Flybits nabs $35M to build consumer recommendation engines for the financial sector

Financial service companies like banks have seen some of their business cannibalised over the years with the rise of digital-based alternatives — often in the form of apps — that provide lower fees, faster responsiveness, and more flexibility to consumers. Today, Toronto-based startup called Flybits is announcing $35 million in funding for a platform that it believes can offer these banks a way of continuing to capture their users’ attention, and to help them pivot into the next generation of services, financial or otherwise.

Today, a typical end product for a customer of Flybits’ services will use insights to upsell a customer by offering financial services, for example a bank providing an offer of a specific kind of loan or credit card that you are more likely to take; or to offer a loyalty program or rewards for usage. But the longer-term goal, said CEO and co-founder Hossein Rahnama, is to help its customers take on a bigger role as repositories that can be used for more than just money, and used beyond the walls of the bank.

“We don’t think banks will go away as some do, but we think that they could have a role not just as money vaults, but as data vaults: a place where you can deposit data, which you trust,” he said in an interview. Indeed, some of the funding will be used to put into action some of the AI and machine learning patents the startup has amassed, with the building of a “data” marketplace for banks, fintechs, and other data providers to partner and build more services together.

The Series C comes from an interesting group of investors that includes both strategic backers using Flybits’ services, as well as backers of the more non-strategic, financial kind. Led by Point72 Ventures (hedge fund supremo Steve Cohen’s VC fund), the list also includes Mastercard, Citi Ventures, and Reinventure (the fund backed by Australia’s Westpac Banking Corporation), Portag3 Ventures, TD Bank and Information Venture Partners. Valuation is not being disclosed, and prior to this the company had raised around $15 million.

Much like another marketing tech company, Near — which today announced $100 million in funding — the premise that underpins Flybits’ technology is that there is a lot of disparate data out there that, if it’s treated correctly, can uncover a lot more insights about consumer behavior, and that by and large many companies are missing this opportunity because they haven’t found the right way of merging the data to unlock insights.

While Near is applying this to location-based data and a range of different verticals, Flybits’ primary target has been banks and the data that they and other financial services providers already posses.

Many smaller startups in the world of financial services have stolen a march on bigger incumbents by building personalization into their products from the ground up. (Indeed, some like Step, aimed at teens, are so personalised that they will actually change their service mix as their customer base grows up and needs new products.) This is something that incumbents might have been more readily able to do in the old days, when people knew their bank managers and tellers and made daily trips into branches to transact. In the digital age they have fallen behind and are now catching up.

Flybits’ investors have spotted that and this in part is why they are banking on technologies like this to help bigger companies catch up, not just in financial services (although with banking alone estimated to be a €6.9 trillion industry, this is clearly a good start).

“Personalization is mission-critical for all D2C businesses in the digital age. Flybits’ integrated platform allows financial services firms to offer contextualized experiences, driving product awareness and adding significant value to the lives of their customers,” said Ramneek Gupta, Managing Director and Co-Head of Venture Investing at Citi Ventures, in a statement. “We look forward to partnering with Flybits in its next phase of growth as it continues to set the bar for hyper-personalized customer experiences.”

Indeed, it’s not just banks that are working on upselling, or that have large repositories of data that are not used as well as they could be.

“Mastercard and Flybits share a vision on using data driven insights to enrich consumers’ experiences.” said Francis Hondal, President, Loyalty & Engagement at Mastercard, in a statement. “Our ultimate goal is to develop products and services that engage consumers in a highly contextual manner. Through this collaboration with Flybits, we’ll be able to offer rich, personalized experiences for them throughout their journeys.”

Fintech in Latin America continues to draw big dollars as Softbank invests $231 million in Creditas

As investors continue to move more aggressively into Latin America’s startup scene, there’s one industry that seems to be drawing more attention than any others — financial services.

As wealth across the region continues to rise, access to adequate financial services — specifically debt — has become a pain-point for an upwardly mobile middle class that wants to be more entrepreneurial and have more financial tools than straight cash at their disposal.

That’s what’s driven companies like Nubank, the Brazilian consumer credit card behemoth, to valuations of roughly $4 billion; and it’s also what contributed to Creditas, a provider of secured loans, raking in $231 million in new financing from the SoftBank Vision Fund and SoftBank Group. Previous investors Vostok Emerging Finance, Santander InnoVentures and Amadeus Capital also participated in the round. 

Founded by Sergio Furio in 2012, the company started as an originator of loans to Brazilian customers who were willing to offer up collateral in exchange for lower interest rates on their debt. Back in 2017, the company became more of a fully integrated lender for the entire process.

