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April 2017

China’s Tencent will announce its 2016 annual results next week on March 22nd. Revenues for the full year 2016 are expected to be in the region of 154 bn CNY ($22bn). This compares to 103 bn CNY($15bn) reported for the FY 2015. See here for Tencent’s investor deck. The majority of the revenue continues to come from online gaming from within its 3 main social networks – 2 of which have approaching 1bn monthly active users (MAU).

Tencent Social Networks

  • QQ – its original desktop messaging platform with 877 million monthly active users
  • WeChat –  the even more successful mobile messaging app with 846 million MAUs
  • Qzone – a third messaging platform with 632 million MAUs

Just to step back slightly, Tencent started life in 1998 with QQ, an instant-messaging service that was a clone of ICQ which was in fact an Israeli invention acquired by AOL of America. It has since developed its business model around selling virtual ‘value added services’ to online gamers. These VAS include virtual weapons, avatar costumes and online VIP rooms.

Tencent’s Online Games Developers 

  • Riot Games games developers (its League of Legends game has 100 million MAUs)
  • SuperCell games developers (which produces Clash of Clans) – over 100 million people play Supercell  games every day

Two strategies in particular have contributed to the companies incredible revenue growth. First, it has championed the ‘app-within-an-app-model‘ featuring thousands of games, businesses and chatbots all accessible from within one single app platform. WeChat in particular has mastered this. Second, a contributor to its success has been its hugely successful mobile payments services Weixin (WeChatPay) and QQ Wallet. These enable users to make frictionless in-app payments. WeChatPay has also extended its service to face to face merchant payments and has especially excelled in online-to-offline conversions (O2O). By all accounts WeChatPay will have processed in the region of $556 bn in 2016 – a figure which is almost twice the size of PayPal’s total global volume of $282 bn for the same period.

Both these factors make Tencent’s platforms extremely ‘sticky’.  One of the takeways here is that the payment wallets are not viewed as stand alone value creators and are in fact not operated as profit centres. Instead they are seen as a key platform feature and enablers for other products and services provided through the platform. Tencent’s President Martin Lau says that the wallets “benefit our overall ecosystem,” by enabling conversions of advertising and acting as a gateway to financial services provision through Tencent’s wealth management fund and online bank.

Here are three slides from the Tencent investor deck.

As pointed out in a previous post earlier this month, the EBA published its final draft RTS on SCA on 22 Feb 2017. This followed a consultation period with industry to respond. The EBA received an unusually high volume of responses (more than 224) from stakeholders before the deadline in Oct 2016. In particular concerns were raised about the added check out friction that the SCA procedure would create for e-commerce merchants. In response, the final draft RTS (download the document here) includes key changes to the exemptions section which are explained in the previous post.

Based on the feedback from stakeholders, it also worth emphasising that the EBA took steps to ensure technical neutrality. Hence in the final RTS, the EBA has “removed previous references to ISO 27001 and to other specific characteristics of strong customer authentication, so as better to ensure the technological neutrality of the RTS and to facilitate future innovations.”

The EBA also previously decided against setting up a ‘governing entity’ that would “oversee the design, development and maintenance of a interface standard of communication” (i.e. a standard API to be used by banks to provide 3rd parties with access to customer accounts). The governing entity would have for example “determined the features of the interface, the interoperability of the interface with other interfaces, the information to be exchanged, and the minimum technical and message formats requirements.”

In both the above instances, the EBA retreated from the temptation to set rules and instead, like most regulators (including the UK’s FCA), followed a principles based regulatory approach. Principles-based regulation means, “where possible, moving away from dictating through detailed, prescriptive rules and supervisory actions how firms should operate their business”, and instead “placing greater reliance on principles and outcome-focused, high-level rules as a means to drive at the regulatory aims to be achieved, and less reliance on prescriptive rules.” This of course makes sense. However, there is a view that the EBA has gone too far and some rules around common standards are in fact necessary to make a transformative piece of legislation like the PSD2 work. Alternatively, setting up some kind of independent entity to make those decisions would under the circumstances also be a pragmatic move. As it is, it is left up to the stakeholder community (European banks and non-banks) to organise themselves to deliver the regulatory outcome PSD2 envisages including harmonisation and interoperability. This is fine and can be done but there is a risk now that without clear regulatory guidance any industry wide collaboration may turn out to be a protracted long term affair and  in the end fail to deliver the outcome desired.

