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P2P and the Future of Finance

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P2P is now an utterance that commonly haunts and regularly hangs by the mouths of both pin-stripe suited financiers at Wall Street as well as hoodied entrepreneurs at Silicon Valley when deep discussions happen over the future development of financial services but what exactly is it and more importantly, what ramifications does it hold for the future course of finance?

Peer-to-Peer (P2P) Transfer Services facilitate the direct transfer of funds between individuals, generally from their credit cards or bank accounts via the internet and/or mobile phones as the primary mediums for such services. To date, most P2P transfer services have followed and can be typified by 2 conventional models. The first model, which was originally established and adopted by PayPal, sees consumers connecting their bank account to the user accounts offered by P2P providers, which they may then use to directly engage in near-instant transfers between members of the network. Alternatively, many recent models (such as that adopted by Square) append on the existing network-rails and new transaction technologies offered by major card providers (i.e. MasterCard, Visa) such as the Original Credit Transaction (OCH), which enables users of their platforms to perform near-instant transfers with their debit cards alone without necessarily attaching a bank account. All in all, P2P transfer services directly or indirectly side-step traditional fund transfer services (such as wire-transfer), as many strive to create a faster, easier and more convenient way to engage in the fund transfers than existing services and traditional methods.

When comparatively assessed, P2P Transfer Services offer several distinct advantages over the traditional fund transfer services offered by banks. These advantages can be aggregated and considered as the following:

Accessibility

P2P offers improved accessibility to fund transfers services for users. Whereas, many traditional fund transfer methods still involve varying degrees of physically accessing the bank and/or complex procedural requirements, (examples may include cheques, remittances and currency exchange.), most P2P platforms provide a straightforward no-frills service that harnesses the internet and internet-enabled mobile devices to facilitate the transfer of funds from potentially any location that has internet access. They are built around interactive, mobile-friendly interfaces that emphasise the customer experience. Registration happens online and saves trips to the banks, IBAN’s are replaced with email addresses and phone numbers. Without many proscriptive or complex procedural requirements (i.e. such as those requiring physical access-points, overbearing requirements in downloading and signing up) to access the services themselves, such platforms allow even the most isolated (users) to engage in commercial activity”​. This distinct characteristic has resulted in the growth of P2P platforms in many developing countries, where citizens lack direct access to bank institutions and infrastructures. An example of this can be seen in the market penetration of M-Pesa in Kenya, which has become the dominant way for domestic money transfers within the country.

Speed  

The processes and models that underlie many P2P transfer services has enabled many providers to offer a faster service compared to traditional fund transfer methods. Specifically, innovations in technology and business models as well as the lack of regulation in many countries have allowed P2P transfer platforms to develop and provide to consumers unmatchable fund transfer speeds. This can be best seen in the context of cross-border money transfers. In the conventional (regular) model of cross-border money transfers, consumers have to access the bank’s premises or use another instrument to pay for the transfer. After which, the bank usually does not process the individual’s transfer until the end of the day, when it aggregates and sends all transactions that it has gathered throughout the day (as a singular transaction) along with appropriate file preparation to the Settlement Bank which is then transferred via SWIFT (or another similar network). The Receiving and Remittance Banks adjusts and implements the exchange rate before it finally arrives in the Beneficiary’s account. As a result of the intricate processes involved, cross-border money transfers can often take more than 2 days or more. On the other hand, providers like TransferWise allow for near-instant cross-border transfers as its model routes cross-border transfers differently. Rather than engaging in a direct transfer through conventional routes (as stated above), TransferWise redirects different recipients of equivalent transfers that are going in opposite directions and provide the funds from a pool of local funds that it has amassed domestically in each country.

Low-Cost

Building upon the understandings established so far, it is not surprising that P2P providers is able to offer a substantially lower-fee for transferring funds. As many of the platforms do not need to establish their own financial infrastructures or devices) and pursue more cost-effective means of conducting money transfers (as is the case with TransferWise). Resultingly, the operational costs of many P2P platforms are very low compared to banks. This has allowed such providers to offer lower costs for its services that many have strategically employed to build user-base and market share. This can be clearly observed in comparing rates between P2P providers and banks for cross-border transfers, many of which are between 0.5% to 0.15% whilst Banks usually adopt commissions of 5% or above.

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Despite these advantages, in many aspects, P2P Transfer Services have also been unable to match advantages enjoyed by the bank.

