You are currently browsing the category archive for the ‘Financial technologies’ category.

newyear

With all the speculation about Bitcoin and an exciting 2013 behind us, I thought that a list of predictions for 2014 would be a good way to start this year. These predictions are based on growth patterns of similar networks, the traction in various ecosystem activities last year, and my conversations with various Bitcoin enthusiasts. So here are my Top 10 predictions for Bitcoin 2014.

1. More than $100M of venture capital will flow into Bitcoin start-ups.

This pool of capital will be distributed across local/global exchange start-ups (e.g. BTC China*), merchant-related services (e.g. Bitpay), wallet services (e.g. Coinbase) and a host of other innovative start-ups. A large chunk of the capital is likely to flow into startups which have emerged winners in their respective segment with majority market share. Building exchange liquidity and merchant network is tough. Hence, these businesses are likely to command high valuations as well. That being said, there would be plenty of money available for start-ups trying to solve a plethora of other challenges (e.g. private insurance, security), that exist with Bitcoin growth and adoption today.

2. Mining ‘will not’ be dead

A lot of press notes and individual viewpoints state that mining is dead, as we are already in the petahash domain and are restricted by Moore’s law from a technological stand point. I believed this until I heard Butterfly Labs and HighBitcoin talk about how enterprises can potential adopt mining. With transactions and transaction fees rising, it would be highly profitable for large enterprises to have data centers with mining equipment to process daily transactions. Medium enterprises, who cannot invest in capital expenditure, would resort to cloud-based mining. Finally, small enterprises would have to pay transaction fees, to the network. These fees would still be lower than those paid to Visa and Mastercard. In conclusion, we can potentially witness investment from large and medium enterprises in mining farms as early as the end of 2014.

3. There will be less than 5 alt-coins (out of the 50+ in existence) that will survive 2014

The open source nature of the Bitcoin protocol led to the advent of over 50+ alt-coins, most of which are blatant rip-offs with a tweak or two here and there. These can be divided into three categories

  1. Coins which are Ponzi schemes, where the sole purpose of the inventor is to drive the price of the alt-coin up and them dump
  2. Coins which can be mined easily and can have potentially more liquidity than Bitcoin
  3. Coins, which are based on a fundamental innovation and can result in specific adoption or security led use cases.

In my opinion, only the category 3 ones would survive. PPC coin, which has introduced a proof-of-stake system in addition to proof-of-work, is one such coin. It is on my list of survivors. It is also important to note that presently, other than Bitcoin, no other alt-coin has shown the potential for a growth in its acceptance network among merchants or companies. This is likely to remain true for 2014 as well.

4. Bitcoin community will solve problems including that of ‘anonymity’

One of the key roadblocks for governments and financial institutions to start participating in Bitcoins is the anonymous nature of transactions. This has led regulators to believe that Bitcoin can potentially be used for money laundering, terrorist support etc. The good news that we have a very active Bitcoin community globally, which is constantly evolving the protocol. Hence, my prediction that in an effort to make Bitcoin more accepted, this community will come out with a solution to ‘anonymity’ that regulators can live with. One of the ways is it being done today is by forcing exchanges, wallet services and other Bitcoin companies to have KYC practices similar to those of financial institutions. As a side thought – Internet was and is still used for porn. That does not make it ‘not useful’!

5. US, China and other global forces will not be at the forefront of Bitcoin adoption

Fincen, PBOC and RBI’s reaction to Bitcoin in US, China and India points to one single conclusion – we are not going to let a ‘controlled’ and ‘vast’ financial system adopt a decentralized crypto-currency, which can be anonymous and used for illegal activities…as yet. Countries which have had a history of currency issues and have not had effective monetary policies are the ones who will be at the forefront of Bitcoin adoption. With China out of the mix currently, one can look at Argentina, Cyprus and others to lead. These may be smaller as a proportion of the global base. However they are likely to have much more local penetration and most importantly more government support or less government intervention – whichever way you want to look at it. That being said, successful internet and mobile companies in the US/Europe are the ones, who are most likely to offer digital goods in Bitcoins. Zynga just announced their experiment. I would not be surprised if Spotify, Netflix etc are next.

6. Indian ecosystem will be slow to evolve; limited to speculators and mining pools

The Indian Bitcoin start-up ecosystem today is limited to less than ten startups, including exchanges such as Unocoin, wallet services such as Zuckup, mining pools such as Coinmonk and some other ideas – compared to hundreds of them in each US and China. There is little evidence today to ascertain whether any of these startups are going to create a home market or serve an international market. In fact on the contrary, the Indian market is likely to be served by global Bitcoin companies. For instance, Itbit, a Singapore based exchange has already started targeting Indian consumers. Global services have demonstrated the capability to be credible especially when it comes to convenience and security by solving complex algorithmic problems. This also makes them more defensible in the long run (e.g. Coinbase’s splitting of private keys to prevent theft) and poses a big challenge for Indian Bitcoin start-ups. There is an active Bitcoin community in India (about 15-20 people), which is trying hard to create awareness among consumers and regulators. I sincerely hope to see at least one world-class Bitcoin startup come out of India.