Thanks to investments from local and international investment firms including Kaszek Ventures, Quona’s Accion Frontier Fund, Redpoint eVentures, QED Investors, Naspers Fintech, International Finance Corporation and Endeavor’s Catalyst fund, the company became one of Brazil’s largest new financial services startups.

Expect the company to use the new cash to expand its product portfolio and try to offer new lines of credit that it would issue itself — perhaps by trying to enter new businesses like unsecured consumer lending and credit cards.

If it does make its way into unsecured side of the lending market, that would put the company squarely in competition with Nubank (which was reportedly in discussions with Creditas’ lead investor, SoftBank, about an investment earlier this year).

“At Creditas we relentlessly focus on creating an amazing experience that provides efficiency and lower prices to democratize the access to low-cost lending in Brazil. With these investments, we plan to accelerate this process and expand our business model in order to improve the lives of the Brazilian population,” said Sergio Furio, Founder and CEO of Creditas, in a statement.

As a result of the investment, representatives from the SoftBank Vision Fund and SoftBank Latin America Fund will join Creditas’ Board of Directors.

PayU, Naspers’ global fintech firm, enters Southeast Asia with acquisition of Red Dot Payment

PayU, the Naspers owned fintech firm that specializes in emerging markets, is broadening its global reach into Southeast Asia after it announced a deal to buy a majority stake in Singapore-based Red Dot Payment.

Naspers is best known for its payments and fintech business in markets like India, Latin America, Africa and Eastern Europe, but now it will enter Southeast Asia, a market with over 600 million consumers and rapidly rising internet access.

PayU plans to tap that potential through Red Dot, an eight-year-old startup founded by finance veterans which offers services that include a payment gateway, e-commerce storefronts and online invoicing across Southeast Asia. PayU said it has acquired “a majority stake” in the business. It did not specify the exact size but it did disclose that the deal values Red Dot at $65 million.

It isn’t clear exactly how much Red Dot had raised from investors overall — its Series B was $5.2 million but the value of prior rounds were not disclosed — but its backers include Japan’s GMO, Wavemaker, Skype co-founder Toivo Annus and MDI Ventures. The company said that that “the majority” of its investors exited through this transaction, but some stakeholders — including CEO Randy Tan — are keeping shares with a view to a later buyout in full.

That’s important for PayU, according to CEO Laurent le Moal, who stressed that the company believes in retaining teams and empowering them through acquisitions, rather than simply buying an asset.

“We have to strike the balance between a solid majority [acquisition] and an opportunity” for founders, he told TechCrunch in an interview.

PayU plans to put “real investment” into the startup, whilst also integrating its services into its ‘Hub’ of services and tech, a stack that is shared with its mesh of global business and was built from its acquisition of Israel’s Zooz. PayU’s India business alone is estimated to be worth $2.5 billion, but its overall business is hard to value but more details emerge of its global business as Naspers lists select entities through an IPO in Europe.

Back to the deal, Tan called it “a marriage made in heaven,” and he also revealed that Red Dot had turned down recent investment and acquisition offers from three other suitors.

“They [PayU] operate globally and have over 300,000 merchants, including Facebook, Google and the kind of clients we aspire to win,” he said.

So why Southeast Asia, and why now?

“We want to build the number one payments company for high growth markets,” le Moal said. “If you look at what the top 10 economies will be in 2030, half are in Southeast Asia and the rest are growth markets we are already in

“We are number one in India, in the biggest markets in Africa, the fastest-growing part of Europe and Latin America, but we have no presence in Southeast Asia,” he continued. “It’s fundamental… you want to go where the consumer growth is.”

The initial focus post-deal is to supercharge the Red Dot business through shared tech, networks and expertise, but, further down the line, de Moal has a vision of going deeper into fintech and financial services to offer products such as consumer credit, as it has done in India.

Such a product launch isn’t likely to happen for another 12 months at least, the PayU CEO said. Before then, there will be a focus on growing Red Dot’s cross-border trade business and developing synergy with its business in other markets, especially India.

Laurent Le Moal 2017

PayU CEO Laurent Le Moal said the company is looking to dominate high-growth markets in Southeast Asia following its acquisition of Red Dot Payment

De Moal hinted also that PayU has ambitions to be in Japan and Korea, although he conceded that the exact strategy — which could include organic growth — is still to be defined. We can certainly expect to see an uptick from the company in Southeast Asia and the wider Asian continent.

“There will be an acceleration of investment and M&A,” de Moal said. “It’s just the beginning for us as PayU and Naspers in the region.”