Trust

To begin with, many have been reluctant or slow to adopt P2P transfer services because of doubts over security and the lack of trusts with many startup P2P providers. In a recent survey, 30% of consumers surveyed in the United Kingdom expressed their belief that many online providers cannot be trusted with their personal information. Such figures have been seen in other research reports, that undoubtedly demonstrate that despite the recent proliferations of P2P platforms, many consumers believe that the banks are in a better position to protect sensitive information. Such beliefs are based on perception and belief of consumer that the banks possess greater track record, reputation and resource to safeguard their security.  Furthermore, banks are subject to comprehensive state regulations in many countries that protect consumer’s funds as well as proscribing liability which foster an image of required accountability. As a result of which, many consumers have tolerated the slower and more expensive fund transfer services offered by banks on the basis of a perceived trust premium that they believe is enjoyed with such services.

Service

Banks which generally possess great resources and capabilities are able to provide a vast amount of supplementary services in addition to fund transfer services offered. For example, the wide availability of local premises are desired by some consumers that prefer physical accessibility and interaction with service providers. Furthermore, security services that are tied to fund transfers such as real-time notification of account activities, active verification, dispute resolution centers and action fraud teams are services that are non existent with many P2P providers as they lack the resources and departments to realize them.

Nevertheless, in recent years, many P2P fund transfer startups have seen substantial development and growth. In fact, P2P transactions now stand at $ 1 trillion dollars and mobile P2P transactions are expected to increase by $ 86 Billion in the next 3 years. Indeed, many providers are encroaching on the market share held by banks. The best can be seen in the international remittance industry.  International remittance has become a particularly active industry for P2P fund transfer startups where this can be seen. The industry is expected to grow to $700 billion in 2016 from $436 billion in 2014 as more money is sent primarily from developed economies to developing and emerging ones while the US remains the largest market with 10% of the market. According to a recent Goldman Sachs’ Report, over the next few years, $6 billion of profits found within international transfer market is at risk because of new fintech entrants. This figure is only a representation of the current state of affair, which may be cumulative as current P2P providers build up userbase or more entrants enter the scene. Nevertheless, there are indeed many players currently moving into and growing within the scene.

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Some of the most notable startups and key movers in the current industry include:

Transferwise, an online-only money transfer service that has been able to charge very low commission rates and mid-market exchange rates by developing an innovative business model that matches consumers directly and localizes transfers. Launched in 2011, Transferwise has been growing 15% to 20% month-on-month, and it has transferred more than $3 billion using the platform, saving its customers money in the process. Transferwise currently supports over 300 currency routes and has been recently valued at over $1bn US and has been backed by many important investors including US Based VC Andreessen Horowitz.
WorldRemit, an online transfer service that also allows for cash-pick ups. Initially launched in London in 2011, the company aims at to disrupt the remittance market by offering lower rates. It currently processes over 250,000 transactions per month.
Xoom, a US-based remittance company that specializes in international payments from the US to 37 countries including China, India, Mexico and Brazil. In 2014, the company helped move $6.9B generating $160m in revenues.  Xoom was recently acquired by PayPal, which aims at improving transfer services and leveraging its 169,000,000 active users.

In today’s globalized economy with the proper investment, such startups can grow tremendously fast as they target and solve a specific customer pain and offer something new, exciting, and financially promising. According to CB Insights, the average cost to launch a startup is a thousand times lower in 2011 than in 2000 which naturally has led to lower entry-barriers. What’s in common for among all the major players highlighted above is that they have actively and quickly established their own markets and seen unprecedented growth.

More importantly, beyond the remittance industry, P2P fund transfer has successfully been applied in the context of (mobile) payments  and recently seen great penetration in emerging markets such as China. China has seen a parallel rapid development of unconventional third party payment companies like Alipay and Tenpay. The growth of these payment methods can be understood by the fact that conventional payment methods are both less rooted and less convenient for consumers. Based on recent research from Goldman Sachs the opportunity for the emergence of unconventional payments methods is further attributed to the relatively low penetration of credit card usage (only 23% of card transaction volume in 2013 vs. 44% for the US). Contrastingly, Alipay, which is the leading service of this kind in China was introduced within the Chinese Internet giant Alibaba “as a way of facilitating payment between buyers and sellers where there is limited trust and no physical contact”.  Progressively it achieved a dominant position even as an independent payment services employed outside Alibaba group. Alipay is part of third party online payment which  according to iResearch Consulting Group accounts for approximately 60% the total volume of online payments and it is growing increasingly reaching $ 5 trillion yuan in 2013. This is an important point, as from a POS(point-of-sale) perspective, mobile payments may be quickly replacing debit and credit card payment methods, especially when one takes into account the rise of mobile payments with the rise of complementary payment technologies being developed such as NFC (i.e. whereby your phone can be used as a card) by top technology firms. Furthermore, with its own P2P features, the user base is growing at an unprecedented rate and penetrating emerging markets.

