The Tale of Money 2020 Las Vegas
Money2020 was pretty different this year. I’m glad I went, it remains one the most important events in our calendar and it’s a fantastic opportunity for Consult Hyperion folk to meet up with all of our key customers and soon-to-be customers. And I’ll go again next year. But… it’s not like in the old days.
Money2020 has matured into a mainstream business event. It’s no longer a place where people go to see fascinating presentations on what a blockchain is or how P2P lending works. It’s not longer a place where people go to watch passionate debate on panels full of conflicting views of the future. It’s a place where people go to do serious business.
Here I am, for example, engaging in an in-depth discussion about the business opportunities for Payment Service Providers (PSP) because of the European Commission’s Second Payment Services Directive (PSD) open API provisions on the retail payments ecosystem in the UK, in the light of the UK Treasury’s parallel initiative, the Open Banking Working Group (OBWG). This is an important area to discuss, because it doesn’t make sense for banks to develop different sets of APIs for the UK and for Europe so the harmonisation of the OBWG APIs with the PSD2 XS2A APIs ought to start soon but it is not clear to me what active steps are being taken to make this happen.
I told our commercial chap Nick that I’d been into the conference and was a bit bored because I felt that I’d heard a lot of the messages before.
He told me that we’ve done five times as much business at the event this year as we did last year.
In other words, Money2020 is doing what a trade show is supposed to do, which is bring together large numbers of buyers and sellers to do real business together. And real business was taking place, both on the show floor and throughout the surrounding hotels, bars and restaurants.
I couldn’t help but reflect on the fact that as I wandered down to the exhibition floor I saw that next door to Money2020 was the National Fasteners Show. Seriously.
I’m afraid to say it, but this is the vision of a successful future: a trade show where everyone goes to do real business year after year. I spoke to a few other people about this. There was a feeling like we all know that SXSW will be more fun, but Money2020 will make us more money. And to be fair, Money2020 was bigger, better organised and easier to navigate than ever before. They’ve built a very successful show.
The main reason that I was at the event (apart from to make money for the company, of course) was because I had been invited to moderate one of the financial inclusion panels and I chose to focus on what the US could learn from emerging markets when it comes to the topic. They asked me who I would like to have on my panel and my first pick was Professor Lisa Servon from Penn. Lisa wrote one of the best papers on financial inclusion that I have ever read and I thought that the best way to explore the many aspects of the issues pertaining to the small percentage of American’s who are unbanked (perhaps around 7%) and the much larger proportion who are underbanked (perhaps 20%) would be to go to a Cirque de Soleil show, so I chose their Beatles show. It was great, by the way.
I was delighted to welcome Lisa on board along with Jed McCaleb from Stellar, Michael Schlein from Accion, Daniel Monehin from MasterCard and Arjuna Costa from Omidiyar Network. Michael wrote a very good blog post on the key takeaways from this panel so there is no need to repeat them here. What I will say is that the panelists received a well-deserved compliment later in the week when I was told that is was one of the stand out panels of the event, and I wasn’t surprised. I refused to have a set script so I asked them interesting questions and they responded with interesting answer, discussion and debate. A great start to the event.
I started to become somewhat deranged on the second day, partly because of lack of sleep, partly because of the over-stimulation at Bruce Parker’s top secret Payments Illuminati dinner (which had, I have to say, one of the best ice-breaker strategies I’ve ever come across at such events) and partly because of the amount of nonsense being talked about the blockchain was getting out of control. As you can see, my mental state was beginning to deteriorate. Someone tells me that the blockchain is going to revolutionise something or other. So I say “wow that’s great — how?” and they begin to describe some fantastical elaboration of some sort of distributed database with wholly mythic qualities and tell me “there, see”. I think perhaps some of his has to do with Money2020 Europe locating in Copenhagen, home of Hans Christian Anderson and his fairy tales. The spirit is permeating the event. I swear I saw a presentation that might as well have been about magic beans for all of the actual content it had or education it delivered. I was losing it, no about.
In fact, the more I start to think about it, the more the whole thing seems like it was one big fairy tale. Most of the stories I heard weren’t true, but they were marketing, and that’s a sort of fairy tale.
The Tale of the Ugly Blockchain.
There once was a little blockchain. He didn’t use proof of work to form consensus, so all of the other blockchains made fun of him. You’re a quack, they told him. Quack, quack. And the little blockchain was very unhappy. But one morning the ugly blockchain was out playing by himself, because none of the other blockchains would play with him. In fact, they were chasing him with a hard fork. But then, as passing consultant saw what was going on and came over to help him. “Hey,” said the consultant, “what is a beautiful shared ledger like you doing out here with these ruffians?”. He wasn’t a blockchain after all, he was a double-permissioned shared ledger with a practical Byzantine fault-tolerant multi-round consensus algorithm! And he lived happily ever after.
Night night.
It’s Vegas, so time for a glass of champagne. Luckily, they had some in the green room for the W3C panel on “One-Click Buying: New W3C Standards for Web Payments” so I poured myself a large one and went on stage to toast the guys while they discussed the working draft of the W3C Payments Request API (July 2016). They deserved it, because in-app and in-browser payments are going to be huge. Bringing chip and PIN security into the web and mobile world is huge. I went to a demo hosted by Amex to see it actually working, which it did. The new API is implemented in Chrome and on the Samsung mobile browser and I saw it with my own eyes work on both. The latter use case — mobile browser triggering mobile wallet with biometric authentication — was slick. Once I can use Apple Pay on my iPhone to buy from mobile web sites and apps, I can’t see that I’ll ever pay any other way.
The impact of this is, if the people I spoke to were anything to go by, considerably underestimated. The ability to make secure and convenient remote payments is transformational and it will inevitably mean a significant growth in online business. But more than that, it will drive more transactions in-browser and in-app and this will mean that there will be more competition, because it is easier to introduce new payment mechanisms this way. Here I am explaining this to one of the international delegates. I told her that the marginal cost of introducing a new payment scheme (such as a direct-from-account “push payment” into an app) would be vastly less than the cost of introducing it a traditional point of sale and she told me to stop following her.
The next day I was sent off to the Money2020 exhibition floor like a flesh and bone drone remotely piloted from Guildford. I was getting instructions like “go to stand XXX and see if the PIN on glass solution is in the TEE (it was) and certified (it wasn’t)” and then “go to stand YYY and see if the demo is real or simulated” and so on. So I did, and then I ran into noted venture capitalist Matt Harris. I decided to tell him my theory about regtech being a more important use of new technology than fintech for many of our customers because of the disproportionate and uncontrolled costs of compliance. I think I may have convinced him. Then I explained to him why it sometimes makes sense for Manchester City to play a “false 9” against teams who lack pace at the back, because midfield runners can always move around the centrebacks who are caught between tracking and sitting off the deep forward.
I went off to a couple of conference sessions but since my first meetings of the day were at 7am on all of the first three days, I found it a little hard to concentrate.
It was hard work in the evening as well. Here, for example, I am tempted up to the bar at the Mandarin and plied with exotic cocktails by my good friends at VocaLink who were presenting the results of their detailed survey of millenials and their attitudes towards payments.
On Wednesday when I went to the Cafe Presse to get a little pick me up (quadruple shot latte with an extra shot) I kid you not there were two guys in there who were fast asleep. Lightweights.
The Tale of the Princess and the POS.
Once upon a time there was a Princess. She went to see the King and told him that she was bored and that she wanted to be an entrepreneur so she wanted the money to set up a shop. She decided to set up a potpourri shop and it was very successful.
She ordered a lovely POS terminal and put it on the counter.
Several customers came in every time to buy potpourri, including a Prince, who was very attractive to her because of his tubby Dad body. The Prince paid with his John Lewis MasterCard but things didn’t go as smoothly as the Princess had hoped because it took far too long for the transaction to complete.
When she went to bed at the night, she couldn’t sleep. The POS was bothering her.
“It’s big and ugly Daddy and it takes up space that should be occupied by lovely potpourri”.
So the King got her a small POS and attached it to her mobile phone.
But when she went to bed that night, she still couldn’t sleep. The POS was still bothering her.
“Daddy all my friends have Venmo and Zelle, so why do we make them use stupid old cards like the peasants have?”
So Daddy took away the POS and next time the Prince came in for some potpourri, he Venmo’d the money to the Princess. And his number.
“That’s better Daddy” she told the King. “Now that there’s no POS I can sleep properly again. And my potpourri sales have gone up because of the loyalty scheme in my app”.
The Prince and the Princess changed their status to “hooked up” and they lived happily ever after.
Night night.
I stuck my head around the corner of a conference session, and to my surprise found that it was people talking about the blockchain again. Someone said that putting identity on the blockchain would help refugees and I said that I thought that might well be true, but I couldn’t be sure as no-one had defined what they meant by “identity” or “the blockchain”. I wasn’t entirely sure what they meant by “refugees” either. Talking of which, I found one wandering aimlessly through the corridors of the Venetian. Since I couldn’t offer him an identity, I decided to offer him breakfast instead.
Mr X, as I shall call him, was a refugee from IBM’s World of Watson. I’d been sent an invitation for this and had registered, but I never got a confirmation. I’m not sure why, but it might have been something to do with the form I had to fill in. The form said that if you told Watson the reason for your visit, then Watson would set up an agenda for you at the event. So I told Watson that the reason for my visit was to overthrow the United States government and to set up a workers and peasants’ anarcho-syndicalist commune. So not only did I not get my invite, but now I’m on the no-fly list as well. Anyway, Mr. X told me that there was a lot of fun stuff going on over in the AI world and I don’t doubt it. But I didn’t have time to stay and chat because I was off to the theatre.
It turns out that I couldn’t get a ticket for the actual theatre so I decided to set up a security theatre instead. All week, I kept getting asked for “photo ID”. The first time it happened, I explained to the young woman that carrying identity around with you is something that I associate with continental socialism and that since I came from the Disunited Kingdom and not North Korea I was not in the habit of carrying and presenting my papers. In fact, as I further explained to her, since my identity is important and valuable and hard to replace, I had locked it up in the safe in my hotel room. She remained unmoved and demanded photo ID. So I showed her the expired building pass for CHYP Tower in New York. This is apparently perfectly acceptable as proof of identity throughout the continental United States and the woman was happy to charge my card following its presentation. Throughout the rest of my visit, every time I was asked for photo ID I presented by expired building pass and every time it was accepted without question. Every. time.
Meanwhile, it was time to go downtown and get involved in some serious fintech shenanigans. I decided to sniff around payments, but most of the camp fire talk was about the transition to in-app and the use of tokenisation to move chip and PIN security online (see the MasterCard announcement, for example) and I read one of the chaps from Bell ID talking about “in-apptitude” (which I rather like) to describe the new strategies for secure and convenient remote payments. But this is old hat. I’ve been boring our clients to death with this stuff for years. And no-one would disagree that #appandpay is going to be more important than #tapandpay. Right?
I decided to seek out more controversial opinions. Here I am engaged in a heated debate with a noted retail banker over the likely future identity and verification ecosystem. He said that given the dynamics of the space, and given that banks already have to carry out rigorous KYC, it makes sense for banks to develop a co-operative sector-wide kind of financial services passport that could be used cost-effectively by third-parties while the underlying identities are strongly protected by tried and tested cryptographic techniques including tokenisation and blinding. I said “wha-hey you’re my best mate you are! Up the Blues!” and we agreed that Terry Phelan was a great player.
By the final morning, I was going about my normal business, albeit in a persistent vegetative state, when I ran into the shy and retiring head of the Emerging Payments Association. We had a fruitful discussion about using strong biometric authentication against revocable tokens to use pseudonyms (with strongly-attested attributes) in transactional environments and making it the de facto model that will deliver both security and privacy for transactions of many kinds. He said that he thought that this might be where the blockchain makes sense because the transparency around shared reputation management was a positive, whereas sharing private transactions was a negative and would require complex strategies to maintain commercial confidence. I said “stop shouting”.
I think that for our clients and friends in the USA, the most important commercial announcement was the launch of Zelle by EarlyWarning. Zelle will launch in 2017, the equivalent of Paym/PingIt in the UK: instant account-to-account payments.