Warburg Pincus announces new $4.25 billion fund for China and Southeast Asia

Warburg Pincus, the private equity fund with over $60 billion under management, is doubling down on Asia after it announced a $4.25 billion fund dedicated to China and Southeast Asia.

The firm has been present in China for 25 years, and it has invested over $11 billion in a portfolio of over 120 startups that includes the likes of Alibaba’s Ant Financial and listed companies NIO (a Tesla rival), ZTO Express (a courier firm)among others. The new fund will work in tandem with the firm’s $14.8 billion global growth fund which was finalized at the end of last year.

What’s particularly interesting about the new fund is that it has expanded to include Southeast Asia, where internet adoption is rapidly expanding among 600 million consumers, for the first time. It is the successor to Warburg Pincus’ previous $2.2 billion ‘China’ fund and, with the addition of Southeast Asia, it’ll aim to build on initial investments in the region that have included Go-Jek in Indonesia (although it is going regional) and Vietnamese digital payment startup Momo from its Singapore office.

Indeed, the firm’s head of Southeast Asia — Jeff Perlman — said in a statement that Southeast Asia is “exhibiting many of the strong investment themes and trends which have driven our China business over the last 25 years.”

While there is plenty of uncertainty around China, and more widely Asia, due to the ongoing trade battle with the U.S. — which has ensnared Huawei and other tech firms — Warburg Pincus said it had received strong demand for LPs whilst out raising this new fund.

Though it declined to provide details of its backers — and you’d wager that few, if any, are U.S-based — it said it surpassed its initial target of $3.5 billion for the China-Southeast Asia fund. That’s despite evidence suggesting that China’s investment space is experiencing a slowdown in total funding raised despite more deals.

In terms of target investments, the firm said it intends to focus on areas including consumer and services, healthcare, real estate, financial services and TMT — technology, media and telecommunications.

Warburg Pincus is already one of the largest investors in Southeast Asia in terms of potential check size, although it has been fairly selective on deals at this point. The fund’s move to include the region alongside will be a boon for companies looking for growth-stage deals that are hard to find in the current venture capital ecosystem.

More broadly, it is also a major endorsement for Southeast Asia as a startup destination. The region has long been seen as having immense growth potential, but it often sits in the shadows of more mature regions like India and China.

TransferWise’s new debit card for the US fires the starting gun on a new war for travelers

International money transfer service TransferWise, has made a significant incursion into the US market today, launching a MasterCard debit card alongside a multicurrency account. Mirroring the card it has already launched in the UK and Europe last year, the card will work in over 40 currencies without balance limits, and conversion fees will be competitive with current exchange rates. A similar card aimed at businesses will follow the consumer launch.

Co-founder Taavet Hinrikus told me that the card effectively makes the average person able to act like a millionaire when they are traveling. “Alternative ‘travel’ cards are four times more expensive for every dollar spent and are only available to the top 10% of people who pass credit checks and also pay hundreds of dollars per year,” he said.

He believes this card will democratize the whole market. That means it’s likely that US tourists in Europe or elsewhere will be hugely attracted to this card because they will be charged as if they were a local person, in the local currencies, without all the normal fees.

Transferwise is also pushing an immigration angle to the launch featuring Tan France (pictured), star of “Queer Eye For The Straight Guy”.

Key features of the account and debit card include international bank details for the UK, the US, Europe, Australia, and New Zealand, meaning account and routing numbers that are unique to the account holder. Additionally, if a holder swipes a card in a currency they don’t have in their account, the card knows to choose the cheapest option from their available balances. The card is also free to get, with now no subscription, no sign-up fees, and no monthly maintenance fee. Holders can also freeze/unfreeze the card from the Transferwise app and receive push notifications every time they spend. It will also sync with Apple Pay, Google Pay, and Samsung Pay.

Hinrikus added: “Our goal is to offer bank details for every country in the world through one account — the world’s first global account — and we’re starting with five of the world’s top currencies. The 40-currency debit card completes the package, so we’re excited to be releasing the card in the US.

Earlier this year TransferWise said it was now valued at $3.5 billion after closing a $292 million secondary funding round. In November it reported an annual post-tax net profit of $8 million for the year ending March 2018. At the time it said it had five million users transacting $5 billion across its platform a month.

While Transferwise competes with the smaller Revolut and WorldRemit, as well as incumbents like Western Union and MoneyGram, with the launch of this new card it will also be breathing down the neck of Paypal.

Its investors include Old Mutual, Institutional Venture Partners, Andreessen Horowitz, Lead Edge Capital, Lone Pine Capital, Vitruvian Partners, BlackRock, Valar Ventures, Baillie Gifford, PayPal founder Max Levchin, and Virgin Group founder Richard Branson, among others.

TransferWise’s new debit card for the US fires the starting gun on a new war for travelers

International money transfer service TransferWise, has made a significant incursion into the US market today, launching a MasterCard debit card alongside a multicurrency account. Mirroring the card it has already launched in the UK and Europe last year, the card will work in over 40 currencies without balance limits, and conversion fees will be competitive with current exchange rates. A similar card aimed at businesses will follow the consumer launch.

Co-founder Taavet Hinrikus told me that the card effectively makes the average person able to act like a millionaire when they are traveling. “Alternative ‘travel’ cards are four times more expensive for every dollar spent and are only available to the top 10% of people who pass credit checks and also pay hundreds of dollars per year,” he said.

He believes this card will democratize the whole market. That means it’s likely that US tourists in Europe or elsewhere will be hugely attracted to this card because they will be charged as if they were a local person, in the local currencies, without all the normal fees.

Transferwise is also pushing an immigration angle to the launch featuring Tan France (pictured), star of “Queer Eye For The Straight Guy”.

Key features of the account and debit card include international bank details for the UK, the US, Europe, Australia, and New Zealand, meaning account and routing numbers that are unique to the account holder. Additionally, if a holder swipes a card in a currency they don’t have in their account, the card knows to choose the cheapest option from their available balances. The card is also free to get, with now no subscription, no sign-up fees, and no monthly maintenance fee. Holders can also freeze/unfreeze the card from the Transferwise app and receive push notifications every time they spend. It will also sync with Apple Pay, Google Pay, and Samsung Pay.

Hinrikus added: “Our goal is to offer bank details for every country in the world through one account — the world’s first global account — and we’re starting with five of the world’s top currencies. The 40-currency debit card completes the package, so we’re excited to be releasing the card in the US.

Earlier this year TransferWise said it was now valued at $3.5 billion after closing a $292 million secondary funding round. In November it reported an annual post-tax net profit of $8 million for the year ending March 2018. At the time it said it had five million users transacting $5 billion across its platform a month.

While Transferwise competes with the smaller Revolut and WorldRemit, as well as incumbents like Western Union and MoneyGram, with the launch of this new card it will also be breathing down the neck of Paypal.

Its investors include Old Mutual, Institutional Venture Partners, Andreessen Horowitz, Lead Edge Capital, Lone Pine Capital, Vitruvian Partners, BlackRock, Valar Ventures, Baillie Gifford, PayPal founder Max Levchin, and Virgin Group founder Richard Branson, among others.

The changing nature of venture capital

SoftBank and Andreesen Horowitz (a16z) recently announced new funds that reinforce the increasing scale of the venture industry. SoftBank announced its intent to raise a second Vision Fund through a public offering, a first for any venture firm. A16z announced two new funds, an early-stage $750 million fund and a growth-stage $2 billion fund.

A16z is the latest firm to launch a family of funds, four in the past 18 months totaling $3.5 billion, including the earlier announced Bio and Crypto funds. A16z joins GGV, Lightspeed and Sequoia as firms that have raised families of funds that cover specific sectors, stages or countries. In the last 18 months, Sequoia has raised nine funds, with nearly $9 billion committed; Lightspeed four funds for nearly $3 billion; and GGV four funds with $1.8 billion.

These funds and others like them will change the nature of venture capital. Venture is no longer a cottage industry where partners sit around a conference table on Mondays meeting companies and discussing which to support. Venture no longer operates as a collection of individual practitioners like a dental clinic. Venture firms are moving from job shops to scaled organizations with an armada of specialists in human resources, marketing, finance, engineering, legal and investor relations to support their investment and fundraising activity. Once firms with just a few partners, SoftBank, Sequoia and GGV now have teams of hundreds of people working to support continual fund raising, origination and portfolio development in the United States and abroad.

Funding startups is an inherently local business.

Investment banking and private equity firms provide a road map for how the venture capital may develop. The leading investment banks and private equity firms were closely held partnerships for many decades, before increasing capital intensity required a change of corporate structure. Founded in 1914, Merrill Lynch, a securities brokerage firm, was considered an interloper in the cloistered investment banking world. But as more capital entered public securities markets, securities trading houses such as Merrill Lynch encroached on Goldman Sachs, Morgan Stanley, Lehman and Kuhn Loeb, which then dominated highly profitable investment banking.

A wave of consolidation followed as partnerships gave way to full-service investment banks armed with capital to backstop their lucrative mergers and acquisition and financing practices. Founded in 1854, Lehman acquired Kuhn Loeb in 1977, which was then acquired by American Express in 1984, combining Lehman’s banking practice with Shearson’s brokerage business. The last bulge bracket investment banking partnerships Morgan Stanley and Goldman Sachs went public in 1993 and 1999, respectively.

Private equity firms soon followed. Like investment banks, partnerships prevailed in private equity. But as their appetite for capital grew to finance ever-larger acquisitions, private equity tapped the public markets for larger, more stable capital. Today, the five largest private equity firms are all public. Apollo Global Management, a PE firm now with $250 billion under management, went public in 2004. Blackstone, the largest PE firm, with $470 billion under management, followed with an IPO in 2007. Carlyle, KKR and Ares soon followed with public offerings.

Venture capital has been insulated from the capital intensity that fueled consolidation of the investment banking and private equity industries. Funding startups is an inherently local business. Technology innovation has historically been capital-efficient as early technology leaders such as Microsoft and Oracle went public after raising less than $20 million in private funding. And venture is a risky, volatile business, where profits vary substantially, failure rate is high and returns are highly cyclical.

Innovation is costlier as entrepreneurs and investors seek to disrupt rather than enable industries.

But like the investment banking and private equity industries, venture capital is becoming more capital-intensive. Innovation is costlier as entrepreneurs and investors seek to disrupt rather than enable industries.  Startups require more capital to achieve escape velocity with the ever-present, growing threat from technology incumbents. Startups are moving into new industries competing with larger incumbents. And “lean startups” that rely more on company-building services offered by their investors are not “lean” for venture firms that must build out service capacity in talent acquisition, sales, product marketing and finance to accelerate venture growth. Today, staff devoted to supporting startup development often exceeds investment professionals in large venture firms.

The venture industry is highly fragmented, with more than 200 venture firms in Silicon Valley alone. Hundreds of venture firms are starting in cities and countries that were previously considered deserts for technology innovation. The venture industry is likely to consolidate significantly in the next decade as funding confers greater advantage to large venture investors.

A few boutique investment banks and private equity firms have withstood the scale and capital advantages of bulge bracket firms. Similarly, seed and early-stage venture firms will resist SoftBank-style institutionalization. Venture firms with expertise in specific technologies, industry sectors or geographic markets will still produce superior returns. However, capital intensity is rising. The venture industry will ultimately be dominated by a few global venture firms supported by independent seed and early-stage funds with proprietary access to high-potential startups.

What money should be

With the release of the Facebook consortium’s project Libra whitepaper, the internet, tech world, financial services industry and policy circles are all burning with conversation on the project’s potential. We are still very early into Libra’s life — it is, after all, still a proposal — and there is an endless set of questions left to answer. The project could redefine how we view money or it could be a complete failure; we won’t know which for years to come.

While there isn’t much to add to the (likely thousands) of pundit takes on the project until more details come out, this moment does provide us with an opportunity to step back and take a look at money itself. We should be asking ourselves: how does money work today and how should it work?

Money is an anachronistically analog part of everyday life. The last 25 years saw the digitization of most services businesses, from communications (email) to bookstores (Amazon) to taxis (Uber). Yet, even with the rise of fintech and significant innovation in consumer finance, money itself has remained curiously unchanged.

The future of money is just beginning.

There are good reasons for money to have remained unchanged. Currencies are controlled and issued by states, and for many reasons, they need to be controlled and issued by states. But the reasons are a reflection of the “facts on the ground” today. Money is too sensitive and too critical to allow for the same level of disruptive innovation we’ve seen in other assets. But if we were to design money de novo today from a Rawlsian original position, it would probably look pretty different.

Libra gives us an opportunity to talk more openly not just about what money is, but about what money should be. And regardless of what happens with Libra — which faces regulatory and competitive headwinds — the moment won’t be wasted if we take this time to contemplate the future of money. Below are some (not collectively exhaustive) starting ideas for that conversation, from the most basic to the more exotic.

Money should be free

Let’s start with the most obvious: put simply, it shouldn’t cost anyone money to use money. Financial institutions and fintechs are (slowly) moving toward this consensus, but in many cases, people still have to pay just to access their money.

ATMs charge fees for withdrawals. Checks cost money to print (and for those who feel the U.S. is moving past them, 90% of checks are still written in the U.S.). Foreign remittances incur transfer fees, bank-to-bank wires incur fees, check-cashing incurs fees, paying vendors with PayPal incurs fees, etc. etc.

The early promise of apps like Venmo, Square Cash and WeChat Pay (and earlier, Clinkle) is to let people transfer and use their money at no cost. Apple Pay and Google Pay take that promise a step further by making the phone — not the dollar — the primary instrument for in-person purchases — all at no cost to debit directly from a bank or credit card account.

But these apps have no equivalent in many countries. While mobile money services like M-Pesa have been ubiquitously successful in Kenya and neighboring countries, countries like Nigeria — Africa’s largest economy — still have significant cost of cash problems and expensive policy restrictions on the use of cash. I ran into many “Unable to dispense cash” error messages in my time in east Africa, where just having a bank account could incur non-trivial costs.

Incurring a fee just to use money is an outdated standard.

Money should transfer instantly

To most people reading this, the difference between instant payments and those that take a couple of days is not significant. A paycheck could come on Friday or Monday. A Venmo cashout can take a day or two to hit a bank account.

But as Aaron Klein at Brookings notes, slow payments disproportionately affect poor people. The time it takes for a check to clear, for remittance funds to settle or for payroll to be deposited can mean the difference between paying a bill and incurring an overdraft fee. It can mean not having enough money for weekend grocery shopping. These realities drive consumers to turn to payday lenders ($7 billion in annual fees), check cashers ($2 billion) or overdraft fees ($24 billion!).

Identity should be programmed into money.

As NPR noted when they waited for a Kickstarter payment, “We just need Amazon’s bank to send money electronically to a checking account at Chase bank. It’s just information traveling over wires. How long could it take: A minute? An hour? It took five days.” That is because the rails on which money is moved in the U.S. are more than 40 years old. As Klein notes, you can now send money more quickly from Slovakia to France than DC to Philly — and fixing this delay could be the single fastest way to combat wealth inequality in the United States.

This is another obvious easy win for the future of money.

And signs of that future are emerging. Apps like Earnin and employers like Walmart are paying workers in real time, to allow people to use their money as soon as they earn it. Libra’s own website opines that getting and using money “should be as easy and cheap as sending a text message.” Money should move at the speed of communications.

Money should take ‘one click’ to use

Amazon is notorious for pursuing one-click purchase technology, removing the last small obstacles between consumers and their buying decisions. Money should be no different: moving money to savings, sending it to a friend, making a loan or investment, paying a bill — these activities could all use a more frictionless UI upgrade. Unfortunately, today, accessing your money frequently requires a string of passwords, PINs, IDs or 2FA — all absolutely critical for security, but friction-inducing.

Fortunately, digital identity systems have been a ripe area for innovation in the past few years. Smartphone OS’s now allow people to use biometric identifiers — like fingerprints or Face ID — to authorize the use of their money, with mixed success. Decentralized identity systems like 3Box sell the promise of one universal, self-owned ID profile that can be used to permission any service built on top of it (including financial ones).

Identity should be programmed into money. If units of currency can have an “ownership” field, that field can be unlocked using more frictionless identifiers tied to the user and then re-coded when ownership is changed, making one-click use possible. (This could operate similarly to Everledger’s diamond registration program.) This could also prevent theft: If the “ownership” identity field is secure enough only to be altered in legitimate transfers, money could also be programmed to be unusable if that field is transferred improperly (i.e. stolen). This brings up a related point…

Money should be secure

One of the cities with the fastest rate of mobile payments adoption is Mogadishu, Somalia. Why? Because mobile money is safe — in Mogadishu, where muggings are frequently deadly, carrying cash can be a matter of life or death. The future of money is one in which physical theft is no longer possible because money is securely digitized.

Money should be stable

While theft drives mobile money adoption in Somalia, a BBC report titled The surprising place where cash is going extinct found a different driver of cashless payments in neighboring Somaliland: hyperinflation. The rapidly devaluing Somaliland shilling has made goods that were previously affordable two times as expensive in as many years, leading shoppers to opt for mobile dollars over bundles of cash.

This is one of the expressed promises of Libra and other stablecoins like the Gemini Dollar or the ill-fated Basis: no wild fluctuations. As Caitlin Long points out, “central banks in developing countries are notorious for their lack of discipline in maintaining the value of their fiat currencies, which too often lose purchasing power.” A global, consortium-moderated currency could tame that irresponsibility.

How does money work today and how should it work?

Hyperinflation isn’t as rare as it sounds. It was the status quo two years ago when I visited Zimbabwe and goods were quoted in three prices. Over the last year in Europe, Turkey’s lira dropped 25% in value in its own crisis. And today in Venezuela, inflation stands at over 1,000,000%, making goods un-buyable. The most common explanation for these events is that they happen when people lose faith in governments to protect the value of their currency. The drop in value led to massive capital flight, ironically, to Bitcoin as a source of stability (including a Bitcoin ATM in Harare, Zimbabwe’s capital).

