of Orange Poland, says that bank customer more
and more often require simple access to their money — notwithstanding their location.
Combination of the mobile phone company and such innovative financial institution as
mBank will be a perfect mean for achieving this goal 45.
Chinese authorities suspended payments through smartphones which will directly
influence the rate of development of the mobile payment and mobile wallet industry.
They also suspended payments based on QR codes used by majority of mobile wallets.
The Central Bank of China believes these types of payments are beyond the limits of
traditional banking business and all risks connected with use of mobile payments should
be analyzed in detail. Such news became unexpected for the e-сommerce giant Alibaba
which, several days prior to the regulator’s statement, announced soon release of its new
mobile wallet — Alipay Wallet. Experts believe that it were actions of Alibaba that pushed
42http://thenextweb.com/apps/2014/03/20/starbucks-updates-iphone-app-shake-pay-digital-tippingus/
43http://online.wsj.com/news/articles/SB10001424052702303743604579351123788256930
44http://techcrunch.com/2014/02/03/monitise-buys-turkeys-pozitron-for-up-to-100m-to-take-itsmobile-money-network-to-the-middle-east/
45
17
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mW allets : easier and more fu nctio nal
Chinese authorities to these steps 46. It is also necessary to mention that the Internet giant
plans IPO in the American market. Experts think that it may become the most noticeable
appearance in the market ever 47.
46http://www.ft.com/intl/cms/s/0/7709066a-ab2e-11e3-83a2-00144feab7de.html
47http://www.marketoracle.co.uk/Article45030.html
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eWallets:
growth of Russian market
—
A joint project of German Fidor Bank and Life.SREDA — Fidor Russia, has launched
beta version of its community. The user’s community is a key element underlying the bank’s
business model. It is supposed that further its participants will form the backbone of online
bank customers.
At community.fidor.ru users may share their experience in using financial services
and products, ask questions to each other and experts and to present their ideas for
implementation. On the basis of collected ideas and requirements proposed by users the
product line of Fidor Bank in Russia will be formed.
Similar to the German community participants will receive bonus points for activities in
the website (responses, assessments, comments) which also may be expressed in money
form 48.
Andrei Romanenko, founder of the probably most famous instant payment Russian
company Qiwi, created the company capitalization of which in the last year grew by three
times, up to $3 billion. QIWI share price at NASDAQ grew by 222% during eight months after
the moment of placement. This estimation looks more like an advance: experts think that
the company should justify its ambitions in overseas expansion and battle of mobile wallets.
The company’s ecosystem includes various payment methods — payments, wire
transfers to bank accounts or to virtual cards. But the most dynamic and promising part of
the ecosystem is Visa Qiwi Wallet (VQW) mobile wallet. The system allows to pay bills using
the mobile application. Every day 650 thousand transactions go through it while through
terminals (initial basis of the company’s business model) — 12 million. But an average receipt
in the Internet is over 800 rubles and in terminal — 146 rubles only 49.
In Q4 2013 for the first time proceeds of the VQW e-wallet exceeded income from
terminals, as follows from reports of the company. Of over 1700 million rubles of net
proceeds of Qiwi in October — December 2013, 859 million rubles fall on VQW (this is by
12% more than in Q3), and 807 million rubles fall on terminals (by 3.4% less than in the
previous quarter) 50.
It is necessary to point out the interest of foreign investors to the company and rumors
that PayPal considers Qiwi as the object for purchase. Not long ago one of the oldest
management US companies Waddell & Reed (W&R) increased its share in Qiwi from 3.9% to
5.26% spending about $100 million to purchase the block 51.
Another large Russian player, Yandex.Money, linked its e-wallet to MasterCard bank
card. Now users may, along with opening of a wallet, receive a virtual card as well. The virtual
card will be a tool for strengthening purchasing power in the Internet. By the beginning of
2014 16 million e-wallets were registered in Yandex.Money, about 10 thousand new wallets
are opened every day 52.
48http://futurebanking.ru/post/2467
49http://www.kommersant.ru/doc/2383656
50http://www.vedomosti.ru/newspaper/article/641581/qiwi-nabila-koshelek
51http://kommersant.ru/doc/2404940
52
19
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P2P, mobile payments
and money transfers
—
p2p payments gather pace
In January 2014 in the study conducted by research company Novarica 53 smartphone
owners were questioned about use of mobile phones for p2p payments and transfers. The
results demonstrated that the number of respondents who had performed such transfers
had grown by 30% from April 2013 to January 2014.
Three key conclusions in the Novarica study:
1
Banks considered p2p transfers an additional option not having enough attention of the
management. As a result the number of users using the p2p transfer function builtin into bank mobile applications has decreased while the use of PayPal and Google
Wallet wallets for personal payments has increased.
2
PayPal is coming to the leading positions in personal payments. Banks should
«shiver» when thinking that PayPal may acquire such banking platform as Simple
or Moven.
3
New players win the market. Another reason for banks to lose the p2p payment market
is banks’ requirement for commission for these transactions while new players (e.g.
Venmo) capture attention of young generations with free personal transfers 54.
It is necessary to point out that at the beginning of 2014 Venmo announced a new
function of its mobile wallet. Now in order to transfer funds it is not necessary to be
acquainted with the person you want transfer funds to. It is sufficient to stand next to this
person and the application will show him to you in the list of persons using Venmo close to
you. Transfer shall be performed with a couple of touches 55.
At the same time Amazon is intended to join in struggle with PayPal for leadership in
the segment. Its new p2p system will be aimed at mobile devices but will be based on cloud
service which will allow to use it from desktop computers as well. It is likely that the new
system will be installed into new Amazon smartphones which are talked a lot about and
which may be offered for sale as soon as this summer.
For Amazon introduction of p2p payments is an important phase of strategic
development, and only due to desire to compete with PayPal but for other reasons as well.
The first reason includes plans of the company for active expansion in emerging markets
with still large number of people without bank accounts and cards. Creation of the p2p
platform may allow Amazon to become a bank for these customers. The second reason
is desire to build up relationship with small traders and retailers which may use the new
system for business settlements 56.
53
https://thefinancialbrand.com/36533/mobile-person-to-person-payments-growth/
54
https://thefinancialbrand.com/36533/mobile-person-to-person-payments-growth/
55
http://techcrunch.com/2014/02/19/venmo-now-lets-you-find-and-pay-other-nearby-venmo-users/
56http://techcrunch.com/2014/01/29/amazon-wants-to-include-peer-to-peer-payments-in-its-realworld-paypal-competitor/
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P 2P , mobile payments and money transfers
Mobile payments —
growing trend in the HORECA segment
In March PayPal announced services Pay At Table and Order Ahead in UK — before that
they were present in the USA only. These updates built-in into PayPal mobile wallet on iOS
and Android allow to pay for food without calling for a waiter or leaving the table and to
place pre-orders prior to coming to the establishment. By hearsay, the company also plans
to launch soon such services in Australia. Unlike mPOS system PayPal Here which aimed
after all at small business, use of the mobile wallet for payment is the solution aimed at large
restaurant and café chains. An interesting fact is that transaction commission is not fixed
and varies depending on arrangement with the partner 57.
Second largest US fast food chain Burger King announced launch of the mobile wallet
which would allow customers «to pay for Whoopers» and to receive information and collect
points in loyalty programs. The company is also considering the possibility to add food preordering function 58.
The largest US service for reservation of table and restaurants and cafés OpenTable.
com launches a payment functionality via their app for mobile devices. The application
will also allow splitting a bill among guests 59. Entering the mobile payment segment the
company therefore accepts the challenge and growing competition in the market.
New York startup Dash integrates with POS system of restaurants and allows customers
to perform instant bill payment, to give tips from their smartphones and to receive various
special offers. Restaurant keepers also receive a BLE device enabling to look instantly
through customer profiles when they enter the establishment. At the end of February the
company announced raising of $1.2M at the seed round 60.