Meanwhile the UK took a slightly different approach. The Open Banking Working Group (OBWG) was set up directly by the UK government in 2015 with aim of developing “a framework for adopting an open API standard across banking”. The OBWG – a collective of banking, open data and FinTech professionals – published its framework in Jan 2016 and is now working towards an agreed timetable to implement it. It says that,

Implementing the Open Banking Standard framework could significantly accelerate the implementation of new EU regulations on banking data. It would also place the UK in a strong position to lead the development of a similar international standard.

Separately and in parallel, the UKs Competition and Markets Authority (CMA) has decided to set up an ‘Implementation Entity’ (IE) that will “undertake the work necessary for the adoption of common and open data, API and security standards.” The IE is made up of a formal Steering Group (or Board) with an Executive leader based on the 9 main retail banks.  The CMA’s remedies build upon the OBWG framework so in effect the output from the OBWG will be an input into the CMA’s Implementation Entity. In contrast to the approach taken by the PSD2/EBA, this approach may in the end achieve the level of interoperability that in turn encourages competition, stimulates innovation and delivers customer choice. So in a slightly ironic Brexit twist then, in effort to achieve the aims of PSD2, the European banking community may resort to turing to the standard already nicely defined by the OBWG in the UK. Time will tell. CMA’s scope is however limited to bank accounts and doesn’t include card accounts. Below are some screen shots from the published Open Banking Standard framework including the target API release schedule .

Paytm is one of the top three consumer internet companies in India. Starting life in 2000 as a provider of value added content ‘portals’ for GSM mobile phone operators, it timed the ring tone market cycle well and launched Paytm (‘pay through mobile’) as a provider of online mobile recharge services in 2009. It has since expanded rapidly as a comprehensive online marketplace and payment wallet with over 200 million registered users. In a complex corporate restructuring move, Alibaba, an existing shareholder, has now led a further $200m funding into Paytm Ecommerce – the market place business spun off in summer 2016. The investment raises Alibaba’s shareholding to 50%. Paytm’s market place business now rivals Amazon India with estimated Gross Merchandise Value of Rs.5,000 crore (roughly $760m) per month (figure stated for Jan 2017) but is growing much faster having grown 10x since March 2015.

Separately, Paytm’s parent company One97 Communications, has received final approval from the Reserve Bank of India to formally launch Paytm Payments Bank. The RBI created new banking licenses for SFBs (small finance banks) and PBs (payments banks) in 2015. One97 was one of 11 recipients of a new payment bank licenses issued by the RBI. It will be able to accept deposits from individuals and small businesses of up to Rs 1 lakh (100,000 rupees) per account which is equivalent to about $1,500. As part of the restructuring, One97 merged Paytm wallet business with its new payments bank operation. Whilst Alibaba has a 40% ownership of the One97 and 50% of Paytm ecommerce, it will not have direct ownership in the payments bank. This is in line with the bank regulations limiting foreign ownership in the newly created payment banks.

ApplePay went live in Ireland on 6th March making it the first new market to support the payment service in 2017. Next on the list is probably Taiwan where 7 banks have recently obtained permission from their regulator to offer the mobile payment services. Activity in the various other markets suggest a launch is also imminent in Belgium, Italy and Germany.