7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’

The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map that there are almost no startups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.

8. The ‘browser’ of Bitcoin will come this year

The Netscape browser made the Internet happen. ‘Something’ will make Bitcoin happen. It is still very difficult for the average ‘Joe’ to understand, acquire, store and use Bitcoins. Though Coinbase and several others are working on innovative security algorithms and making it easy to store Bitcoins digitally, it is still not enough to make Bitcoin mainstream. Hence, what a ‘browser’ did to the Internet, a product or technology innovation will do it to Bitcoin in 2014. This will make the transition to Bitcoins frictionless. Kryptokit and Eric Voorhees’ Coinapult are promising startups in this direction. Encouragingly, all the building blocks for that to happen – like mobile penetration, cryptography algos etc are already in place.

9. The price of Bitcoin is likely to range between $4000-5000 by the end of 2014

Well, though some people will argue otherwise, price is not the most important thing about Bitcoin. But given the interest and its volatility, it does deserve a place in this blog post. Speculators have predicted Bitcoin to go upto $100, 000; some say the maximum it can reach is $1300. Though, am sure that there is some underlying basis for these predictions; here is the one for mine. Bitcoin’s price is a function of supply and demand. While the supply is predictive, the demand is less so. However, the increase in the demand of Bitcoin can be compared to networks such as Facebook and Twitter, which have followed a ‘S’ curve of adoption. All such networks typically take 6-8 years to plateau out with year 4-5 being the steepest. Though Bitcoin was invested 4 years ago, I would say that 2013 was its 2nd real year. Given the nature of the ‘S’ curve, the price increase in 2014 is likely to be 3-4 times more than the one this year. Hence, the $4000-$5000 range, where the Bitcoin price is likely to settle down in 2014.

10. Last but not the least – Satoshi nakamoto will be Time’s Person of the Year 2014.

Please read about him here.

* Investments of Lightspeed Venture Partners

Yesterday, we formally announced that Lightspeed and Sequoia invested in OneAssist, a company that creates and markets assistance and protection-oriented membership plans for consumers.  OneAssist was incubated and founded in the Lightspeed offices during 2011 by Gagan Maini and Subrat Pani.  We’ve known Gagan for almost five years and frequently traded views on business ideas and opportunities in the payments, loyalty and concierge space.  Gagan and Subrat have known each other since the late-90s, when they worked together at the SBI-GE cards joint venture.  They have each built new businesses from scratch inside larger companies – Gagan most recently started the Indian operations for CPP and Subrat built the credit cards business at Kotak – and we’re excited to back them in building a new company in this white space.

The thesis behind OneAssist is that consumers increasingly value peace of mind, convenience and assistance with respect to certain events that can disrupt or interrupt our everyday lives (such as the loss of a phone or wallet, health emergencies etc.).  This is driven by: (i) increasing time scarcity – especially in double income households, (ii) a cultural preference for ‘assistance’ (witness services such as Naukri’s ‘assisted’ online job postings, where sales reps hand-hold employers through the job posting process, JustDial’s assisted directory service, IRCTC’s agent channel for booking online tickets etc), and (iii) an emerging orientation towards protecting oneself from unforeseen future events (health insurance didn’t meaningfully exist 10 years ago and is a 13,000 Cr industry now).  And perhaps more anecdotally, a growing sense of taking responsibility for oneself and one’s family.

We believe there is a large opportunity to create a branded, consumer-oriented assistance and protection platform across multiple segments.  The initial use cases OneAssist will support are the loss (or theft) of a wallet (including cards, driving license, PAN card etc) and the loss (or theft) of a mobile phone.  In each case, the company takes on the chore of cancelling credit/debit cards (or remotely wiping and locking a phone), protecting against misuse of cards and/or data, providing emergency assistance (such as providing a replacement handset with data fully backed-up), and replacing essential identity documents such as a driving license or PAN card.  Each product also offers certain group insurance benefits to protect against financial loss.  Plans are priced at Rs 1,000 to 2000 per annum depending on the chosen package plan, which equates to just about Rupees 3-5 a day.

In addition to marketing directly to consumers, the company would also market their products through affinity partners (such as banks, telcos, retail, etc) and corporates who have large customer or employee bases and can offer such products as very relevant value added service or benefits for a fee.