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The overall growth and consolidation of P2P providers can be explained by a number of trends stemming from advancements in technology, changes in regulation, as well as new demographic shifts that are making their mark in the current landscape by altering the traditional ecosystem.

In terms of regulations, one notable trend is the increased effort by governments and regulatory bodies in cracking down on money-laundering and fraud, specifically in the realm of international C2C money transfers. Compliance with imposed protocols constitute an increased cost for huge banks and established money transmitters. According to a report by Goldman Sachs Global Investment Research, ongoing regulatory and enforcement costs impose a regulatory burden around 4% for established players versus less than 1% for new incomers, thus benefiting new entrants and allowing them to be more competitive.

Importantly, demographic trends have a powerful influence on the adoption of any technology or habit as well. A crucial factor impacting the embracing of smaller money transfer services is the consumer’s’ level of comfort regarding their sharing of personal information. AlixPartners have recently produced a study of US consumers which indicates that comfort with public availability of personal information is a function of generational and cultural factors. 55% of the respondents under the age of 35 were either “very comfortable” or “extremely comfortable” with sharing personal information with corporations in exchange for offers or rewards. This percentage has an inverse relationship with age group; 42% for respondents between the ages of 35 to 44 and 31% for those between the ages of 45 and 54. This information suggests that the younger generations are ready to overcome the “legitimacy” barrier held by established players and experiment with newer and more innovative forms of money transfer.

Within this context, the World Economic Forum has suggested, in its recent report: ‘The Future of Financial Services’, that these non-traditional/dominant providers may come to directly compete with current banking fund transfer services as superior alternatives and may transform into dominant solutions when they are able to achieve the critical mass. These implications for banks are hard to ignore as many of these services not only represent revenue streams for banks and their operations but more importantly, significant value-adding services for their customers that may lock them in for the provision of other financial services offered. As such, the growth has certainly pressured certain banks as seen in their responses. Banks have made several attempts to respond in various forms. Some banks have been trying to match and compete with the rates offered by P2P startups by improving their transfer service rates through various ways.  Others attempt to resolve accessibility issues. For example, ICICI Bank of India has been on the forefront of adapting to changes as it has been improving its online services to become one of the most convenient and customer friendly remittance banks, with the ambitious aim to be one of five largest remittance companies. Whereas, others have even tried to directly compete and participate in the P2P fund transfer scene by coming up with their very own platform that offers similar services to many P2P providers. An example of this is Barclay’s Pinggit, a mobile application on most mobile operating devices, developed exclusively by Barclays, for their account holders to easily send and receive money from one another, albeit with significant limitations to amounts transferred.

Despite this, there has yet to be a bank that has introduced or have been able to pursue a successful response in the face of the P2P’s unprecedented growth. This is because  banks face innate challenges to respond due to their nature and size as large and bureaucratic firms. For example, in the US, all of the top 20 banks employed at least 12,500 employees and averaged around 58,000 employees. Furthermore, the top four banks in the world have assets worth $14.7 trillion, equaling approximately 93% of the US GDP. Almost all of the large banks are public corporations. This poses a challenge for banks trying to gain traction into the highly innovative field of mobile P2P payments: as businesses cross $25 billion in revenues and start publicly trading, they lose a lot of innovating power.

There are many explanations behind this phenomenon. One argument states that such companies become more risk-averse, and are more focused on short-term profits, as they have to meet certain investor expectations. Furthermore, as they employ more people and run well-structured Human Resources departments, they tend to employ more risk-averse personnel and less “Innovation Leaders”. In comparison to banks, third party mobile payments providers tend to be small in size, and therefore don’t have the innovation limitation in this highly evolving technology field. Even though some statistics indicate the superiority of small firms’ ability to indicate, many large firms have surpassed this challenge (Apple, Google); therefore, it is not impossible for banks to retaliate using constant innovation.

Even if large banks continually innovate enough to stay competitive, the market landscape in their desired economy of operation may create obstacles for them to do so. The bank’s’ success is highly correlated with the consolidation of the banking sector. For example, the limited degree of success for banks to retaliate in the US can be explained by the fact that over 8,000 banks exist in the market, compared to only 111 in the UK. The consolidation of the banking sector in the UK has facilitated the birth of the Payments Council to ensure the utility of payment services within the UK. The Payments Council, dominated by large players in the banking industry, can coordinate retaliation efforts with greater ease. An example of such a coordination effort is apparent in the case of UK P2P payment company Paym, which is backed by 9 out of 10 large UK banks. Therefore, the banking sector’s ability to fight back is highly affected by the market landscape within the economy, and may differ from location to location.