ApplePay, which originally launched in USA in Oct 2014, is now live in 14 markets of which 9 went live during 2016. Here are the release dates as stated on Wikipedia

SamsungPay, which originally launched in S Korea in Aug 2015, is likewise now live in 14 markets of which 3 went live in 2017 and 9 went live during 2016. Here are the release dates as stated on Wikipedia

By contrast Android Pay, originally launched in USA in Sept 2015, is now live in 10 markets of which 8 went live during 2016. Here are the release dates as stated on Wikipedia

More than 34,000 AI driven chatbots (figure stated as of November 216) have been launched on Facebook Messenger since opening up to 3rd parties in April 2016.  The first year has been mixed with a large proportion of the chat bots have surprise surprise not functioned correctly. Facebook hired David Marcus, former Paypal boss, in 2014 to run its messenger service with a view to turning it into commerce and payments engine. So far there is little evidence that this has happened. Chatbots are however proving to be more effective at customer service type use cases. These are more reliant on Natural Language Processing (NLP) than transactional bots where bot conversations are more rules based. The most effective bots require a bit of both with time invested into mapping out and designing the conversational flow and user experience. AI driven chatbots are not limited to messenger apps and can for example be developed for SMS instead. Depending on the target customer segment, this might be a more appropriate channel to use.  This month Capital One launched an SMS chat bot it is calling Eno. Claiming to be the firt SMS chat bot to use NLP in USA, it:

Leverages artificial intelligence to understand what you need. You can get a quick update on your accounts by texting Eno things like “What’s my balance?” or “How much credit do I have?” and it will provide the information you need instantly. You can also pay your credit card bill by simply texting “Eno, pay my bill.”

Also this month, HDFC Bank in India launched a customer services bot called Eva. It claims to be:

India’s first AI-based banking Chatbot and can answer millions of customer queries across multiple channels instantly. Eva can assimilate knowledge from thousands of sources and provide answers in simple language in less than 0.4 seconds.

Chatbots are not limited to text chat channels. Capital One also has a ‘skill’ on Amazon Alexa that allows customers to obtain account information by simply speaking to Alexa. This month Royal Bank of Canada launched a chat assistant forApple’s Siri platform which allows customers to send Interac money transfers via voice.

Check out this excellent BBC podcast on AI which provides a nice explanation of the recent resurgence of Artificial Intelligence.

Artificial intelligence is already transforming everything from medicine to music. Manuela Saragosa speaks to three pioneers of this latest industrial revolution and asks what will be left for us humans to do? Professor Geoffrey Hinton, a father of AI, explains how neural networks revolutionised Google’s translation services, and why we might one day be able to recreate consciousness in silicon.

London and Berlin receive plenty of coverage as Fintech centres, but Zurich is not far behind. Its already firmly established as a tech centre. According to a recent google blog,

Zurich, already the largest Google development centre outside of the U.S. and housing teams working on Google Search, Maps, Calendar, YouTube and Gmail, will now be the European centre for our exploration of research and implementation of machine learning.”

Given its financial services and banking routes, it’s no surprise that Switzerland is also making waves in financial innovation too. In particular, the small town of Zug – near Zurich – has established itself at the forefront of crypto currency innovation. Nicknamed Crypto Valley, its rapidly becoming a global centre for cryptocurrencies. Its home of the Ethereum project – a decentralized blockchain app platform that enables code executable smart contract agreements across parties (see here for a good overview of smart contracts). In late February this year it announced the launch of the Ethereum Enterprise Alliance (EEA) featuring a roster of blue chip launch partners including Microsoft, Intel, JPMorgan, BBVA, Credit Suisse and UBS. The purpose of the EEA is to build and promote Ethereum-based technology best practices, standards, and a reference architecture. The launch of the EEA is a massive endorsement of Ethereum technology. EEA aims to augment Ethereum  to achieve enterprise-grade technology and will for example develop standards and governance for the interoperability of blockchains architectures that span both permissioned (private) and public Ethereum networks – read more on the EAA here.

We recently spoke to David Keast from Corniche Growth Advisors  based in Montreux, Switzerland who describes the Swiss fintech scene in this short audio snippet.