This business model is notoriously difficult to execute against given the importance of delivering against the promise in ‘moments of truth’, the myriad of supply-chain partnerships and capabilities that must be developed and coordinated, the direct and partner-driven sales and marketing capabilities that must be built to achieve scale and the customer engagement strategies that must be deployed to ensure high customer satisfaction and loyalty. We believe that Gagan and Subrat are the best entrepreneurs to take on this challenge and wish them and their team the very best as they embark upon this adventure.

(Source: Zen)

[Published in Medianama]

Ecommerce in India has gone through a cold spell, but there is hope for warmer days ahead. There appears to now be a clear focus on contribution margin and sustainability versus the previous race to buy topline. As Bejul explained in his post, customer lifetime value is a metric that Lightspeed believes is critical to measure and optimize.

The ecosystem is a key enabler of sustainability for an industry. For example, it is unviable for all ecommerce players to build end-to-end logistics and payments/wallet capabilities internally. Certain ecosystem trends are emerging which may help ecommerce businesses become more viable over time:

Capabilities of logistics service providers aren’t static

Logistics is where rubber meets the road, and ecommerce glamour meets the offline reality filled with dust, sweat and lost/wrong/delayed shipments. Some ecommerce specialist players now provide:

  • End-to-end ecommerce solutions, including inward, racking, picking, packing, shipping and collection.
  • Transparency into logistics company’s processes through APIs, which can reduce returns (and costs) and bring predictability.
  • Variable warehousing bills (per order shipped) that help manage costs at lower scale, and a projection for reduction in per unit cost with increasing scale of the ecommerce business.

There are several new and old companies worth calling out:

  • Dedicated ecommerce divisions within traditional players like Bluedart, Aramex, etc
  • New ecommerce logistics specialists such as Delhivery, Holisol and Chhotu. These companies and teams tend to be more hungry, innovative and nimble than their traditional counterparts but are still building their capabilities. Also interesting is Mudita for bulk inter city shipments.

Payment gateways/aggregators are trying to address pain points

Payment gateway failure horror stories are common, with failure rates as high as 35%. This continues to be a lost opportunity, and a very expensive one, as it costs up to Rs 1,000 to get the customer to that point.  Here are a few improvements/innovations that are coming up:

  • Wrapper technologies that work with multiple banks to minimize probability of transaction failure.
  • Deep analytics and visibility into customer’s intent to buy: For example, ecommerce companies can track a list of failed transactions (with customer and cart details) so that their teams can follow-up and close offline.
  • PCI/DSS compliant widgets which simplify the payment experience for consumers.
  • Capability to handle payments originated over mobile web.

There are traditional names like Billdesk, CC Avenues, EBS, who are incrementally adding value but the new teams that are coming up quickly are Citrus and PayU, in addition to GharPay which collects cash from consumers’ doorsteps when no physical delivery of goods is involved (e.g. tickets, collection in advance of shipping).

The industry is maturing

Some of the more recent trends I see are:

No-poach agreements: After the initial land grab in the OTA space, Yatra, Makemytrip, Cleartrip got into such arrangements. Leading ecommerce players are now discussing these. It is good from a talent pool perspective too, as people apply themselves to fix hard problems versus moving to the next job.

CoD Blacklist: CoD is a key part of Indian ecommerce. However, high CoD return rates (upto 25% in some categories) cause operational challenges and working capital burden. Some players are discussing creating an industry wide CoD customer blacklist – this can drive significant efficiency for ecommerce / logistics companies and a better experience for genuine customers.

Trust from OEMs/Brands: Brands/OEMs are putting more trust into ecommerce now. Eighteen months back ecommerce was not strategically important to brands/OEMs, but brands are now launching their own ecommerce platforms, and/or have a clear strategy for ecommerce as a channel. Senior executives with years of core category experience are now excited about ecommerce and are considering opportunities in this retail format.

These trends are still in their infancy but if they continue the situation will be very different a few years from now. The key question is to what extent and in what time frame will these developments move the needle in making ecommerce sustainable.

Some thoughts for ecommerce entrepreneurs

My thoughts for entrepreneurs building ecommerce companies are to:

  • Assess if you can derive value out of any of these services / trends: For example, compare if your current logistics / payment provider (in-house or outsourced) is competitive with the changing environment or revisit if you can bring in top talent from the domain into your team.
  • Step forward to support the ones you find relevant: For example, you would take risk when you test a new partner in your order flow (logistics or payment), or when you commit to not hiring from competition, but these partnerships can pay off very meaningfully in the long run.
  • If you are a new startup, identify and focus on your core competence: Logistics and payments contribute significantly to direct costs but they are only necessary and not sufficient for success.  So unless you plan to differentiate on these, leverage the ecosystem.

