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How RBC is using a blockchain to overhaul its loyalty program

While every major bank, from BNP Paribas to Goldman Sachs, is investing resources in blockchain technology to solve problems in back-office areas like clearing, securities insurance and over-the-counter derivatives processing, RBC is going a different way.

The bank is looking at the technology as a potential solution to its loyalty program, in which points earned on credit card purchases can take eight weeks to post, forcing customers to wait that long to spend them.

“We see loyalty as a great use case for blockchain to allow us to provide customers more real-time access to rewards points to provide an almost Starbucks-like experience,” said Eddy Ortiz, vp of solution acceleration and innovation.

It’s a markedly different route than its competitors: Blockchain technology is inherently a pretty behind-the-scenes phenomenon. And for most banks, even if they started using blockchains, their customers probably won’t really notice.

Using blockchain technology would lower the amount of time (to seconds) RBC takes to process and post payments and points data. If it can bring real-time exchange to the bank’s merchant partners and consumer clients, it could also start letting customers spend their points at the point of sale.

“It benefits us internally to be more efficient in some of our processes, but that efficiency can directly translate to something the consumer sees,” Ortiz said.

Because most financial institutions still haven’t fully grasped how blockchains can improve their businesses and are still trying to understand its inherent complexities (despite how fast and how far blockchain research for financial services has grown), it’s not surprising that only 19 percent of them say they’re investing in it this year. Plus, there are other innovations in the industry that might seem vague and perhaps a little hyped, but whose benefits are easier to realize. That’s the lens through which all banks are looking at blockchain, according to Steve Ehrlich, lead analyst for emerging technologies at Spitzberg Partners.

“It is hard to argue that consumer-facing blockchain-based applications like loyalty programs are going to move the needle for clients more effectively in the near term than a new biometric authentication technology or chatbot,” he said. “Innovation departments need to show they’re being responsible stewards with their funds because they are competing for the money with other departments within their firms year after year.”

But Ortiz is optimistic that by proving the use case and solving the real-time issue in its loyalty program, other companies could follow its lead. He did not specify when RBC will come out of test mode but said it would be powering its rewards with blockchain “soon.”

RBC is a member of the R3 CEV consortium and “actively working with at least five” smaller blockchain startups internally.

In October, RBC also invested in SecureKey’s $27 million funding round along with its Canadian peers Bank of Montreal, CIBC, Scotiabank, TD Bank and credit union network Desjardins. They are all working together to create a digital identity tool that would let consumers verify their personally identifiable information for services like new bank accounts, driver’s licenses or other utilities on a blockchain-based platform.

“Our learning has been about how we use the technology contractually with other technologies to still benefit from the blockchain use but also allow us to make client lives easier,” Ortiz said. “We have evolved significantly.”

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‘Back to the basics’: What the SEC’s ruling on DAO tokens mean for the industry

In a ruling issued Tuesday, the U.S. Securities and Exchange Commission finally came out and said what the blockchain community has known all along: DAO tokens are securities and are “subject to the requirements of the federal securities law.”

The DAO, which stands for Decentralized Autonomous Organization, was the automated, leaderless ethereum-based funding vehicle that suffered a massive hack last year after raising millions of dollars from investors in the token sale. This ruling could be “the end of the beginning phase for blockchain,” said Emin Gun Sirer, associate professor at Cornell University and co-director of the Initiative for Cryptocurrencies and Smart Contracts.

“What we were beginning to see with the ICO craze was every Jack and Jill coming up with an old idea, wrapping it up in a token and issuing securities in a virtual company of some kind,” Sirer said. “I hope we will see a return back to the basics. There’s a lot of infrastructure work to be done. People will start to take a close look at their own ICOs and quite a few will fail these rules the SEC applied.”

The rules follow a three-pronged test known as the Howey Test. A token is a security if they’re selling something for money; are they promising future profits; and the future profits predicated on the efforts of other people and third parties.

Here are three key takeaways from the ruling.