57http://techcrunch.com/2014/03/20/paypal-expands-its-in-app-pay-at-table-and-order-aheadservices-in-uk/
58http://www.bloomberg.com/news/2014-03-18/burger-king-to-add-mobile-phone-payment-at-u-sstores.html
59http://www.fastcompany.com/3027111/opentable-introduces-mobile-payments
60http://techcrunch.com/2014/02/27/964641/
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P 2P , mobile payments and money transfers
Similar projects appear in Europe as well. Startup Flypay announced raising of £1М in
the first round of funding and official launch of the application. The goal of the project is
to avoid completely wearisome waiting for a waiter in order to ask a bill and to pay it. Use
of the application shortens the average time of waiting and payment from ten minutes to
one. In order to receive a bill, it is just enough to scan the QR code/NFC tag on the table and
then, using the application, to look through the bill, to split it between friends, if necessary,
and to pay it 61.
Aside from saving time these systems have evident advantages for restaurant owners.
Use of mobile wallets for bill payment increases business efficiency, allows to receive
access to data from social networks of customers and provides opportunities for service
improvement.
At the conference call with investors Starbucks CEO Howard Schultz has declared that
he appoints his CFO Troy Alsted a new СОО. Troy will take from Schultz majority of daily
operational duties and Schultz himself will focus on development of digital payments 62.
According to the data of the new quarterly report of Starbucks the number of active users of
the mobile application has doubled within less than a year, and now over 10 million people
pay in coffee houses using smartphones. Customers perform 5 million transactions per
week through the application at the average; that allows the company to remain the leaders
in mobile payments among other retail companies. Along with that about 30% of operations
fall on mobile payments and Starbucks loyalty cards 63.
British Powa Technologies which has raised $96.7M of investment during the last
7 months, presented its new product PowaTag.com. The company asked all its customers —
merchants to place special QR codes on all price tags (especially in shop windows and
in printed\outdoor and even TV advertisements): they allow their offline customers to
purchase these goods in the online mode in the built-in marketplace (similar to Square
Market). Merchants may also install beacons in their offline outlets — through them they
may transmit personalized offers to the mobile application of passing-by customers. The
application also has built-in functionality for creation of own SME loyalty program, and an
individual customer is offered to download their mobile application for purchase of goods
from offline merchants as soon as one sees their advertisement or passes by the shop
window and to perform non-contact payments and to receive special offers and bonuses.
22
61
http://techcrunch.com/2014/03/11/flypay/
62
http://www.paymentssource.com/news/starbucks-spotlights-mobile-payments-in-shuffling-topexecs-3016808-1.html
63
http://news.starbucks.com/news/starbucks-reports-record-q1-results-and-reaffirms-fy14-growthtargets
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P 2P , mobile payments and money transfers
Money transfer services attract more and more
attention of investors
British startup Azimo raised $10M in round A from Greycroft Partners and a group of
other investors. The company plans to spend these funds on strengthening its presence in
the North American and Asian markets.
Azimo launched in August 2012 aims at changing the current power dynamics in
the international money transfer market. The system allows to transfer funds to friends
and relatives abroad using the mobile wallet, through the company’s website or through
Facebook and charges only from 1% to 2% per transaction which is considerably lower than
for traditional international transfers 64.
WorldRemit of London raised $40M in round A from Accel Partners. This is one of the
largest investments at the early stage in the history of the European venture market. The
purpose of the service is to solve the global and rather widely-spread problem of people who
live abroad or migrated for earnings in order to help their families financially transferring a
part of earned money to their relatives. Main criteria of the service are — cheap, simple and
reliable. It takes a lot of effort and money to come to a Western Union office, not speaking
about commission fees charged by such systems. WorldRemit allows to carry out money
transfer from any phone or computer and to receive money directly to the bank account or
mobile wallet 65.
Kantox also tries to solve the problem of high cost of international payments raised
$6.5M in round A. The company opens access to individuals and entrepreneurs to currency
trade in the international market. The company creates a trading floor for meeting of
people wishing to purchase particular currency and wishing to sell this currency from
different countries (for instance, from Europe and USA). The currency exchange process is
based on the actual rate of exchange and money goes directly to accounts of participants
in transactions 66.
64http://techcrunch.com/2014/03/11/azimo-series-a/
65
http://techcrunch.com/2014/03/11/money-transfer-startup-worldremit-collects-its-first-investment40m-from-accel/
66http://techcrunch.com/2014/02/10/kantox/
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Online lending industry continues
quick growth
—
Online lending services become more and more popular. In the UK growth of the new
segment is conditioned with the fact that banks often just refuse to give loans to small
business and new services become the only alternative for entrepreneurs. Three of six best
British financial and technological services, according to ForbesUSA, built their business on
lending. Among them — Borro which allows to receive online borrowing up to $1М upon
the security of personal property, such as works of art, jewelry, watches, expensive wine and
motor cars. In spring the company announced raising of $112М as well as its plans to enter
the US market 67.
FundingCircle is a platform allowing individual investors to issue loans to SMEs. Up to
date investors have issued over £200M using this service.
Wonga is one of the most famous player in the consumer online lending market. The
company developed special algorithm which allows to take decisions about issue of small
short-term borrowings up to £750 under online order in several seconds, and in case the
system takes a positive decision, money is instantly transferred to the borrower’s account.
The market expects that the company will come to IPO in the nearest future 68.
P2P lending — growing threat to banks
Wells Fargo prohibits the using of p2p platforms to the bank’s employees, since such
services are direct competitors of the bank in the lending area. The Financial Times got the
letter which was sent out to bank employees having p2p accounts. Such decision was taken
by the bank on the background of growth of the p2p sector which, in the opinion of Wells
Fargo, threatened to banks. While most analysts believe that this market is too small yet
and it is too early to speak about serious competition, this step of Wells Fargo may become
a precedent 69.
One of the oldest P2P lending service Zopa has raised $25M of investment (in total —
$56.6M already). The company plans to use the funds to strengthen its presence in the
domestic market in UK. Company’s services are in demand: the service has already existed
for over nine years and consumers have got used to it and trust it. In 2013, Zopa issued loans
for over £180М. Specialists forecast that growth of the р2р lending market in UK will reach
£1 billion by the end of 2015 70.
New British service Lending Works, direct competitor to Zopa, received £3.5M at the
seed stage last year, announced a public launch. The company declares that its competitive
advantage is the lender protection level which is provided in the form of additional free risk
insurance 71.
Online microcredits for SMEs
In March LendingClub announced start of SME lending. Up to date the company has
issued over $3.8 billion consumer loans and the rate of growth is $750M per quarter. Initially
67http://techcrunch.com/2014/03/04/borro-the-high-end-online-pawnshop-raises-112m-to-boost-itsasset-loans-finance-pool/
68
http://www.forbes.com/sites/davidprosser/2014/01/25/six-of-britains-best-financial-technologybusinesses/
69http://www.ft.com/intl/cms/s/0/f3135594-7f82-11e3-b6a7-00144feabdc0.html#axzz2r5hlfpGD 70http://techcrunch.com/2014/01/30/p2p-lending-pioneer-zopa-closes-25m-from-hedge-fund-for-ukexpansion/
71http://techcrunch.com/2014/01/14/lending-works/
24
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O nline lendi ng industry conti nues quick growth
loans for business will be limited within $15 000 — $100 000, and further it is planned to
raise the upper limit to $300 000. All loans will be issued with the fixed interest rate of 5.9%.
LendingClub CEO Renaud Laplanche said that the company’s plans include coverage of all
lending segments and that the company is already able to enter other segments such as
auto loans and mortgages. Not long ago the company raised financing in the amount of
$200M from Google Capital, Foundation Capital and KPCB, and today its valuation is $1.5
billion. Development in new lending segments will allow the company to compete with other
players in the American market such as CAN Capital and OnDeck which are focusing on
SME lending 72.
In March OnDeck announced raising of a large round in the amount of $77М from
leading venture market players: Tiger Global Management, Institutional Venture Partners,
RRE Ventures, SAP Ventures, Google Ventures, First Round Capital and Peter Thiel. In
total the company has raised $180M into the share capital and $300M as debt financing
from Deutsche Bank and Key Bank. OnDeck provides loans to small businesses which
previously have not been able to receive credits in banks. The system takes the decision
to issue credit within several minutes and, in case of a positive decision, transfers funds
to the entrepreneur’s account on the next day (in comparison with weeks and months of
traditional banks) 73.
Apart from SME loans CAN Capital provides online factoring services. In its round early
this year, the company has received financing in the amount of $33M from Meritech Capital
Partners, Accel Partners, Ribbit Capital and QED Investors. CAN Capital uses its own online
platform and scoring system and is considered to be the largest player in the US online
factoring market. The scoring system analyzes a lot of criteria for decision-taking including
such unusual parameters as sales frequency (not only volumes), access to funds, eBay rating,
tax payments, etc. By this day CAN Capital has provided access to capital for more than 123
000 small enterprises 74.
Another player in the US online factoring market, Kabbage, was launched in 2011.
Today 85 employees work for this company, and over 240 000 customer accounts have
been opened. In 2013 the company’s business grew by 150% in comparison with 2012, and
reached the level of $200M in SME online financing. In order to receive funds one just has
to fill in an online form (it takes 10 minutes maximum), and funds will be transferred to the
borrower’s PayPal account on the same day or to any bank account on the next day. The
company also uses its own unique scoring system. In order to get a loan, a business needs
to have six-month history of operations only 75.
PayPal has completed testing of its small business lending program PayPal Working
Capital and is going to launch it in other countries of operation. A pilot PayPal lending
project for small business customers was launched by the company last September in
partnership with American WebBank. The regular service users could apply to the company
for assistance in case of insufficient working capital and obtain a decision within several
minutes. Such speed is determined by the fact that the service knows the sales history of
PayPal users. Within three months, loans for a total amount of several dozens of millions of
dollars have been issued and repaid 76.
New players continue to appear in the market. Small business lending startup Fundera
announced raising of the first round in the amount of $3.4M from Khosla, First Round
Capital, Lerer Ventures, SV Angel and other investors 77.
72http://techcrunch.com/2014/03/19/google-backed-lending-club-brings-peer-to-peer-lending-tobusiness-loans/
73http://techcrunch.com/2014/03/06/ondeck-raises-77m-from-tiger-global-to-loan-smbs-workingcapital/
74http://techcrunch.com/2014/01/08/can-capital-raises-33m-from-meritech-and-accel-to-loan-smallbusinesses-working-capital/
75http://www.inc.com/jeremy-quittner/kabbage-growth-numbers-address-gap.html
76
https://www.paypal-community.com/t5/PayPal-Forward/Thousands-of-Merchants-Benefit-fromPayPal-Working-Capital/ba-p/788880
77http://techcrunch.com/2014/02/05/groupme-founder-gets-3-4m-to-make-small-business-loansmore-accessible-with-fundera/
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O nline lendi ng industry conti nues quick growth
The largest player in the US online scoring market Credit Karma has raised $85M in the
new round of funding from Google Capital and other investors. The company serves as a tool
for individuals in evaluation and management of their credit rating 78.
Kreditech has declared raising of $15М for debt financing. The company considers
itself the «Amazon in consumer finance». Kreditech provides microfinance for consumers
and the scoring system for organizations. The company plans to use received funds for
financing loans in Poland, Spain, Czech Republic, Russia and Mexico as well as for expansion
of the lending activity in Australia, Peru and Brazil. The company’s BIG DATA-based scoring
system analyzes about 8 000 parameters simultaneously in order to draw up credit ratings
of individuals 79.
New services try to solve the problem of student
loans in the USA
SoFi, an online р2р facility focusing on student loans for education, has raised $80M
in round C from Discovery Capital Management, Peter Thiel, Wicklow Capital and other
investors 80.
CommonBond, a р2р loan facility helping students to decrease their debt load, had
raised $100M of investment and loan capital last September and now has launched 100
new programs for student grants and loans. Similar to SoFi, CommonBond is trying to solve
the problem of student debts in the USA. These debts exceed the amount of $1 trillion.
Initially the company was focused only on MBA program financing. The company performs
social function paying for education of one needy student per each educational program
fully financed through the platform 81.
Credible, a new San Francisco startup, serves the same purpose as CommonBond and
SoFi. The company helps students to disengage from the trap of high bank interest rates for
educational loans and receive financing with more favorable rates 82.
78
http://techcrunch.com/2014/03/12/credit-karma-confirms-new-85m-financing-round-led-bygoogle-capital/ 79http://techcrunch.com/2014/01/27/big-data-driven-credit-and-loans-startup-kreditech-raises-15min-debt-to-expand/
80
http://www.pymnts.com/news/2014/p2p-lender-sofi-secures-80m-in-series-c-funding/
81http://techcrunch.com/2014/03/21/with-over-100m-raised-p2p-lending-platform-commonbondexpands-to-100-programs-to-help-grad-students-reduce-debt/
82http://techcrunch.com/2014/02/28/with-500k-in-the-bank-credible-launches-a-kayak-stylemarketplace-to-simplify-student-loan-refinancing/
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Online acquiring in e-commerce:
moving to the mobile side
—
Over $30 billion in online transactions has passed through the processing service of the
largest e-commerce market player Digital River in 2013. Such turnover allows the company
to come to conclusions about changes in behavior of online store buyers. There is also a
global shift from purchases through personal computers to purchases through mobile
devices. Over the past year the conversion grew up to 50%. The key factor for development
of online retailers is the increase in investing into mobile 83. Forbes also states that market
players, that will ignore this trend, will suffer serious losses within the next coming years.
Key functions that each online store should have are: delivery status, instant notification,
cards and information on the product 84. An important factor for retail development may be
selection of a right online acquiring partner.
In January online acquiring company Stripe which marked four years not long ago,
announced raising of a new round of financing in the amount of $80M, while the value of the
company was estimated to be $1.75 billion. Many investors believe that it is Stripe that may
become the leader of the global online acquiring market in the nearest future. Involvement
of Peter Thiel into this project is notable, as he is one of founders of PayPal — the main
competitor of Stripe.
One of the focal points in the company’s development is its focus on mobile technologies.
Company’s success lies is in a simplest integration with sellers’ websites 85. Open API allows
accepting payments in 130 currencies 86. In March, the company announced a new service
which allowed making payments in one click without leaving the seller’s website and without
redirecting for the transaction. When a buyer first uses Stripe Checkout on his phone,
the service will ask for her credit card data and phone number and will offer the buyer to
remember it. In all subsequent transactions using Stripe (even in various offers and websites
using Checkout) the buyer will only have to enter his e-mail and to receive SMS code which
will be sent automatically to the phone number linked to the account. The code confirms all
the owner’s data relieving her from the necessity to enter payment information in different
websites for a countless number of times 87.
83http://www.pymnts.com/news/2014/58123/
84http://www.forbes.com/sites/allbusiness/2014/01/16/12-e-commerce-strategies-to-grow-yourbusiness-this-year/
85http://www.inc.com/kimberly-weisul/stripe-backed-by-paypal-founders-raises-eighty-million.html
86http://techcrunch.com/2014/02/11/stripe-payments-api-130-currencies/
87http://techcrunch.com/2014/03/05/stripe-debuts-a-new-checkout-experience-with-one-clickpayments-for-mobile-and-web/
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O nline acquiring in e- commerce: moving to the mobile side
Peter Thiel explains his interest to Stripe by the fact that the company «…reconsiders
the whole e-commerce system. They do not just process payments but they are going to create
the complete set of services. Due to its simplicity the service managed to grip the attention of
developers from the very beginning. It is already absolutely different world compared to the world
of 90s when we created PayPal. There are much more people in the Internet, and the e-commerce
volume has increased in comparison with the time when PayPal was born» 88.
Braintree (now a PayPal subsidiary) offers to companies connecting to the service
and accepting first $50 000 payments for free. Companies may use Braintree for payment
acceptance and processing through websites or through mobile devices and applications
until the amount of transactions reaches $50 000. This will be a useful offer for small
businesses and startups, company’s CEO Bill Ready believes. The offer will help to attract
new customers that are choosing an online acquiring partner, and will allow competition
with Stripe. Among Braintree clients there are many well-known companies such as Uber,
Airbnb, HotelTonight, Rovio’s Angry Birds, Twilio, Poshmark and others.
Five largest UK banks (HSBC, First Direct, Nationwide, Santander and Metro Bank) will
start using Zapp application which will allow 18 million potential users to make purchases in
the Internet and in stores not using bank cards and paying for purchases directly from bank
accounts. Zapp was developed by UK payment company Vocalink and will be synchronized
with existing Internet banking of all the above mentioned lending organizations; that will
allow their customers to check account balances and to make payments. When buying in the
Internet a user may select «pay with Zapp». In this case the mobile bank application will open
automatically for selection of the account be debited 89.
Many emerging countries have shortage of suppliers of online acquiring solutions.
For instance, in South America a complicated bureaucratic system and ill-developed
infrastructure considerably impede the online purchase process. But soon the situation
may become more favorable. Thus in Brazil two senior school student programmers and
a 23-year-old governmental officer have established company Pagar.me, the main goal of
which is to change drastically the online acquiring in their native country. Experts believe that
the company will be a large success since it will become a mediator between entrepreneurs
and the complicated bureaucratized system and will considerably simplify business for
entrepreneurs 90.
88http://www.siliconrus.com/2014/03/stripe/
89http://www.bbc.com/news/technology-25727333
90http://www.pymnts.com/in-depth/2014/introducing-the-stripe-of-brazil/
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Crowdfunding and crowdinvesting:
on the threshold of the most
important event in the industry
history
—
In 2014 the volume of transactions on crowdfunding platforms shall come up close to $10
billion. One of the most interesting trends is growing interest of private investors to socially
important projects. Crowdfunding is a key element of development of a new generation of
businesses. It allows avoiding traditional barriers and leads to growth of groundbreaking and
innovative projects. Millions of new users will become social investors and many platforms in
various market segments will be heading to fast-moving growth and business development.
Experts agree that in the nearest future crowdfunding may become a new world standard
for fund raising. Large banks may be also involved in the game 91. A possible development is
seen as the growth of competition between crowdinvesting platforms and venture capital,
especially if private investors will be able to provide business with additional development
tools apart from simple financing 92. At the same time venture firms show growing interest
for investing into crowdfunding platforms.
Most funds investing into consumer goods try to invest large amounts, which makes
it problematic for new manufacturers to raise the first million and provides a perfect
opportunity for development of crowdfunding services 93.
Crowdfunding Plaform Venture Investments
2009 — 2014 YTD
2010
2011
2012
2013
2014
Sum Raised ($USD)
100M
50M
0M
15
# of Rounds
10
5
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
91http://www.forbes.com/sites/devinthorpe/2013/12/24/crowdfunding-entrepreneurs-predict-moregood-in-the-world-in-2014/
92
http://www.huffingtonpost.com/mark-fidelman/13-experts-crowdfunding_b_4677749.html
93http://techcrunch.com/2014/02/12/circleup-lands-virgin-america-partnership/
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Crowdfundi ng and crowdi nvesting: on the threshold of the most importan t eve n t i n the i n dustry history
First results of JOBS Act
JOBS Act (Jumpstart Our Business Startups Act) is a much-talked-about US law which
serves to help companies to raise the initial investment under a simplified procedure.
Notwithstanding the fact that the law came into force a year and a half ago, its final part,
known as Title III, has not been yet adopted 94. Already adopted and effective parts of the law
allow accredited investors to acquire a share in nonpublic companies, since the non-adopted
final parts of the law will allow acquiring shares in companies by anyone. And websites
such as Kickstarter and Ingiegogo will be able to offer more than presents in exchange for
investors’ money as it is now. 2014 may become critical and even revolutionary moment in
the investment market.
On September 23, 2013, i.e. approximately a year after the law came into force,
prohibition for public advertising of investment companies was officially lifted. Now it is
possible to evaluate first results of the innovation. Website crowdinspect.com posted results
of advertising campaigns for fundraising from accredited investors in the USA. When closing
first deals, the investors had to fill in a special form. Given below are the results of this study:
— 60% of offers — share stock (share loans), 19% — bonds (debt loans);
— 79% of issuers have been incorporated within the last five years;
— 37% of issues have not closed any deals;
— 24% of issuers consider themselves to be mutual funds (i.e. hedge funds, private
funds);
— 10% of offers are provided by non-accredited investors (in total 109 non-accredited
investors);
— every day about 9 issuers report their first successful deal;
— up to date 6,825 investors have placed their offers.
Sectors in which concentration of offers is largest are private funds, real property and
technologies. About 38% of issuers require financing for the amount of $25 thousand and
below. At the other end there are 13% of issuers needing investments of $100 thousand and
above. Most issuers are located in California, New York and Texas 95.
Main events in the crowdfunding market
The most famous crowdfunding platform for creative projects, Kickstarter, exceeded
the mark of $1 billion of funds. At the same time, $859М was invested into projects which
proved successful. The total amount of investment of $1 billion covers investments into all
projects including those which are at the stage of fundraising. Over 57 thousand successful
projects have been financed through the platform. Taking into account that Kickstarter
charges 5% commission from each project, the resource has earned $43M. Most projects for
the amount of $663M have been financed from the USA, other investments have come from
224 countries. Only in 2013 $500M of investments was raised through Kickstarter 96.
Undoubtedly Kickstarter is the most popular project but not the only one. At the beginning
of the year Indiegogo raised $40M in round B from Institutional Venture Partners and Kleiner
94
https://gigaom.com/2014/02/19/crowdfunding-comes-up-short-why-the-final-part-of-the-jobs-actwill-never-work/
95
http://crowdinspect.com/506c_insights_formd/
96http://techcrunch.com/2014/03/03/kickstarter-passes-1b-in-crowdfunded-pledges-from-5-7mpeople/
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Crowdfundi ng and crowdi nvesting: on the threshold of the most importan t eve n t i n the i n dustry history
Perkins Caufield & Byers for expansion of the platform presence and for development of the
mobile platform. Since the moment of establishment in 2008 in San Francisco, over 190 000
projects from 190 countries have been financed through Indiegogo 97.
Advertising agency Fallon from Minneapolis (USA) now offers special services for
projects which plan to raise funds through Kickstarter or Indiegogo. The company has
created a special Fallon Starter Kit and offers assistance in efficient positioning of projects
on crowdfunding platforms. For this purpose the company uses experience and techniques
it normally uses in operations with large corporate customers. But the company does not
plan to start working with each project that applies to them. «We’ll be looking for clients who
have a great story to tell and a unique position that they intend to occupy in their market,» says
agency CEO Mike Buchner. «We’re investing our time and resources, so like any investor, we have
to do our homework to ensure that we’re placing the right bets on the right companies» 98.
Crowdtilt has raised $23M from Andreessen Horowitz and other investors and published
open API entitled Crowdtilt Open for crowdfunding companies. During discussions on future
fundraising the company’s СЕО pointed out that the new platform was like a «Wordpress
for crowdfunding». Companies may add their brand, logo and even edit the source code.
Customers will be able to issue bills, make direct payments, implement analytical services,
loyalty systems and many other things including integration with bitcoin. Crowdtilt has plans
to expand its business outside the USA 99.
Virgin America airline and crowdfunding service Circle Up announced the start of
their partnership. The airline will use the platform for development of new drinks and
snacks served during flights. Many large companies are trying to get into lane with startups
supported by crowdfunding and crowdsourcing. Those include, for instance, investors of
General Electric owning shares in crowdsourcing platform Quirky or manufacturing partners
and distributors of movies and food products financed through crowdfunding.
In summer 2014 French companies will be able to raise up to $1.4М through crowdfunding
and crowdinvesting. Previously French companies were limited to $140 000. At that startups
had to hire lawyers for execution of a huge number of documents. Now, apart from increase
of limits, rules for document execution have been considerably simplified. Nevertheless,
a number of restrictions still exist. For instance, individual investors cannot invest more
than $1,400. This rule is explained by wish of the authorities to secure investors against
disappointment in companies 100.
Crowdfunding only starts its entry into Russia. But even now there are interesting
projects in the market. Boomstarter was established as a Russian analogue of Kickstarter.
Founders decided not to reinvent the wheel but to use the proven business model which
had already demonstrated its validity. Today there is a section in the website presenting
companies raising funds by analogue to the Kickstarter model. There is a section for sale of
e-tickets. In the Event section people may announce future events, open future ticket sales,
and in case of successful sale the event will take place. In the Russian market about 80% of
events have no commercial success. The model warns against losing money. For instance, a
music venue is designed for 600 spectators, and in order to make the event profitable it is
necessary to sell at least 450 tickets. The minimum threshold of 450 tickets is announced.
In case of sale of 420 tickets only, the show is cancelled and money is returned to buyers. If
450 and more tickets are bought the show will take place. This diversity of platform offers
is explained by the fact that the Russian market is much smaller than the US market, and
in order to have a successful project it is necessary to diversify offered services. Today the
project is developing with the monthly increase of 30-35% 101.
97http://techcrunch.com/2014/01/28/indiegogo-raises-40-million-in-series-b-to-expand-theircrowdfunding-reach/
98http://www.fastcocreate.com/3025343/this-ad-agency-wants-to-help-make-your-kickstartercampaign-a-hit
99http://techcrunch.com/2014/02/20/crowdtilt-publicly-launches-its-open-source-customizablecrowdfunding-platform-now-called-crowdtiltopen/
100http://techcrunch.com/2014/02/14/french-startups-can-now-raise-up-to-1-4-million-incrowdfunding-and-syndicates-in-france/
101 http://firrma.ru/data/interview/2408/
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Crowdfundi ng and crowdi nvesting: on the threshold of the most importan t eve n t i n the i n dustry history
News of the crowdinvesting market
NASDAQ Private Market, a joint venture of NASDAQ and San Francisco company
Sharespost, allows qualified investors to purchase shares of private companies which are
not ready for IPO yet or plan it in the nearest future. NASDAQ Private Market may help to
purchase a share in large technological companies such as Pinterеst, Square, Dropbox and
others. Information about the project was known a year ago but it was launched at the
beginning of March 2014 only.
Companies may use the platform to provide opportunities to their employees to sell their
shares simultaneously tracing sellers and buyers, number of shares sold and other important
indicators. In order to become a participant in the program companies should have the annual
revenue of at least $750 000, raise funds in the amount of at least $30М or have value of at
least $50M. On the average $20M- $50M may be raised through NASDAQ Private Market 102.
The first company to apply was Israeli startup Mobli — social platform for sharing photo
and video content (similar to Instagram). It is interesting that among company’s investors
there are many celebrities such as Leonardo DiCaprio, Tobey Maguire, Lance Armstrong and
Serena Williams 103.
500 Startups having invested over 600(!) startups through its accelerator during just
several years, has launched two open programs for syndicated deals at AngelList: 500
Startups Syndicate and 500 Women Syndicate. The main goal of the programs is to facilitate
access of investors to co-investing with 500 Startups. The company allocates $1М for each
program. Each program should invest annually into about 10 companies. The average ticket
should be from $250 000 to $500 000. In this case the share invested by 500 Startups will vary
from $50 000 to $100 000. The remaining part will be covered by participants in the syndicate.
This partnership looks like logical continuation of cooperation between 500 Startups and
the AngelList platform. For several years the company has been using the platform for search
of companies attractive for investments, and for collection of orders to its accelerator.
After testing of the first two syndicates 500 Startups plans to launch new programs. Each
program will focus on a particular topic or area 104.
In its turn AngelList is testing job advertisements for a share in companies looking for
employees through the platform. Companies may choose from two variants: to pay 10% of
salary of a new employee provided or to grant 0.25% of the company stake upon expiry of
a 90-day probation period of a new employee. The company declared that this was just an
experiment and it was not clear if this project would be implemented in future 105.
102 http://techcrunch.com/2014/03/05/nasdaq-finally-launches-its-market-for-privately-heldcompanies/
103 http://www.geektime.com/2014/03/07/israeli-startup-mobli-to-be-the-first-company-traded-in-thenew-nasdaq-private-market/
104http://techcrunch.com/2014/02/13/500-startups-syndicates/
105http://www.inc.com/adam-vaccaro/angellist-to-start-charging-for-job-listings.html
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Crowdfundi ng and crowdi nvesting: on the threshold of the most importan t eve n t i n the i n dustry history
American real property crowdinvesting project Realty Mogul published data of the first
year of operation: 58 objects from 14 stated with the total value of $100M were presented
in the platform, into which 6 000 users invested $14.6M (average ticket — $2.4 thousand
per customer). The aim of the company is to make the real property investment market
more accessible for accredited investors in the USA. Investors may look through various
objects in the website and if they choose a suitable object and decide to invest into it, their
money is transferred only at the moment when the object has enough investors to purchase
it. Experts agree that real property crowdinvesting projects may become one of the fastgrowing market segments 106.
Swedish crowdinvesting platform FundedByMe has raised investments in the amount
of €315 000 through the platform itself. It is planned to use funds for product development
including crowd lending. There are 18 employees in the company in eight countries —
mainly in Europe but also in Singapore. Therefore FundedByMe confirms its desire to be
the first world across-the-border crowdinvesting platform. In the platform there are 32 000
registered investors which invested in total about €4.5M through the platform 107.
106http://www.vcpost.com/articles/22614/20140318/realty-mogul-says-members-have-invested-146m-in-properties-worth-more-than-100m.htm
107http://techcrunch.com/2014/03/18/fundedbyme/
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Bitcoin and other cryptocurrencies: area of contradictions
—
In new Goldman Sachs’s report «All about Bitcoin» analysts of the largest American
bank affirm that they still believe in the potential of crypto-currency though consider it first
of all as a payment tool.
The report describes and considers in detail all advantages and disadvantages of cryptocurrency. For instance, if in 2013 all operations were in Bitcoin, offline and online retailers
as well as customers using money transfer services might have saved up to $200 billion.
Such saving is due to low commission on transfer of funds in crypto-currency. For instance,
Coinbase charges commission of only 1%, and a traditional transfer commission may be
about 10%. But it is pointed out that attempts of authorities to interfere with currency
regulation may result in growth of the transfer cost. Retailers may be morally ready to accept
payments in crypto-currency, but they will not do this until a particular critical mass of those
wishing to pay in bitcoins is accumulated 108.
Since Goldman Sachs considers crypto-currency as a payment tool, the main competitors
mentioned are companies as PayPal. «We would agree that Bitcoin and other digital currencies
lie somewhere on the boundary between currency, commodity and financial asset,» writes
Dominic Wilson, chief markets economist at Goldman Sachs. «Our best definition would be
that it is currently a speculative financial asset that can be used as a medium of exchange» 109. For
full use as a payment means the currency lacks stability. Bitcoin volatility is over 100%, which
is by 20 times higher than that of dollar and euro. Goldman Sachs believes that it is too early
for banks and payment systems to be seriously afraid of crypto-currency, but development
of their strategies in respect of Internet-currencies is just a matter of time 110.
Vicious vol
Volatility, %
120
Source: Coindesk.com, Goldman Sachs
Global Investment Research
108,1%
100
80
60
40
20
2.9%
0
Bitcoin
$/ARS
$/JPY
EUR/$
GBP/$
CPI inflation
(last 60 years)
The US Internal Revenue Service provided its own definition of the crypto-currency
status. It will be considered as property, says Bloomberg. As an example for calculation the
agency gives purchase of a cup of coffee for $2. If a customer pays with bitcoins purchased
for $1, in the result his capital gain will be $1 and $2 more will be seller gross income. That
decision could reduce the volume of transactions conducted with the virtual currency. «It’s
challenging if you have to think about capital gains before you buy a cup of coffee», said Pamir
Gelenbe, a venture partner at Hummingbird Ventures 111.
One of the most important news of Q1 2014 was information about the crash of the
largest bitcoin exchange Mt.Gox. Not long before that mass media published a Mt.Gox
108http://www.scribd.com/doc/212058352/Bit-Coin
109http://techcrunch.com/2014/03/12/goldman-sachs-bitcoin-is-not-a-currency/
110http://rbcdaily.ru/world/562949990828176
111http://www.bloomberg.com/news/2014-03-25/bitcoin-is-property-not-currency-in-tax-system-irssays.html
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Bitcoin and other crypto- currencies: area of co n tradictio n s
internal letter, in which it was confessed that the exchange lost almost 750 thousand Bitcoin
(6% of the total volume of this currency in circulation) several years ago because of the
hacker attack. At the beginning of February the exchange temporarily prohibited investors
to withdraw money from their accounts due to revealing of an error allowing withdrawing
one and the same bitcoin several times. Later the exchange asked the Tokyo District Court to
declare it bankrupt. Mt.Gox founder, Mark Karpeles, apologized to investors and stated that
the technical failure allowed swindlers to secretly withdraw money. In total the exchange
lost about 850 thousand bitcoins, approximately $500M 112. After the crash of Mt.Gox other
large Bitcoin exchanges made a joint statement: «Confidence of Mt.Gox users was tragically
undermined, and this was the result of filthy actions of one particular company, but the situation
will not affect Bitcoin stability and value as well as the digital currency industry as a whole» 113.
The fall seriously affected the currency rate but did not damp ardor of investors assured of
the bright future of crypto-currency.
Clash of the titans:
Warren Buffett vs. Marc Andreessen
At the beginning of March Warren Buffett addressed investors on bitcoins pointing
out that crypto-currency was not the best way to hold and transfer money. According to
him bitcoin may be considered a mirage. «The idea that bitcoins have huge internal value is
just a joke» — said Buffett. At the same time in his interview Marc Andreessen (founder of
Andreessen Horowitz), one of the most famous world venture capitalists and largest «bull» in
investments into bitcoin, noted kiddingly that even notwithstanding the fact that Buffett had
a tremendous experience and was always in the thick of biggest technological transactions,
he did not understand this industry for 100%. Andreessen critical comment drew a wide
response in mass media.
«Stay away. Bitcoin is a mirage. It’s a method of transmitting money. It’s a very
effective way of transmitting money and you can do it anonymously and all that. A check
is a way of transmitting money, too. Are checks worth a whole lot of money just because
they can transmit money? Are money orders? You can transmit money by money orders.
People do it. I hope bitcoin becomes a better way of doing it, but you can replicate it a
bunch of different ways and it will be. The idea that it has some huge intrinsic value is just
a joke in my view» — Warren Buffett 114.
Marc Andreessen and partners plan to invest hundreds of millions dollars into bitcoinrelated startups in the coming years. They have already invested $25М into Coinbase, leading
market wallet and processing system for business preferring payments in crypto-currency.
In the Coinbase system there are over million wallets 115.
Andreessen thinks that Buffett’s words are standard reaction to new technologies from
the point of view of a person who does not yet understand these technologies. The best
comparison of the current bitcoin situation would be the story about the start of distribution
of the Internet in 1993 -1994. The Internet was considered as something secondary, raising
a lot of questions. Marc believes that sooner or later event most single-minded critics will
realize significance of crypto-currency 116.
112http://techcrunch.com/2014/02/25/mt-gox-implodes/
113http://slon.ru/fast/economics/krupneyshaya-birzha-bitsoin-obyavila-sebya-bankrotom-1064160.
xhtml
114 http://www.forbes.com/sites/kashmirhill/2014/03/26/warren-buffett-says-bitcoin-is-a-mirage-whymarc-andreessen-thinks-hes-wrong/
115http://techcrunch.com/2014/02/27/bitcoin-startup-coinbase-surges-past-1m-consumer-wallets-inthe-post-mt-gox-era/
116http://techcrunch.com/2014/03/25/marc-andreessen-my-prediction-is-that-the-libertarians-willturn-on-bitcoin/
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Bitcoin and other crypto- currencies: area of co n tradictio n s
Newsweek affirms that its reporters have managed to find the Bitcoin creator previously
known under mysterious pseudonym Satoshi Nakamoto. He is an aged American of Japanese
origin residing in California, whose name is actually Satoshi Nakamoto. The magazine has
been performing its investigation for two months.
Journalists communicated with numerous relatives of Nakamoto who, according to
them, previously had worked for American Armed Forces and large corporations dealing
with secret developments. Relatives characterized him a «mathematician of genius». Now
Satoshi is 64, he has six children and a wife which whom he has not been living for a long
time. In the Newsweek article it is affirmed that Nakamoto said he was not related to Bitcoin,
other people dealt with the currency 117. But later, through his lawyers, Satoshi declared
that he was not related to creation of crypto-currency as well. He also stated that he had
never heard the word «Bitcoin» before February 2014, when journalists first addressed
him 118. Though Newsweek is insisting on truthfulness of its story, the world technological
community is skeptical about the presented evidence 119.
While Goldman Sachs believes that bitcoin is a payment system and it will be compete
with PayPal, Stripe has declared that it starts testing crypto-currency as payment means
with a number of customers in the USA (Braintree is owned by PayPal and is a direct
competitor of Stripe). This step makes Stripe a competitor to processing platforms Coinbase
and Bitpay. So far the company does not uncover what its bank partners are and amount
of commission for transactions. Stripe also plans the instant exchange function to exclude
the risk of volatility of crypto-currency for users. Though PayPal has not yet expressed its
participation in operations with crypto-currency, the company President declared that he
supported the idea of bitcoins 120.
Venture firm Boost.vc announced raising funds to a new fund aimed at incubation and
investment into 100 bitcoin startups within the next three years. This step makes the fund
the first bitcoin startup incubator in the market marking it out among many US startup
incubators. At the present moment 10 bitcoin startups have passed the fund’s incubator.
The declaration about growth of 100 startups may sound too boldly, but in 2010, when
establishing 500Startups, Dave McClure declared that he was planning to invest into 500
companies there were not many people who believed him.
Eventually consumers, banks and governments will feel more convenient in respect of
crypto-currencies. 2014 will determine more exact attitude of authorities to bitcoins, and
then there may appear leaders in each particular segment of the digital-currency world.
Boost wants to be atop the waves and to help new startups to solve problems in the financial
industry 121.
117http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html
118http://techcrunch.com/2014/03/17/dorian-satoshi-nakamoto-denies-having-created-bitcoin-sayshes-not-been-coding-for-over-a-decade/
119http://blogs.reuters.com/felix-salmon/2014/03/10/satoshi-why-newsweek-isnt-convincing/
120http://techcrunch.com/2014/03/27/stripe-bitcoin/
121http://techcrunch.com/2014/03/26/three-classes-in-boost-vc-is-raising-a-new-fund-with-plans-toincubate-100-bitcoin-startups-by-2016/
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Bitcoin and other crypto- currencies: area of co n tradictio n s
Square Market has announced its partnership with Coinbase which would allow buyers
to use bitcoins for purchase of goods in its platform. The company has made the process
of payment with digital currency trouble-free for both buyers and sellers. Buyers may
use bitcoins in their bitcoin wallets by way of QR code scanning and sellers do not face
the translation problem. The seller will receive the amount in USD immediately after the
operation 122.
In March it became known that famous Silicon Valley entrepreneur Wences Casares,
who not long ago sold his mobile wallet Lemon Wallet for $50M, was launching new business.
Xapo is a supplier of protected online space for bitcoins or, to put it bluntly, a safe for cryptocurrency. The company announces raising of first round financing in the amount of $20M
from Ribbit Capital and Fortress Investment Group.
Popularity of bitcoins made them tasty morsels for thieves and hackers. Security issues
became especially urgent after closure of Mt. Gox exchange. Xapo located its storage servers
in secret and guarded underground «bunkers» all over the world. «We are the first bitcoin
safe in the world, fully protected from hacker attacks or bankruptcy» — Wences said. He also
informed that he started to deal with this business 2 years earlier, long before sale of Lemon
Wallet. Today several thousand accounts are already registered in the service; among them
there are owners of impressive amounts of crypto-currency, such as hedge funds, venture
firms and others 123.
Amazon Coin announced by the Internet giant last summer is now available to Android
users in the USA, UK and Germany. For the first time the currency will be used outside Kindle
Fire to where it was introduced initially. Customers may earn coins making purchases for
their applications in Appstore Amazon and may purchase them directly and use them in
future for purchase of games, applications and some additional functions 124.
Swedish project Safello has raised first investments of $600 000 in order to become
Coinbase for the European market. The company plans to use funds for development
in European markets and to ensure the image of the most reliable bitcoin partner, since
starting from 2009 more than a half of all existing trading platforms have disappeared from
the market. For this purpose Safello registered itself with the Financial Services Authority of
Sweden, country which, together with Germany, has very stable economy and expressed
rather clear notion and position in Bitcoin taxation. Frank Schuil, co-founder and CEO of
Safello says: «Our new interface is simpler than our competitors. And we are more ‘compatible’
than the others. Our goal is to keep the user interface minimalistic so it’s simpler for people to get
into bitcoins» 125.
122http://corner.squareup.com/2014/03/square-market-accepts-bitcoin.html
123http://www.bloomberg.com/news/2014-03-13/benchmark-backs-bitcoin-storage-provider-xapo.
html
124http://techcrunch.com/2014/02/19/amazon-coins-come-to-android-users-in-u-s-u-k-germany/
125http://techcrunch.com/2014/02/17/aiming-to-be-the-coinbase-of-europe-swedens-safello-raisesinvestment-cash/
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Bitcoin and other crypto- currencies: area of co n tradictio n s
Bitcoin Ideas for Google
While Apple is methodically trying to delete all applications associated with bitcoins,
Google sticks to another approach. Senior Vice President Vic Gundotra (left the company
at the end of April) stated that Google considers the possibility to use crypto-currency and
asked users in Reddit website how, in their opinion, Google should interact with bitcoins.
In total Gundotra managed to collect about 1400 ideas, 13 most interesting of them are
presented below:
— to develop a safe and convenient wallet
— to introduce bitcoin for settlements in Google Play Store, Ad Words and other services
— to create a POS system for online and offline sellers
— to add information about the crypto-currency market into Google Now and Google
Finance
— to show bitcoin as BTC along with USD at search
— to introduce bitcoin into API of Google and to allow developers to use this platform
— to introduce Bitcoin/Litecoin/Dogecoin contributions for YouTube content creators
— to integrate a special system into search results for review of bitcoin transactions
— to build up a mobile payment system based on bitcoin
— to integrate into financial services for attracting «underbanked» users to financial
services through bitcoin
— to make bitcoin Google PayPal in order to ensure simple payments in the Internet and
subsequent expansion into the real sector
— to make P2P transfers in bitcoins available and to provide the possibility to purchase
the currency in USD
— to integrate bitcoin with Gmail to make sending and receipt of crypto-currency such
simple process as sending email.
Taking into account serious intentions of the company, in the nearest future bitcoin may
become a serious weapon for Google in struggle for leading positions in the financial service
market 126.
Russian market: questionable development
At the end of January the Bank of Russia specified its position on virtual currencies, first
of all bitcoins, for the first time. The bank warns that all bitcoin operations of legal entities
will be considered doubtful.
Now companies providing services of exchanging of virtual currencies into rubles and
any other currency and for goods or services will be considered potentially involved into
doubtful operations. The bank informed that when taking this decision it followed the world
practices. Perhaps the decision of Chinese authorities to prohibit completely operations with
crypto-currency dated December 2013 was an example. Statement in the regulator’s website
looks as follows:
«Recently the so-called virtual currencies, in particular bitcoin, are becoming
circulating in the world. «Virtual currencies» have no provisions and legally bound entities.
Operations with them are speculative in character, are performed in the so-called virtual
exchanges and have a high risk of cost loss. <...> The Bank of Russia warns that provision
of services of exchange of «virtual currencies» for rubles and foreign currency as well
as for goods (work, services) by Russian legal entities shall be considered as potential
involvement into doubtful operations in accordance with the legislation on counteraction
to legalization (laundering) proceeds of crime and financing of terrorism» 127.
126http://www.bankinnovation.net/2014/02/13-bitcoin-ideas-for-google/
127 http://www.cbr.ru/press/PR.aspx?file=27012014_1825052.htm
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Bitcoin and other crypto- currencies: area of co n tradictio n s
Now it is possible to expect attention of regulators or, if they are not available, of
the Federal Financial Monitoring Service and law enforcement agencies of the Russian
Federation to companies of non-financial market. Sometime later after the statement of the
Central Bank there also appeared information about start of the campaign for counteraction
to anonymous payment system based on crypto-currency 128.
In Russia bitcoins have already received some distribution. In a number of websites
there is possibility to pay for services of cellular and TV providers. Besides that there are
a number of online exchange offices offering to exchange bitcoins to e-money of Yandex.
Money system 129.
The statement of the Central Bank resulted in mixed response of entrepreneurs. Some
of them continue to accept crypto-currency for payment; others decided not to wait for
official prohibition and stopped their operation. «In Russia Bitcoin is used rather for saving
but not for payment for goods and services. Those participants in the system which in due time
noticed the potential of growth of rate of this crypto-currency and invested into it, today have
received considerable income» says Vladimir Ulyanov, head of Zecurion analytical center. «And
this situation will hardly change in the near future, taking into account the perfectly clear position
of the Central Bank on this issue. I do not think that participant in the market which today accepts
Bitcoin for payment, would be against regulator’s opinion» 130.
According to the head of Sberbank German Gref, in Russia they are trying to close the
business which is so actively developing all over the globe. Meanwhile he has sent letters to
corresponding authorities asking not to toughen rules of use of crypto-currency 131.
128http://kommersant.ru/doc/2401171
129http://kommersant.ru/doc/2393757
130http://rbcdaily.ru/media/562949990388300
131http://www.hopesandfears.com/hopesandfears/news/news/125047-gref-online
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Services for SME —
still in the blue «ocean zone»
—
We repeatedly mentioned that the market of SME services is the least developed sector
of the FinTech market. The first quarter of 2014 was not the exception. Main news came
from already known players in the market.
ZenPayroll, service for payroll projects, raised A round funding of $20M from Kleiner
Perkins Caufield & Byers and General Catalyst Partners at estimated capitalization of the
company in the amount of $100M. ZenPayroll developed an easy-to-use cloud automated
SaaS platform for payment of salary to employees. ZenPayroll service allows filling in
all documents connected with salary in softcopy, to calculate income tax and to credit
funds directly. The target audience of the company is small businesses with the number
of personnel not exceeding 100 employees, which have no corporate office yet and pay
salary manually. «We are entirely re-thinking a product category, and our goal is how we make
payroll more about the people» — said Joshua Reeves, company’s CEO. Last year the company
issued API allowing applications of other manufacturers to accept and to send data about
hours worked, advice and recommendations, bonuses, commission fees, automatically
and directly to the application. «There’s a major shift taking place with small businesses
embracing software to help them compete effectively in the 21st century», said Hemant
Taneja of General Catalyst Partners 132.
Tradeshift, one of the largest e-invoicing services for SME in the world (initially from
Copenhagen, now it is located in San Francisco), raised investment for $75M at C-round from
Singapore venture firm Scentan Ventures. The company plans to use funds for international
expansion including development of new partnership with Scentan in Japan. Company CEO
Christian Lanng hopes to lead the company to IPO within three years.
The Tradeshift platform allows enterprises to send invoices and to receive payments
from suppliers using relations between companies for verification of transactions similar
to the social network principle. The sooner companies pay to their supplier the higher is
the discount for use of the platform. Company income consists of commission fees from
some customers as well as commission fees from third-party developers for use of the
platform.
The market of such services is rather urgent now. In 2012 SAP purchased commercial
trading B2B network Ariba for $4,3 billion. Tradeshift’s competitor in San Francisco, Taulia,
recently has raised $18М.
132http://techcrunch.com/2014/02/19/cloud-based-payroll-app-zenpayroll-raises-20m-from-generalcatalyst-and-kleiner-at-a-100m-plus-valuation/
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S ervices for S ME — still in the blue ocean zo ne
Tradeshift launched in 2010 connects 500 000 companies in 190 countries. According
to the company’s data, over 10 000 new organizations join the platform every month.
Customers include such entities as DHL, National Health Service (NHS), French Government,
CBRE and Vestas Wind Systems 133.
Canadian Shopify continues its successful expansion to the market of products for
medium and corporate business. Shopify Plus is a new integrated white-label solution
for e-commerce. The company has noticed that a number of customers which concluded
partnership with the company while they were small enterprises gradually have grown into
more or less large organizations. The standard company platform is capable of coping with
growth of business meanwhile the new solution is a tool for better growth and development
of the company. For $995 per month customers of Shopify will have access to a personal
project manager, personalized support service, accountant and will receive the opportunity
to be the first in testing new services and functions of the company 134.