This list is by no means exhaustive, so please feel free to add more names / trends / thoughts in the comments section.

(Source: Andrew Bolin)

[Published in Medianama]

I attended the Founders Forum event in Mumbai, organized by Rajesh Sawhney, Brent Hoberman and Jonathan Goodwin, as well as the Nokia Growth Partners Mobile Internet event.

Jonathan Bill of Vodafone spoke at both these events about upcoming changes in Vodafone’s offdeck rev-share regime in India.  This change, along with a potential broadband data plan price war and growth in smartphone users could result in a real transition in mobile data usage over the remainder of this year, charting a way out of the slump that I discussed in my last post.

Vodafone will start to offer more favorable rev-share deals to those direct-to-consumer mobile apps/services companies that will not rely on Vodafone for promotion and customer acquistion. In other words, developers will keep 70% of the revenue from their applications (at a scale of Rs 1 cr+ in billings; 60% below that), as opposed to the 25-30% currently prevalent here.  70% is more in line with what Apple and Google offer to developers for iOS and Android apps respectively as well as what operators are offering in the US, Europe, China and Japan.

The bet here is that the smaller operators like Aircel and Tata DoCoMo follow relatively quickly and then the larger ones like Airtel and Reliance may be compelled to follow suit – in aggregate, these greater offdeck rev-shares will drive more innovation and more revenue for developers.  Nokia, among others, is citing a 3-5x jump in conversation rates when operator billing is enabled for paid apps and in-app purchases.

I don’t think mobile operators are risking much in the short- to medium-term by tring this since this change in rev-share would only apply to offdeck billing and not to the majority of revenue that these operators get through whitelabeled services, data plans and p2p SMS that they already offer.  In the long-term, though, whitelabel services will suffer from competition from D2C apps/services – also, ARPU from data plans will come down in price wars although overall data plan revenue should go up with significantly higher numbers of data subscriptions.

I don’t expect these changes to break open the eco-system overnight.  70% rev-share to developers was offered in the US for several years prior to the iPhone being introduced in 2007, yet the eco-system there did not break-out.  Why?  Because there is lots of other friction in the eco-system as well, including multi-step transaction flows for consumers, 4-6 month payout periods for developers, reconciliation issues, no standard app discovery methodology (although app stores are starting to be offered by most operators today), no offdeck billing aggregator in India, fragmented platforms, lack of customer trust, and limited success/availability of multiple business models like paid apps, in-app billing, in-app advertising etc.

However, assuming this change from Vodafone comes through in the next couple of months, here’s some of what could ensue:

  • In anticipation of other operators following through with the same model, I expect to see the formation of many new teams with strong consumer acquisition, engagement and retention DNA.  Hopefully, with funds freed up for product and marketing, there should be a greater focus on building brand and acquiring customers directly on what will be the leading platforms in India in the next few years: mobile Web and Android (in my opinion, not SMS, USSD, J2ME or iOS).  I am bullish about the prospects of some of these D2C categories, especially related to entertainment.
  • Mobile ad networks (e.g. Google, InMobi, Appia, Getjar) will benefit from some increased performance-based ad spend from developers.  As we have seen in other countries, mobile content providers (music, ringtones, apps) with direct revenue models have been the earliest adopters of mobile advertising because they have been able to tie marketing spend directly to revenue.
  • Existing whitelabel MVAS vendors will launch consumer brands or start pushing their nascent consumer brands more aggressively.  In other geographies where the D2C eco-system opened up, whitelabel vendors have struggled tremendously with building consumer brands and have mostly failed.  Impediments include trying to maintain relationships with their mobile operator customers while competing with them in their D2C business and not having the consumer DNA in the team for user acquisition and retention.
  • Other mobile operators might slowly start offering similar rev-shares although I think they will wait to see the results of Vodafone’s new initiative before risking their arguably miniscule offdeck billing revenue streams.
  • We may see a carrier payments aggregator emerge once enough operators have changed their offdeck rev-share percentages.  InMobi (with Smartpay) and Opera are already moving this way in India as announced at MWC.  Boku, Zong, Paypal may come this way over time.  There should be a space for a standalone Indian carrier payments aggregator, along the lines of what Qpass did in the US a decade ago.

So, I see a much more vibrant and larger MVAS eco-system emerging over the next few years.  Now is a right time to start direct-to-consumer companies in mobile – we are seeing a ton of founders with exciting new ideas.  Bring it on!

(previously published on Nextwala blog and Medianama)

Naveen Surya, founder/MD of Itz Cash, spoke about the idea behind Itz Cash. Here’s the video:

Twitter Feed

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 117 other followers

%d bloggers like this: