FinTech in North America – A Disruptive Affair

Millennials, the generation born between 1980 and 2000, is a generation of more than 80 million people, and it is the biggest generation in American history. One of the implications of this generation is their view on banking, and especially how the banking industry is next up for disruption due to unmet needs and dissatisfaction. For example are all four of the leading banks in the US among the ten least loved brands by Millennials, and one in three is open to switching banks in the next 90 days.

The disruption of banking is already happening, and at Innovation Center Denmark we have recently written a white paper focused on the development of new financial solutions within the FinTech space. FinTech is the condensed term for financial technology, and it describes the new business area spanning the intersection of financial and technological services and products.

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The purpose of our white paper is to provide the reader with a general knowledge of the trends, technologies and companies within the Fintech space in North America. Specifically, the paper is zooming in on trends within Lending, Wealth management, Payments and Transfers. Furthermore, we do also touch upon the fundamental systemic changes enabled by Blockchain and Regulation. If you have not read it already, you can find our previous blog post about Blockchain here.

The white paper was conducted by Søren Gyde, Innovation and Investment Associate, Line Rodil, Innovation Advisor and Anders B. Christjansen, Senior Innovation Advisor.

At Innovation Center Denmark we provide various corporate innovation services within FinTech through our XPLOREit platform. If you wish to learn more, please reach out to Anders at anbuch@um.dk.

BLOCKCHAIN: THE FUTURE OF TRANSACTION?

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Written by Søren Gyde Sønnichsen with great input from David Yerger from Bitgo.com

Many people heard about Bitcoin in late 2013 when the so-called Cryptocurrency suddenly surged over 700% in value within less than 2 months, making early investors overnight millionaires. The following 2 years Bitcoin shook off almost 80 % of the peak value, while people discussed whether this seemingly volatile Cryptocurrency really is the future of payments. Is it secure enough? Can we have a stable economy without any room for monetary policy? The real innovation, however, is the technology underlying Bitcoin; the Blockchain.

The blockchain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the blockchain. Once a transaction is added to a block, it is virtually impossible to remove it. Thus, you have a distributed chain of records, transaction history, time stamps of events, to refer back to. Those shared records are distributed across a global network updated in real-time.

Since 2013, the blockchain technology has begun to step out of the shade of the cryptocurrencies as blockchain companies have received almost $1 bn between 2014 and February 2016. Companies and investors alike are recognizing that bitcoin is just one of a wide range of applications. Imagine a world where you can buy a house in the Seychelles within half an hour while you are sitting in a café in France. Doing so with proper digital identifiers can reduce fraud of digital transactions to almost zero. The applications extent to voting, supply chain management, distribution of sensitive medical records or even reselling of concert tickets or limited edition shoes.

 

IoV: Internet of Value?

Recently, at a blockchain event hosted by VLAB at Stanford Research Institute, John Wolpert of IBM, noted that the buzz around this technology reminded him of the early years of the Internet 20 years ago. He attended an Internet event in the same auditorium back then where there was the same sense; the Internet will have a massive impact on our society.

Great innovation of the Internet in the early days was the ability to store and share information across the world at unparalleled speed. In recent years, Internet of Things (IoT) has evolved as the “second generation” of the Internet as we are becoming more and more connected to our material belongings through the Internet. We are storing massive amounts of data on the Internet, generated not only by our smartphones, TV’s or Coffee Machines but also generated by ourselves.

blockchain 3One might perceive blockchain as an Internet of Value (IoV). It is a database protocol that is extremely well suited at storing and sharing information about valuable assets because it is decentralized and distributed. In essence, blockchain is a chronological chain of bundles of information or “blocks”. The cryptographic nature of blockchain insures that no one can counterfeit or change it.

The fact that it is decentralized and distributed means that everyone is able to not only to use it but also to manage it because everyone on the blockchain holds a copy of the database as well as a “wallet” with a private key. This makes every user able to verify every transaction and in effect verify the assets of any user’s wallet and track the transaction history of the assets. It is exactly the secure verification that makes blockchain suitable for e.g. exchange of sensitive medical data or valuable assets that are easily counterfeited today such as art.

Of course, every user will not spend time verifying transactions – this is taken care of by so-called miners, who are paid (in Bitcoins) to verify transactions. The order of verification is random and the miner, who “solves” the “verification puzzle” the quickest, is paid. The “verification puzzle” takes a large amount of computing power to solve fast but once a miner has solved it the solution is easy to verify. This means that the transaction is not instant and can take anywhere between minutes and up to half an hour but miners are incentivized to solve them fast as only the fastest get paid.

Still, this speed of transaction and (importantly) verification of authenticity is unprecedented and the decentralized nature makes it insusceptible to corruption as it would be extremely difficult for any one person to take down the entire system since everyone holds a copy of the database.

 

Buying property on the blockchain

Returning to an example of a possible application of blockchain. Consider the steps involved in buying a house: a mortgage is issued almost instantaneously by a blockchain enabled auction and the investor (which could be a bank, a private investor or a crowd of investors) enters into a smart contract with the house buyer where the bank, as an intermediary, is cut out. The smart contract is self-executable in terms of making payments and continuously monitors and verifies whether all parties involved are upholding the conditions of the contract. Ownership of the house and payment are transferred on a blockchain betweeblockchain 2n buyer and seller, using Bitcoin or some other cryptocurrency. As there is no need for any human intermediaries (such as banks or lawyers), blockchain reduces the economic deadweight loss associated with these intermediaries, increases the overall economic surplus and potentially benefits both the owner of the mortgage and the house owner.

Consider the possible impact in developing countries where a well-functioning financial system is not present. A local farmer might not be able to loan money to buy a piece of land. No international bank will be willing to lend him money because there is no way to assess the assets of the farmer or the actual value of the piece of land. If property was exchanged on a blockchain, the bank could instantly verify (from anywhere in the world) the previous traded price of the land and verify the assets of the farmer, possibly enabling an extension of a loan and ultimately supporting economic growth.

When talking about Bitcoin, it is also worth mentioning that this removes the need for a central monetary institution such as a central bank. This could have a positive impact in countries with e.g. hyperinflation because of a corrupted monetary system or a central bank with no credibility. This will however be a drawback in countries that successfully use monetary policy to support economic growth in recessions and contain economic activity in booms.

 

Impacts of the Blockchain: Today and in the future

Today, the bitcoin blockchain manages around 200,000 bitcoin transactions a day, moving US$150 million around the world without interaction with any bank or financial intermediary. As mentioned in the beginning, a lot of funds are flowing into companies ´which are developing both consumer- and business oriented blockchain enabled applications.

Critics question the security because the decentralized nature of the database means that no central entity is able to step in and prevent a breach; the blockchain maintains itself, so to speak. Security is not an issue when assets are stored on a blockchain, however, security is a massive concern when those digital assets are secured in private “wallets” as is the case with Bitcoin. If the private key to this wallet is compromised, there is no way to retrieve your digital assets. However, many companies are working on how to strengthen security practices to reduce the likelihood of wallets being hacked. An example of a company is BitGo. This is an enterprise wallet and security company. More than $1 Billion USD moves through BitGo wallets each month by global businesses. They do this without taking custody of your funds, you maintain your funds. They enforce the security measures, policy and treasury controls on your behalf when you are ready to send a transaction.

Blockchain technology is already impacting international payments. Exchange infrastructure is in over 100 countries around the world. The questions no longer remain as to if this technology will change the way we live – the question is when. The possible applications are abundant but it remains to be seen whether blockchain is all hype or it actually will change the world with the same magnitude as the Internet indisputably has done.

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Sources:

CoinDesk

CB Insights

BitGo

Smart Buildings: a prospect to future workspaces

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Smart Buildings event, Feb 16 2016, hosted by VLAB in Silicon Valley.

By Andreas Rafn & Stine Drøgemüller

SMART BUILDINGS AND DATA-DRIVEN OFFICE SPACE

Smart Building technology using Internet of Things (IoT) and data analytics allows companies to design and operate intelligent work environments. This technology can be a necessity to implement in order to respond to an aging workforce, shifting customer demands and an evolving landscape of technology.

Moreover, Smart Buildings using Big Data, IoT etc. can be used to increase (in prioritized order):

  1. Productivity
  2. Health
  3. Energy savings

Productivity and health are major and increasingly important topics as workforce are the most expensive ”asset” found within a company. According to Comfy, it accounts for approximately 90% of a buildings overall lifetime cost. Salary and benefits for workers are the largest cost of running a building. Therefore, an increase in effectiveness concerning these topics has huge potential.

As one of the presenters stated: ”We see a clear correlation between energy-savings in our buildings and the effectiveness and measureable sales our workers are completing”. Hence, productivity and workforce are major assets in the overall perspective of the price of commercial real estate, whereas energy costs only account for a very limited part of the budget.

FUTURE PERSPECTIVES ON SMART BUILDINGS

According to the presenters at the event last night, the market of Smart Buildings has huge potential. The market is expected to grow by $200B by 2020. The largest barriers of success is to ’break’ the current locked path of the market and actually sell your product to the right people.

Advice for companies is therefore: Get out of the basement! IoT has only just started. Cyber security will be one of the main topics of IoT the next years…

For more info, visit VLAB.org

The Future of Man-Machine Interaction

Most times we talk about how we use technology – but maybe we should rather consider how we interact with it?

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By Mathias Rigbolt, R&D Associate

CES is mostly about new technology, some of which is revolutionizing with the potential to dramatically alter how we conduct our lives, while a lot is just generic gadgets and everything in between. But CES is also a forum for asking questions about technology – where is it going, how will it shape the future and what will the consequences be for human existence?

We are surrounded by technology day and night, give lots of data to our apparatuses and get lots of information in return, so it’s not inconsequential how this exchange takes place.

We often think of technology as instruments that we control by the use of buttons. But in recent years, we’ve seen groundbreaking new applications that allow us to control and even interact as well as communicate with technology in new ways; just think of Apple’s Siri. Many have experienced walking past a person, who is presumably talking to herself, thinking that this person must be nuts. That is only until you realize that she is actually communicating with her smartphone.

Situations like this makes it relevant to ask questions about how we interact with technology – are we doing it in the smartest way, which kinds of interaction are most suited to which kinds of tasks, and what consequences can interaction with technology have for whole societies?

Those were just some of the questions that were raised at CNET’s Next Big Thing session at CES16 with the title “Is typing dead?”, where representatives from industry and researchers discussed the relation between man and machine.

Old technology in new wrapping

It is an interesting fact that the QWERTY layout for keybSkrivemaskineoards has existed for almost 150 years and is still found on our computer keyboards. It’s even found on the virtual keyboards in our smartphones even though more efficient layouts and keyboards have been developed. First of all, this says something about the term “path dependency” from the study of diffusion of innovations. The basic idea is that when we venture down a technological path, it becomes still more expensive to deviate from it and the incentives to do so diminish.

Despite this, it’s thought provoking that we still in year 2016 design our keyboards the same way as we did on typewriters. It is not because there has been a lack of innovation, it just hasn’t diffused and been adopted. The same goes for a lot of other technologies. The most important point is that our primary interface with technology is often a keyboard, no matter whether it’s physical or virtual.

But that’s changing with new forms of man-machine interaction.

Voice and gesture

One of the relatively new modes of interacting with technology is through voice and speech. We can now pose questions to our smartphones and in many cases we receive a sensible answer. Many car manufacturers have also built voice control into their cars and they’re working on linguistic richness, which for example will allow the car to adjust its language to a German driver driving through France. It is now also possible to give commands to our homes (a booming trend at CES by the way).

The technology is getting to a stage where it will be possible to communicate with our apparatuses using natural language. What this means is that we can communicate with technologies as we would with real people instead of adjusting our torrent of speech to the logic of the machine. This is just one step on the path towards meaningful communication with the technology that surrounds us.

A crucial feature of human communication is that we can decipher the intention behind the words being spoken by the ones we’re talking to – at least most of the time – “understand what I’m meaning, not what I’m saying”. Imagine the day when your car tells you: “That’s not what you really meant”. That is an area where both researchers and industry are working hard to propel us forward.

Another area that has developed rapidly within the last 10 years is gesture control. Among early examples, gaming consoles could be mentioned while newer applications can be found in cars, which for example allow you to take the phone with the flick of a hand and make it possible to turn down the volume of the music by circular movements with a finger. The full potential of this mode of interaction has most certainly not yet been released. Nonetheless the question arises whether this way of controlling technology is actually more efficient than a good old button?

Becoming the best version of ourselves?

The panelists at the CES session didn’t think that any of these technologies would necessarily replace the well-tested QWERTY keyboard in the near future. On the other hand, they agreed that interaction with technology in the future will be characterized by multi-modal systems where the different control- and interaction models play together in a well-orchestrated symphony. These interaction systems will be able to adjust to each individual with machine learning and allow a seamless experience as when some of the newest technologies like augmented reality are coupled with gaze and voice control.

To addCyborg to this seamlessness comes affective computing, which allows technology to adjust to our state of emotion or at least react to it. In this way we approach the ideal of a perfect digital personal assistant that knows us in and out and understands our intentions; maybe even before we say something, because the assistant has collected and analyzed all our vital and psychological stats.