March 2017

It was number three on Donald Trump’s campaign pledge  list (after reforming Obamacare and the Tax code), so the announcement  – that the new administration intends to review the Dodd Frank Act –  comes as no real surprise. The Consumer Financial Protection Act of 2010, commonly referred to as the Dodd-Frank Act, introduced new regulation on the US financial services sector. Primarily focused on regulating activities on Wall Street, an amendment concerning payments  was slipped into the bill at the last minute. The Durbin Amendment  placed price caps on debit interchange fees paid by merchant to banks and card issuers. It had a significant impact on the economics of the US payment card industry. Now it may well get repealed as part of Trump’s review of the Frank-Dodd Act. There are plenty of voices urging the White House to do so. In terms of timetable, a version of a bill to repeal the price cap was in fact introduced in Congress last Summer. The expectation is that an updated bill will be introduced “in a matter of weeks”. It will be interesting to see what legislative rollback might or might not come into effect.
On Jan 26th, Ant Financial, Alibaba’s financial services arm that runs Alipay, announced that it would acquire US based MoneyGram for $880m. This deal is not to be underestimated and has possible major implications. MoneyGram is the 2nd largest money transfer organisation (MTO) in the US. The combined company has the potential of not only shaking up the global money transfer market but potentially enabling Alibaba to enter the US financial services market. But, the acquisition will need regulatory approval from the US Committee on Foreign Investment. This may be a bumpy road for two reasons. First, the new US President’s initial negative stance with regards to relations with China. However, Donald Trump met with Jack Ma, founder of Alibaba, last Dec and apparently had a “great meeting’. Then there is a possibly bigger issue of Alibaba’s AML (Anti Money Laundry) track record. A deal will no doubt require it to adopt more strict US AML rules. It will be interesting to see how this plays out. In his latest article, EDCs Samee Zafar provides a detailed explanation of the global implications of this acquisition.
UK Treasury has published draft plans for the UKs implementation of the EUs PSD2. With Brexit now a reality, debate and speculation over the UK governments PSD2 approach has increased. Apart from outlining the scope of PSD2 and setting out the government’s proposed approach to implementation, the consultation paper contains, in Appendix B, a draft version of the ‘Payment Services Regulations 2017’ which will be the instrument used to implement the EU Directive into UK national law. It will, in effect, be an amendment and update to the existing Payment Services Regulations 2009. The deadline for comments on the consultation paper is 16 March 2017. Notwithstanding the Brexit situation, the UK government, along with the other EU member states, is required to implement PSD2 into national law by 13th January 2018. With the UK government now likely to trigger Article 50 (the formal notification to withdraw from the EU) on or around the 9th March, it will be interesting to see how the UKs PSD2 implementation plans do in the end unfold. An overview of the UKs exit scenarios are in this article that we wrote in June last year. The scenarios – especially #5 – are still valid.
Philippines based ride-hailing platform Grab announced that it has raised US$750 million in new funding. As a result it claims to be the best capitalised technology startup in Southeast Asia. SoftBank was the lead investor. Grab will invest in key areas including a continued commitment to invest in Indonesia which is the company’s most important market and where competition with Uber and home grown app Go-Jek is intensifying. Grab will also further develop its GrabPay mobile payment solution targeting the large under banked population and has partnered with Mandiri – Indonesia’s second largest local bank. Also part of the plan is an e-money payments platform that will enable the use of GrabPay at Lippo owned department stores, cinemas and other developments.
The UK’s Competition and Markets Authority published its so called banking final order on 2nd Feb. This is the culmination of a regulatory review process that started in Nov 2014. A core piece of the ’shake up’ is an order for UK banks to develop and adopt an open API standard by Q1 2018. A few UK banks have started offering APIs of some kind – HSBC for example offers APIs for branch locators, ATM locators and product finders. However, take a look at Spanish bank BBVA’s API Market. Its comprehensive API platform is probably best in class right now.