In totality, banks face various challenges in retaliating against third party P2P payment companies.

Callum Connects

Malcolm Tan, Founder of Gravitas Holdings

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Malcolm Tan is an ICO/ITO and Cryptocurrency advisor. He sees this new era as similar to when the internet launched.

What’s your story?
I’m a lawyer entrepreneur who owns multiple businesses, and who is now stepping into the Initial Coin Offering/Initial Token Offering/Cryptocurrency space to be a thought leader, writer (How to ICO/ITO in Singapore – A Regulatory and Compliance Viewpoint on Initial Coin Offering and Initial Token Offering in Singapore), and advisor through Gravitas Holdings – an ICO Advisory company. We are also running our own ICO campaign called AEXON, and advising 2 other ICO’s on their projects.

What excites you most about your industry?
It is the start of a whole new paradigm, and it is like being at the start of the internet era all over again. We have a chance to influence and shape the industry over the next decade and beyond and lead the paradigm shift.

What’s your connection to Asia?
I’m Singaporean and most of my business revolves around the ASEAN region. Our new ICO advisory company specialises in Singaporean ICO’s and we are now building partnerships around the region as well. One of the core business offerings of our AEXON ICO/ITO is to open up co-working spaces around the region, with a target to open 25 outlets, and perhaps more thereafter.

Favourite city in Asia for business and why?
Singapore, since it is my hometown and most of my business contacts originate from or are located in Singapore. It is also a very open and easy place to do business.

What’s the best piece of advice you ever received?
Be careful of your clients – sometimes they can be your worst enemies. This is very true and you have to always be careful about whom you deal with. The closest people are the ones that you trust and sometimes they have other agendas or simply don’t tell you the truth or whole story and that can easily put one in a very disadvantageous position.

Who inspires you?
Leonardo Da Vinci as a polymath and genius and leader in many fields, and in today’s world, Elon Musk for being a polymath and risk taker and energetic business leader.

What have you just learnt recently that blew you away?
Early stage bitcoin investors would have made 1,000,000 times profit if they had held onto their bitcoins from the start to today – in the short space of 7 years.

If you had your time again, what would you do differently?
Seek out good partnerships and networks from day one, and use the power of the group to grow and do things together, instead of being bogged down by operations and going it alone from start.

How do you unwind?
I hardly have any time for relaxation right now. I used to have very intense hobbies, chess when I was younger, bridge, bowling, some online real time strategy games and poker. All mentally stimulating games and requiring focus – I did all these at competitive levels and participated in national and international tournaments, winning multiple trophies, medals and awards in most of these fields.

Favourite Asian destination for relaxation? Why?
Phuket – nature, resort life, beaches, good food and a vibrant crowd.

Everyone in business should read this book:
Rich Dad Poor Dad by Richard Kiyosaki

Shameless plug for your business:
Gravitas Holdings (Pte) Limited is the premier ICO Advisory company and we can do a full service for entrepreneurs, including legal and compliance, smart contracts and token creation, marketing and PR, and business advisory and white paper writing/planning.

How can people connect with you?
Write emails to [email protected], or [email protected]

Twitter handle?
@malcolmABM

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Women on Top in Tech – Pam Weber, Chief Marketing Officer at 99Designs

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Pam Webber is Chief Marketing Officer at 99designs, where she heads up the global marketing team responsible for acquisition, through growth marketing and traditional marketing levers, and increasing lifetime value of customers. She is passionate about using data to derive customer insights and finding “aha moments” that impact strategic direction. Pam brings a host of first-hand startup marketing experiences as an e-commerce entrepreneur herself and as the first marketing leader for many fast-growing startups. Prior to joining 99designs, she founded weeDECOR, an e-commerce company selling custom wall decals for kids’ rooms. She also worked as an executive marketing consultant at notable startups including True&Co, an e-commerce startup specializing in women’s lingerie. Earlier in her career, Pam served in various business and marketing positions with eBay and its subsidiary, PayPal, Inc. A resident of San Francisco, Pam received her BA from the University of Pennsylvania and MBA from Harvard Business School. Pam is a notable guest speaker for Venture Beat, The Next Web, Lean Startup, and Growth Hacking Forum, as well as an industry expert regularly quoted in Inc., CIO, Business News Daily, CMSwire, Smart Hustle, DIY Marketer, and various podcast and radio shows. You can follow her on Twitter at @pamwebber_sf.

What makes you do what you do?
My dad always told me make sure you choose a job you like because you’ll be doing it for a long time. I took that advice to heart and as I explored various roles over my career, I always stopped to check whether I was happy going to work every day – or at least most days :). That has guided me to the career I have in marketing today. I’m genuinely excited to go to work every day. I get to create, to analyze, to see the impact of my work. It’s very fulfilling.

How did you rise in the industry you are in?
I had a penchant for numbers and it helped me stand out in my field. This penchant became even more powerful when the Internet and digital marketing started to explode. There was a great need for marketers whose skills could span both the creative and the analytic aspects of marketing. I capitalized on that growth by bringing unique insight to the companies I worked with, well-supported with thoughtful analysis.

Why did you take on this role/start this startup?
I’m not sure this is relevant to my situation as I had been a marketing leader in various start-ups and companies. I took on the role at 99designs because I was excited by the global reach of the brand and the opportunity the company had to own the online design space. I especially liked the team as I felt they were good at heart.

The challenge I’ve faced in my time at 99designs is how do I evolve the team quickly and nimbly to address new challenges. The work we do now, is very different than the work we did a year ago and even the year before that. There is a fine line between staying focused on the goal ahead and being able to move quickly should that goal shift.

Do you have a mentor that you look up to in your industry or did you look for one or how did that work?
There is no one I’ve sought out or worked with over my entire career as my “mentee” needs have changed so much over the years. There are many people who have helped me along the way. For example, one of my peers at eBay, who was quite experienced and skilled in marketing strategy and creative execution, taught me what was in a marketing plan and how to evaluate marketing assets. As I have risen to leadership positions over the years, I often reach out to similarly experienced colleagues for advice on how they handle situations.

How did you make a match if you and how did you end up being mentored by him?
I learned early in my career that it rarely hurts to ask for advice. So that is what I have done. Additionally, there are people that are known to be quite helpful and build a reputation for giving back to others in advisory work. Michael Dearing, of Harrison Metal and ex-eBay, is one of those people. I, as well as countless others, have asked him for advice and guidance through the years and he does his best to oblige. Finding mentorship is about intuiting who in your universe might be willing and whether you are up for asking for help.

That being said, generally, I have found, if you are eager to learn and be guided, people will respond to the outreach.

Now as a leader how do you spot, develop, keep, grow and support your talent?
I generally look for a good attitude and inherent “smarts”. A good attitude can encompass anything from being willing to take on many different types of challenges to working well amongst differing personalities and perspectives. Smarts can be seen through how well someone’s done in their “passion areas” (i.e. areas where they have a keen interest in pursuing).

I try to hire those types of people because in smaller, fast-growing companies like many of the ones I’ve worked in, it’s more often than not about hiring flexible people as things move and change fast.

Once those people are on my team, I try to keep them challenged and engaged by making sure they have varying responsibilities. If I can’t give them growth in their current job or in the current company, I encourage them to seek growth opportunities elsewhere. I’d rather have one of my stars leave for a better growth opportunity than keep them in a role where they might grow stale.

Do you consciously or unconsciously support diversity and why?
I consciously support diversity. When I am hiring, I am constantly thinking about how to balance the team with as broad a range as possible of skill sets, perspectives, etc. to ensure we can take on whatever is thrown at us, or whatever we want to go after.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
I’m going to assume a great leader in my industry to mean a marketing leader in a technology company. I think a great leader in this industry is not afraid to learn new tricks no matter their age – it’s the growth mindset you may have heard about. I have a friend who inspires me to do this – she purchased the Apple Watch as soon as it was available, and was one of the first people I knew to use the Nest heating/cooling system. She’s not an early adopter by most definitions, but she adopts the growth mindset. This is the mindset I, too, have sought to adopt. In my field of marketing, it most recently has meant learning about Growth Marketing and how to apply this methodology to enhance growth. Independent of your industry, I think a growth mindset serves you well.

Advice for others?
I have been at 99designs for 3.5 years. During that time we’ve invested in elevating the skills and quality of our designer community, we’ve rebranded to reflect this higher level of quality, and have improved the satisfaction of our customers. Our next phase of growth will come from better matching clients to the right designer and expanding the ability to work with a designer one-on-one. We have the best platform to find, collaborate, and pay professional designers who deliver high quality design at an affordable price, and it’s only going to get better. I’m excited to deliver on that vision.

Pam Webber
Chief Marketing Officer of 99designs
Twitter: @pamwebber_sf

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