Interestingly, the Libra is not the first supranational currency to be proposed (see economist John Maynard Keynes’ Bancor plan). It isn’t even the first international reserve currency based on a basket: the IMF maintains the XDR, a currency pegged to a weighted mix of dollars, euros, yuan, yen and pounds (the Libra will be fiat-pegged to all those, less the yuan). But the Libra would be the first non-sovereign global reserve currency competitor, and the first one that individual people could actually use.

It remains to be seen whether the Libra itself one day gains enough intrinsic value (what Matt Levine refers to as a collective fiction) to separate from its underlying basket of currencies, the same way the U.S. dollar left the gold standard.

The money of the future should not be intrinsically tied to faith in local government — it should retain its value and stability independently so that it doesn’t risk rapid devaluation.

Money should be interoperable

The internet could have developed very differently. If we look back to the early days of the internet, there was always a chance that multiple competitive “walled garden” internets grew side by side, competing for users, and refusing to talk with each other. Fortunately, thanks to the work of nonprofit governing bodies like ICANN, the world mostly runs on one internet. Even in countries like China that wall off certain websites, internet pages still talk to each other using the same set of protocols that they do everywhere else in the world.

Money should be no different. It should be as easy to buy lunch with a currency in one country as with that same currency in another. The same payment protocol should underlie any type of purchase, physical or digital. Transferring between currencies should be instantaneous and free, not require visiting an (online or digital) exchange.

The explosion in cryptocurrencies built around narrowly vertical use-cases has been interesting to watch, but true adoption will only come with a universal resolver that allows people to frictionlessly move between use-cases without manually switching their unit of currency.

Different types of money should be use-based, not geography-based

Branching out from the prior point: What if money had built-in rules that determined what it was useful for? Dan Jeffries provides some instructive examples of what this could look like: deflationary coins could automatically adjust their value to track inflation. Inflationary tokens could be built to lose value quickly to incentivize spending.

Governments could reward spending on environmentally friendly goods by creating currencies that automatically discounted the prices of those goods. Currencies could have rewards and loyalty programs (e.g. Starbucks) automatically built in. Currencies could expire if not used in a given window, or only activate upon a certain date or trigger action. This is the promise of cryptocurrencies as “programmable money” rather than just “digital gold” (the Ethereum/Bitcoin debate).

Money should be an open development platform

If money becomes programmable, the possibilities for what can be built on top of money are endless and unexplored. Some of the most obvious examples are financial applications (like Calibra, the project Libra wallet).

It shouldn’t cost anyone money to use money.

The existence and ubiquity of a single-digital currency is just the first step. Following that step are applications, like lending (institutional or peer-to-peer), investing, savings, gift-giving, etc. Imagine, as a use case, being able to ping your bank via text and ask for a one-week microloan to cover a big purchase — and the loan being approved and sent back to you by text. Or imagine your kids’ allowance automatically accruing to them weekly via text — and an allowance “bonus” applied to any money they set aside for savings instead of spending. As David Graeber would note, it’s these credit and investment applications that create the potential for true growth in a financial ecosystem.

Many view Libra as a future platform, like the iOS Apple Store, that will house a potentially infinite volume of applications built on top of it. These could be universal rideshare apps, airline rewards accounts, e-commerce experiences, etc. that all plug into the same rails that your money is built on, so that the UI is entirely driven by the user intent (e.g. buying something) without requiring you to move any money between accounts.

Money should have (some) guardrails

The last feature money should have is built-in guardrails. This is the most controversial claim here, and one that will ruffle the feathers of the censorship-resistant, self-sovereign crypto community.

Digital money has the potential of traceability and programmable rules to create safety guardrails and prevent, for example, terrorist financing, black-market purchases, money laundering, transfer of stolen funds, etc. Libra, with its strict know-your-customer standards, will certainly work with financial regulators to ensure that it is meeting these guardrail standards. (Even though early reactions from legislators have run the gamut from skeptical to apoplectic.)

Yet there are sound reasons to be skeptical of digital money guardrails. Repressive regimes could use them to contain capital flight and offshoring (a key use case for Bitcoin in China). They could target an individual’s wallet to shut down their freedom of movement or purchase, and precisely trace their physical location. Back-door hacks that abuse guardrail functionality to disable money could have the effect of entirely freezing a country’s infrastructure and bringing down its financial system. It’s important to counterweight these possibilities when considering where guardrails should be set — and whether they should differ across borders.

The future of money is just beginning.

These are exciting times. The potential to move beyond centuries of slow progression in financial services has never been greater. The internet, combined with the ingenuity of blockchain and cryptosystems, could build the framework for a global network that brings the world onto one universal monetary standard. There are many questions to answer between here and there, but with Libra acting as a catalyst, people are finally beginning to ask them. Get ready for more innovation to come — this is just the beginning.