In the US, the Fed’s Faster Payments Task Force has published part one of a two part final report. Based on criteria released in Feb 2016, it is reviewing 19 faster payments solution proposals. The proposals are varied from upgrading existing infrastructure to adopting newer technologies. Part two covering the full assessment of the proposals will be published in mid 2017.
Distributed transaction ledger (DTL) technology provider Ripple has announced that “The National Bank of Abu Dhabi (NBAD) has become the first bank in the Middle East to use Ripple’s solution to provide real-time cross-border payments to its customers.” This follows significant momentum by the firm in 2016 including an impressive list of initial banks signing up to the Ripple network in June and a series B fund raising in Sept. Ripple’s network seeks to provide real time inter-bank commercial payments and cross-border transfers using its distributed ledger technology and thereby “drastically reduce the time and cost of settlement and enable new types of high volume, low value global transactions”. Here is a good overview of the Ripple solution. However, Ripple are not without company. This article provides a nice overview of other players developing distributed ledger solutions for cross-border payments.
Global Blue has launched a real-time refund service with Alipay to allow Chinese shoppers to claim VAT refunds directly to their accounts. Global Blue and Alipay have been working together since 2014 across nine European countries, providing tax refunds to Chinese travellers’ Alipay accounts within 10 working days. This is the first time Global Blue will offer real-time digital refunds. Global Blue processed 30 million Tax Free Shopping transactions in 2016 (up from 12 million in 2010) worth €21billion. A two sided business model means that Global Blue receives commission from both the shopper (reclaiming VAT) and from the merchant (who benefits from extra footfall and doesn’t have to worry about offering VAT refunds). Here is Global Blue’s Corporate Presentation.
On 8th Nov 2016, the Reserve Bank of India (India’s Central Bank) withdrew the legal tender status of the 500 and 1000 Rupee currency notes and stated that the notes could be turned in at bank branches with the value credited to a bank account. The idea of ‘demonetisation’ was to “effectively nullify black money hoarded in cash”. The resulting crisis was well documented by EDC’s Samee Zafar. The Reserve Bank has now started releasing representative data on payment volume on a weekly basis. According to analysis by Business Standard, the latest data released on 7th February suggests that digital payments, which jumped post demonetisation, has already begun to decline – possibly suggesting a preference for cash that is not going to go away any time soon.

February 2017

On Jan 26th, Ant Financial, Alibaba’s financial services arm that runs Alipay, announced that it would acquire US based MoneyGram for $880m. This deal is not to be underestimated and has possible major implications. MoneyGram is the 2nd largest money transfer organisation (MTO) in the US. The combined company has the potential of not only shaking up the global money transfer market but potentially enabling Alibaba to enter the US financial services market. But, the acquisition will need regulatory approval from the US Committee on Foreign Investment. This may be a bumpy road for two reasons. First, the new US President’s initial negative stance with regards to relations with China. However, Donald Trump met with Jack Ma, founder of Alibaba, last Dec and apparently had a “great meeting’. Then there is a possibly bigger issue of Alibaba’s AML (Anti Money Laundry) track record. A deal will no doubt require it to adopt more strict US AML rules. It will be interesting to see how this plays out. In his latest article, EDCs Samee Zafar provides a detailed explanation of the global implications of this acquisition.
The CMA also provisionally accepted measures taken by MasterCard to address its concerns over the acquisition of Vocalink. The core concern was that the “merger would reduce the number of bidders and limit the ability of the UKs LINK ATM scheme to obtain good value when tendering for an infrastructure provider.” Here are the three remedies proposed by MasterCard to the CMA. proposals will now go to public consultation, and CMA has until 15 March 2017 to make the decision.
Technical acceptance testing started ahead of the launch of ‘SCT Inst Scheme’ (SEPA Instant Credit Transfer) scheduled for November. New payments infrastructure, provided by EBA Clearing and compliant with scheme rules set out be the European Payment Council (EPC), will host the instant payment service for euro transactions. Here is a nice infographic explaining the scheme. For more detail, EDCs Mark Beresford provides an analysis of instant payments over two articles – Part-1, available now, questions whether merchants should embrace instant payments.
In 24 hrs WeChat users in China sent around 14.2 billion virtual red packets – digital versions of traditional ‘hongbao’ which are cash filled gift envelopes – via WeChat over the 2017 Lunar New Year period (Jan 28th). In 2016, the number was 8 billion and in 2015 it was a mere 1 billion. This year, the volume peaked at 760,000 transactions per second at midnight on January 28th. An interesting trend was the amount of ‘cross-province’ red packets being sent. The largest corridor was from (industrial) Guangdong to (rural) Hunan province – possibly reflecting the spread of migrants workers.