This doesn’t change much
If anything, the ruling was “a reminder” of something people already knew was coming and maybe were surprised was taking so long, according to Angela Walch, an associate professor at St. Mary’s University School of Law and research fellow at the Centre for Blockchain Technologies at University College London.

“It’s not like they came out with a new conclusion of law or policy, they reminded us that the existing policy applies to these new forms of fundraising,” she said. “The only difference is that we’re doing it in a technological way and calling it something different.”

The SEC tends not to give guidance on whether something is a security or not so as not to discourage innovation. In the guidance it didn’t even define what a security is or isn’t. The fact that the DAO tokens are treated in the eyes of the SEC as legal securities doesn’t mean the market is going to suddenly shut down. People that want to continue with their ICO plans can probably do so — in a way that’s compliant with U.S. securities laws.

There is some uncertainty as to what will happen to token sales that will happen in the interim, Walch said. Those that occur after this point are clearly on notice and need to figure out how to comply with securities law. But there’s some ambiguity among people that launched their token sales between the the time of the DAO and now. They’re not necessarily off the hook.

“I think the future is bright for non-securities tokens,” said Marco Santori, a partner at law firm Cooley LLP, tweeted Wednesday. “This is the first step in a critical maturation process.”

This isn’t the end of ICOs
If anything, the guidance could slow down the pace a little bit, according to David Lucking, a partner at law firm Allen & Overy. There has been a lot of focus on ICOs in the last year, and many people have set them up without really considering the legal ramifications.

“The SEC is sort of putting the market back on notice: the tokens themselves can be treated as securities, and the platforms on which these tokens trade may be treated as securities exchanges. Both things are regulated in the U.S.,” he said.

Of course, not all tokens are securities. The SEC was pretty clear it would take a case by case approach to this kind of activity, “depending on the particular facts and circumstances,” making it a nice time to be a lawyer versed in crypto.

“It will bring back to the forefront the need to involve lawyers, which for so many people is not that desirable because obviously, the beauty of blockchain and distributed ledger technology is somewhat to disintermediate established ways of doing things and established market participants,” Lucking said. “This reins that in a little bit.”

Sirer highlighted the quick emotional reaction by many in the blockchain community — some gloated about having seen this coming, some worried all tokens were securities and that this might affect their ICOs — to guidance on a narrow class of activity pretty specific to the DAO. The SEC could issue other findings — that will inevitably come later, but for now, not just any ICO is binding by the SECs recent findings.

“We’re living through a time of ICO mania,” he said. “There are worthless ICOs, there are scam ICOs and all sort of other rogue ICOs that shouldn’t exist. But this ruling doesn’t say anything about them — this is a ruling on the DAO and things like the DAO.”

Implications for bitcoin and ethereum
Many people that read that guidance couldn’t help but notice the SEC’s choice identifier of ethereum as a “virtual currency” as opposed to a virtual “token” or “coin.”

“My reading of this is it has no implications for the underlying infrastructure,” Sirer said. “Currencies themselves are not regulated by the SEC, securities are regulated by the SEC.”

Plus virtual currencies in the U.S. got their ruling in March 2013. It’s legal to own and transfer them without a license (although the exchange doing the actual transferring may need one).

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‘Old ideas have come around again with new names’: Ask a VC with Centana Growth Partners

This is Ask a VC, where we quiz venture capitalists on the latest trends in the finance space.

One of the biggest problems in financial technology is that considering the vast amount of theoretical solutions, most startups can’t quite figure out how to scale their products.

That’s the trouble with tech startups acting like banks: They need burdensome service-level agreements and have requirements on how much time the system is available for end-use applications; and they need strong balance sheets to give the companies that would potentially buy their products some confidence.

But that’s where Centana Growth Partners wants to step in, by helping ready-to-scale startups by providing funding for working capital, to fund acquisitions or de-risk a balance sheet — instead of focusing on early stage startups. Centana is currently invested in requirements management software Blueprint, identity startup Jumio, insurtech company One, Inc., an algorithmic agency brokerage that focuses on fixed-income products and futures called Quantitative Brokers and performance management and business intelligence platform Vena Solutions.