It launched with 19 banks: Ally Bank, Bank of America, Bank of the West, BB&T, BECU, Capital One, Citi, Fifth Third Bank, FirstBank, First Tech Federal Credit Union, Frost Bank, JP Morgan Chase, Morgan Stanley, PNC, USAA, U.S. Bank and Wells Fargo. Pretty impressive.
If you look at Venmo’s hockey stick, it’s clear that a P2P proposition has a ready market. But my sense of Venmo is that it suceeded because of social media integration so I suspect that Zelle’s long term role will be as an API for other platforms (e.g., Facebook) to use rather than as a standalone app or something that is tucked away in bank apps. This is the sort of thing that is best considered with a Mai Tai, by the way.
Well, off to play blackjack again and it was almost as much fun as dancing in the street to the all girl rock band, drinking cocktails out of glass shoes and meeting up with fabulous fintech friends in the bar.
I was left trying to work out exactly how much I lost in the casinos. I think it might have been as much as $80, because I’m pretty much of a high roller, especially when egged on by VocaLink Vixens and Money2020 Molls. It’s well known that men take risks in the presence of attractive women and I have a suspicion that this may form part of the casinos’ business model. Just a suspicion. Still. Vegas.
All in all, it was a great few days. It’s amazing who you bump into at Money2020. I caught up with a great many old friends and made quite a few new ones. It’s hard for me to say what the key takeaways from the event were this year but I’ll try to name a top three and then see if any of you agree with me via the comments section!
- Fintech isn’t the wild west any more and the use of new technologies to drive new business models in financial services is mainstream. Yes, legacy profit pools will be attacked, but unless the incumbents are totally stupid (and the ones that Consult Hyperion works for are, I can assure you, not) they will assimilate them: biometrics, chatbots, AI etc. The threats to my clients’ businesses are not their traditional competitors and not the fintechs, but Amazon, Apple, Google, Facebook and Alipay because these are where customers check in but may well never check out. Bumper sticker: It’s the discovery, stupid.
- The ramifications of the shift to instant payments (of one form or another) and the switch to low cost push payments in retail remain unexplored. Although I can’t prove it with bar charts or spreadsheets, I have an uneasy feeling that the incumbents in developed markets are overconfident about the status quo and the regulatory times are a changin’ (© Nobel Committee 2016). The transaction margins in payments remain asymptotic to zero in the medium term, so new business models are needed. I tend to focus on the business models around identity, but I’m sure there are others in big data, analytics, risk management and so on. Bumper sticker: The bank is place to store your identity, not your money.
- People talk a lot of rubbish about the blockchain. Bumper sticker: They’re not smart and they’re not contracts.
On which topic, one last tale.
The Tale of the Emporer’s New Blockchain
Once up time, there was an Emperor. He ran a marvellous financial institution. One day, a stranger came to town and she went to see the Emperor and showed him a blockchain. The Emperor said “I can’t see anything”. The stranger told him that only very clever people and management consultants could see the blockchain. The Emperor didn’t want to seem stupid, or provincial, or behind the times, so he told himself that he could see the blockchain after all and that it was beautiful.
The Emperor went and told all of the people about his blockchain and the people were very happy.
After a while, though, the people shouted that they wanted to see the blockchain, so the Emperor decided that he would show it to them and impress them. And he took out the blockchain that the stranger had given him and showed it to the crowed.
But then one small boy consultant standing at the back said “I can’t see a blockchain. And you have only one node so there is no need for a consensus mechanism”. And then everyone in crowd realised that was the boy said was true. There was no blockchain, just a database run by the Emperor as before.
The Emperor was upset at first, because everyone else had a blockchain and he didn’t. But then he realised that no-one else had one either, so he cheered up and started to invest in artificial intelligence chatbots instead and he lived happily ever after because he had a defined benefit pension.
The Takeaway
Thinking about it, almost all of the interesting things I saw or heard about weren’t really about fintech and payments, they were about regtech and identity. It’s almost as if Identity2020 is the new Money2020, so to speak.
See you next year!