After Equifax breach, US watchdog says agencies aren’t properly verifying identities

A federal watchdog says the government should stop relying on the credit agencies to verify the identifies of those using government services.

In a report out this week, the the Government Accountability Office said several government departments still rely on the credit agencies — Equifax, Experian and TransUnion — to check if a person is who they say they are before they can access their services online.

Agencies like the U.S. Postal Service, the Social Security Administration, Veterans Affairs, and the Centers for Medicare and Medicaid Services ask several questions of a new user and match their answers to information held in an individual’s credit file. The logic is that these credit files have information only the person signing up for services can know.

But following the Equifax breach in 2017 those answers are no longer safe, the watchdog said.

The Equifax breach resulted in the theft of 148 million consumers. Much of the consumer financial data had been collected without the explicit permission of those whose data it held. An investigation later found the breach was “entirely preventable” had the credit agency employed basic security measures.

“The risk that an attacker could obtain and use an individual’s personal information to answer knowledge-based verification questions and impersonate that individual led the National Institute of Standards and Technology (NIST) to issue guidance in 2017 that effectively prohibits agencies from using knowledge-based verification for sensitive applications,” wrote the watchdog.

In response, the named agencies said the cost of new verification systems are too high and may exclude certain demographics from the population.

Only Veterans Affairs implemented a new system but still relies on knowledge-based verification in some cases.

The other downside is that if you have no credit, you simply don’t show up in these systems. You need a credit card or some kind of loan in order to “appear” in the eyes of credit agencies. That’s a major problem for the millions who have no credit file, like foreign nationals working in the U.S. on a visa. In 2015, some 26 million people were estimated to be “credit invisible.”

“Nevertheless, until these agencies take steps to eliminate their use of knowledge-based verification, the individuals they serve will remain at increased risk of identity fraud,” wrote the watchdog.

Binance begins to restrict US users ahead of regulatory-compliant exchange launch

The world’s largest crypto exchange is going legit. Binance, which processes over $1 billion on a daily basis and for so long has embodied crypto’s wild west culture, announced that it will launch a U.S-based service — but, in the meantime, it is implementing restrictions for U.S. passport holders worldwide and those based in the country.

The company has grown to become one of the biggest names in crypto by allowing anyone to use its service to trade a myriad of tokens, many of which are unavailable or limited on other exchanges. But over the past year, Binance has matured and begin to offer more formalized services. Following fiat currency exchange launches in the UK, Uganda and Singapore, so Binance is opening a dedicated U.S. exchange to avoid uncertainty around its legality.

This week, Binance announced it is pairing up with BAM Trading Services — which Coindesk notes is FinCEN registered and has links to Koi Compliance, which counts Binance as an investor — to launch a U.S. exchange “soon.” That will mean, however a level of disruption for some U.S. customers in the meantime.

Chiefly, Binance will no longer permit U.S. passport holders to sign up its global Binance.com service. That’s according to the company’s updated terms and conditions — “Binance is unable to provide services to any U.S. person” — which were confirmed to TechCrunch by a spokesperson.

Existing users have a grace period of 90 days after which they will be unable to deposit funds to the site or make trades. Binance declined to state whether those bans will be administered by a geo-block on U.S. IP addresses, but it did confirm that U.S. customers will retain access to funds held in the service.

That 90-day period ends September 12, so that’s effectively the deadline for Binance to launch its new U.S. exchange if it is to avoid impacting its American user base.

The reality is that the situation is more nuanced.

U.S-based users could continue to use the service by browsing the site with a VPN. Binance allows its users to sign up for a limited account without KYC — i.e. providing verification documents like a passport copy — which allows trading but limits withdrawals to 2 Bitcoin per day. That won’t satisfy more professional traders — most of whom you’d imagine would already have an account on Binance by now — but it does leave a loophole for others.

Binance CEO Changpeng Zhao insisted that the long-term pay-off will be worth any compromise.

It’s certainly fascinating to watch Binance, which has historically been one of the most aggressive crypto companies, transition into a more regulatory-compliant business. At the same time, those who have been cautious, such as Coinbase, are beginning to add new assets.

In addition to the fiat ramp exchanges, Binance has launched a decentralized exchange and it is adding much-requested features such as margin trading. The company also took an investment from Singapore’s Vertex Ventures, one of a number of sovereign funds in the country, to develop its Binance Singapore service.

It hasn’t been plain sailing — the firm lost $40 million and briefly paused trading last month following a “large scale” hack.