Shopify has also published a research paper on how social networks and blogs better
help to sell their goods and services to their SME customers. The company analyzed 37
million visits to Internet stores on the basis of the Shopify platform, which were converted
into 529 000 sales in 2013. Though this is a comparatively small share of the total volume
of sales, the research allowed coming to important conclusions. Many customers do not
develop social networks as sales channels at all. For those who work with social networks
after all Facebook was the best platform. 63% (23.3 million) of all visitors to Shopfly stores
came through FB 135.
Largest world registrar of domain names GoDaddy launches a competitor to Shopify.
GoDaddy Online Store is a new platform for creation of Internet stores for small
businesses. The market of services for small business is rather poor today, the company
believes. Most e-commerce websites are too complicated for customers. Today the process
of creation of an Internet store includes acquisition of a domain, creation of a platform,
independent management of each aspect of business operation, though the business
owner may have not enough time or resources to study the technical part of this issue.
The GoDaddy solution will allow small business to avoid these complexities and to create
quickly a website for the store with integration of most payment systems and which will
operate on all devices 136.
Mobile application designer My-apps.com announced search for investments in the
amount of $500 000 — 900 000. «Last round estimation is $6M. Money will go to further
product development, increase of customer base, full-scale entry to the US market, testing
of the lead generation model and advertising model and, of course, testing of sales of crossplatform development technology instant-apps.com which we launched on February 1», —
startup founder Vyacheslav Semenchuk said. Besides that he added that previous round
investors — company of Igor Matsanyuk IMI.VC and Life.SREDA –would also participate in
the new investment round 137. TMT Investments re-invested $200 000 in the form of convertible note into mobile
application designer Attendify (KitApps Inc.). Last July TMT Investments already invested
$200 thousand into KitApps with estimation of the company of $3М. KitApps, Inc.is a
Ukrainian startup with the headquarters in San Francisco, which developed online mobile
application designer Attendify. The platform allows creating applications for conferences,
fairs and other events. Attendify provides a detailed event guide as well as a social platform
where users may exchange impressions and pictures of the event in the real-time mode or
to carry on personal correspondence with other users through a built-in messenger. Today
133http://venturebeat.com/2014/02/25/tradshift-raises-75m-to-expand-its-business-paymentsnetwork-internationally/
134http://techcrunch.com/2014/02/05/shopify-launches-shopify-plus-a-new-white-label-e-commercesolution-for-big-brands/
135http://www.shopify.com/blog/12731545-which-social-media-platforms-drive-the-most-salesinfographic#axzz2vQUQZQy2 136http://techcrunch.com/2014/02/24/godaddy-will-take-on-shopify-with-a-simpler-e-commercestorefront-arriving-this-spring/
137 http://firrma.ru/data/news/2431/
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S ervices for S ME — still in the blue ocean zo ne
customers of the startup are such large companies as Google, Bloomberg, Disney, Philips,
Autodesk, AOL, Cisco and others 138.
Mobile business application designer iBuildApp raised $525 000 for further technological
development of the platform. The iBuildApp CEO Rafael Sultanov states that «today the
service is objectively the most distributed world mobile application designer» and says that
users have published over 660 thousand applications. By the way, the company says that
one of its customers is Manchester United 139.
Website and mobile application designer KIMONO allows receiving automatically the
source code of elements of other websites that the user likes by way of clicking them. After
that it is possible to build your own site or application using these elements in just 5 minutes
without having any skills in programming. But the service is not just a unique technical tool
for «non-coders» but powerful functionality for qualified developers 140.
138http://rusbase.vc/news/tmt-attendify-2/
139 http://firrma.ru/data/news/2579/
140http://www.fastcodesign.com/3027659/a-new-app-that-lets-you-take-apart-websites-and-rebuildthem-at-will
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PFM & PFP:
new round of development
—
PFM and PFP projects still remain one of the most discussed areas in the FinTech industry
though some banks have already named this industry futureless. Notwithstanding this
entrepreneurs still see value in such solutions. Banks started implementing PFM solutions
several years ago but ran into the problem of attracting users into these systems. It allowed
them to conclude that the whole PFM idea was a failure. A part of fault may be laid on banks
themselves hiding PFM solutions in various hard-to-reach sections in their cumbersome
outdated websites. On the other hand the reason may be simple unwillingness of users to
follow closely their expenses as well as the rules conditioning all PFM and PFP solutions. PFM
solutions need new original approaches and ideas.
Alexa von Tobel, founder and CEO of LearnVest, one of the most successful PFM&PFP
platforms, published the book «Financially Fearless: The LearnVest Program for Taking
Control of Your Money», which immediately became a bestseller in the USA. The book helps
readers to make their way in the modern world of financial planning, explains how to draw
up a clear and personalized plan of financial expenses and helps to achieve maximum effect
by way of integrating such planning into mobile devices, social networks and LearnVest
platforms 141.
Today the platform offers to its user a seven-stepped plan called LearnVest Action Plan.
Its users may consult professional financial advisors who will produce personalized advice
on the basis of goals and plans of visitors of the services. All financial advisors working in the
platform have completed specialized LearnVest training 142.
The day before the first day of FinovateEurope in London it became known that one of
permanent and most successful participants in the show, INDGroup, was completely sold to
the UK manufacturer of financial software Misys. The transaction amount is not disclosed.
Starting from 1997 the IND team developed advanced solutions in the area of digital banking
and PFM for various types of devices 143. IND speeches were interesting for audiences of
international conferences, moreover, the project team repeatedly won contests FinovateAsia
in 2013 and FinovateEurope in 2014.
141http://www.amazon.com/Financially-Fearless-LearnVest-Program-Control/dp/0385347618
142 http://techcrunch.com/2014/04/15/personalized-financial-planning-service-learnvest-raises-28mfrom-northwestern-mutual-capital/
143https://www.misys.com/about-us/acquisitions.aspx
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P ortfolio
Simple
Acquired by BBVA Group
US based startup Simple is creating a better interface for
banking through the Web and mobile apps. In partnership
with financial institutions which will hold the actual
deposits, Simple is focusing on creating a better customer
experience and simplifying the banking process by unifying
all accounts into one, accessible through a bank card.
Instabank
Instabank is a mobile bank application for those who
admire beauty of iPhone, iPad, Facebook, Instagram! Do
you like to visit trendy cafes, travel to unconventional
countries and listen to cool music? So why is your bank so
dull when you are so exciting? Register via your Facebook
profile, set goals for savings or purchases, transfer money
to your friend’s social network nickname with one touch!
LifePAD
LifePAD — it’s a tablet computer on Android with
preinstalled SIM card, providing the Internet access, which
is given to a user for free. The tablet comes with selected by
us and preinstalled mobile services and apps on a variety
of topics starting from business tasks to personal needs:
accounting, project planning and exchange of files with
colleagues and friends, personal finance management,
ticket search and purchase, hotel booking, as well as the
best mobile news applications.
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Portfolio
LifePay
LifePay provides a revolutionary technology that allow
SMEs to accept payments by plastic cards via smartphone,
mobile application and asmall secure reader.
Moven
Moven is the world’s first real-time mobile money tool. It’s
a revolutionary service that lets you spend money from
your mobile device and provides instant feedback on
your transactions and spending patterns.
My-Apps
MyApps is a mobile apps constructor on all platforms for
private persons and small and medium business. You can
build «like Lego cubes» your own application in 15 minutes
and it will be automatically published at AppStore,
GooglePlay and other mobile stores!
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P ortfolio
MyWishBoard
MyWishBoard.com is a first social finance platform
for personal dreams and wishes. We do believe that
enabling parents/friends to invest real money into
users’ wishes will flip over the industry of birthday
presents.
Fidor Russia
Fidor Russia is a joint venture of the most innovative
German Fidor Bank and Life.SREDA. The main activities
of the bank are built around special social network.
Fidor offers services in online banking, trading,
insurance, p2p lending and deposits in Euro and virtual
currencies. Clients can easily access to the services via
online account.
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More than just a tablet
LifePAD is a 10-inch screen Android tablet, which comes with the best
pre-installed mobile finance apps, services and tools. With LifePAD you can
easily manage & control your incomes and expenses, monitor execution
of orders, manage projects, solve personal issues and even accept
debit & credit cards payments, if you have your own business.
lifesreda.com