A lot of important questions arise from the transition from instruction of machines to interaction with technology. One of them is whether the enhanced interaction possibilities of new technologies allow us to become better versions of ourselves? When your digital assistant can advise you how to conduct yourself in social situations to give the best possible impression, what are the consequences?

It seems obvious that when we change our modes of interaction with technology, it will change ourselves and the way in which we interact with each other. In this connection there is no doubt that our attention will become one of our most valuable assets in the future as one of the panelists proposed.

The question of technologies’ consequences for human interaction and sociability has been posed for centuries. Probably we shouldn’t think of technology in opposition to humanity but rather ponder whether we’re humanizing technology, technologizing humanity – or both?

American shopping culture spreads to Denmark

Black Friday is back II

Black Friday was the biggest sales day ever in Denmark, which is a clear indication that the Danes have fully adopted the American tradition of shopping on Friday after the 4th Thursday of October.

The tradition of Black Friday kicking off the holiday shopping season with great deals from retailers and customers shopping like on no other day of the year, originates from the US. Originally, the term “Black Friday” referred to the chaotic and congested traffic conditions on the day after Thanksgiving, but later it was given another interpretation as the day when shops’ accounting numbers go from red to black.

The tradition of shopping in the Thanksgiving Holiday has existed for several decades and is still alive and well. However a number of new trends seem to be emerging. As these might be imported to Denmark in the coming years, let us take a look at them before getting into the record breaking numbers of this year’s Danish Black Friday.

US Trends

As always, the Thanksgiving weekend, including Thanksgiving Day, Black Friday, small business Saturday, and yet-to-be-named Sunday, attracted hordes of customers to both retail- and online stores. According to a National Retail Foundation survey, 151 million people shopped online and/or in stores over the weekend, with online shopping surpassing the low-tech alternative measured in customers. On average, each customer spent $300 over the weekend with 33% of customers shopping consumer electronics.

Including Cyber Monday (marketing term for the Monday after Thanksgiving Weekend), Adobe estimates total online Thanksgiving sales to reach $11B. Online shopping was so intensive on Cyber Monday that some of the big retailers, such as Target were unable to handle the immense web traffic generated on this day, which resulted in web shop down time.

Cyber Monday, which is now a bigger online sales day than Black Friday, got its name from the online deals and shopping that characterize this day and is a good example of an important trend in American holiday shopping. The good deals are no longer exclusively to be had on Black Friday, but are spread out across a much longer period.

Whereas Black Friday used to kick start holiday shopping,  there are now talks of “Black November” and “Cyber Week”. This seems to indicate not only semantics but that Black Friday is losing some of its importance as holiday sales are being spread out over longer periods of time. In fact, Black Friday sales has decreased the last couple of years.

Time will show how these developments play out and whether we’ll have to come to terms with “Black November”, but for now let’s take a look at how the Danes have taken on the American tradition.

Danish Black Friday

November 30th, Black Friday, was the biggest sales day to date in Denmark. Eager Danes waited in line outside shops in the freezing weather to get their hands on the best deals. Traffic went black with so many people on the roads in the middle of the night, and several of the major web shops broke down. 40,000 online customers waited in line to get into the retailer Bilka’s web shop, and the price comparison site Pricerunner had 220.000 visitors within the first couple of hours on Black Friday. It turned out to be both the biggest sales day offline and online with total sales of DKK 2B from 5.5M transactions, which is quite a lot considering the size of the Danish population.

The numbers are even more impressive given that Black Friday has only existed in Denmark for the last five years and had its big breakthrough in 2013. From 2012 to 2014 Black Friday sales increased by 495% on 23 major web shops.

What is interesting compared to the US is that in Denmark, Black Friday began as an online event and only this year did retailers really jump on-board. This is the direct opposite development compared to the US, where online shopping is just now beginning to get a lot of traction.

One might wonder if general holiday sales patterns in Denmark will also follow a different direction than in the US. In Denmark, holiday sales have historically been spread out through November and December but might become more concentrated with the adoption of Black Friday at the same time that US holiday sales are spreading out. If that is the case, it might signal that even though Denmark adopts certain US traditions and sales patterns, they are being adapted to the Danish context.

It will be interesting to see how Black Friday evolves in the coming years and whether Denmark will have a Cyber Week or Black November. What is already certain is that discounted sales events are no longer just biannual events in Denmark but something that takes place several times throughout the year.

Maybe both the US and Denmark will be impacted by the disruptive sales event “Single’s Day”, which was invented by the Chinese company Alibaba and reached sales of $14.3B on November 11th?

Where holidays end and shopping events start seem to be increasingly difficult to predict.

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