Tearsheet caught up with partners Eric Byunn and Ben Cukier about their investment strategy and themes. The following has been edited for length and clarity.

What do you care about in a company?
Cukier: We’re looking for growing companies with established revenue in financial services where the application of capital can help accelerate the growth. A pivot in the venture sense is almost a nonoccurence in our portfolio. There are various sub-sectors we’re excited about — identity, tech that supports reg — most of what we look at is in the b-to-b space.

Byunn: The difference for us versus early stage firms is we are really focused on businesses that have already proven that they have a solution to add value to the financial services industry and a business model that supports it.

Is there too much investment in early stage fintech?
Byunn: It’s great that different firms, different people have different focuses; we would never say there’s too much of something out there. The challenges and issues for a company trying to scale and expand from its initial set of customers is very different from the those of a company trying to build an initial product and find its customers. We do define a unique area for us in being able to help companies focused on scaling and combining that with our expertise experience and network to advance the financial services industry.

Is there anything new under the sun?
Cukier: For a long time, old ideas have come around again with different names. Some things that didn’t work in 1999 come back called something slightly different and are just as unlikely to be successful now as they were the last time they tried. We can see some of the things that probably won’t work this time around that may still be getting funding again.

For example?
Cukier: Marketplace lending. There’s been a lot of excitement about the space. It looks very similar to specialty finance, which has actually been a very successful area in the past.  So it’s not that marketplace lenders won’t succeed, but the economics of business don’t change dramatically just because you throw on a new interface. You need to understand what the economics of specialty finance is to understand how to look at the lenders.

Where do you stand on blockchain technology?
Byunn: It’s generally earlier stage than we invest. We do find the distributed ledger technology to be a very interesting, burgeoning technology. We as a firm invest in growth stage, established businesses that have figured out how they’re adding value financial services sector. So we are watching blockchain quite closely.

Cukier: As of today we are not investors in any blockchain technology. At some point the companies get to revenue stage which we look at but we find theres a lot of hype — some of it for good reason — but there aren’t a lot of commercial applications that are inspiring us to go pound on doors of some of these companies today.

What would change that for you?
Cukier: Getting a bunch of industry actors to adopt the technology at the same time. The way the industry is getting around this is through consortiums, but you’ve got a number of them out there, not everyone is a member of every one and there are different efforts by different players. Until the industry actually aligns more specific applications with how they’re going to use them it becomes really hard for an outsider — tough for the insiders too — to make a very educated bet on what is going to win. First what we need to see is the industry getting behind a particular standard of app and actually moving to implement it.

What’s something you’ve learned from a failure?
Cukier: When something is scaling. Don’t throw good money after bad but really invest where the business is on plan.

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Why one VC is bullish on ICOs

In the past three months, companies have raised more than $300 million, not through venture investors or banks, but from token sales, also known as initial coin offerings.

Venture capital has become synonymous with innovation and wealth creation over the last half century. Today, corporate VCs (established corporations that with dedicated funds for external startup companies) are on the rise; the number of active corporate VCs per quarter more than doubled between 2012 and 2016, according to CB Insights. Enthusiasts of token sales are optimistic that they can unseat venture capitalists, as an investment vehicle that removes the need for the middle man and provides more liquidity.

The VCs themselves haven’t shown much concern over that idea (it may be too early for that). If anything, some are looking beyond that detail at all the possibility for innovation.

“It’s much like you agreeing to pay in advance a two-year subscription to the Wall Street Journal or New York Times,” said Ryan Gilbert, partner and founder of Propel Venture Partners, the BBVA Ventures spinoff that launched as its own LLC last year, at the Tearsheet Money Conference this week. “The subscriptions we used to know are the coin offerings of today.”

Of course, it’s not clear if the tokens sold constitute securities. The Securities and Exchange Commission hasn’t issued any formal guidance on tokens as securities and regulators tend to take a do-no-harm approach to new business concepts and technologies that haven’t proved harmful.

“Yes, what’s happening today might be controversial,” Gilbert said. “But when regulators learn more about what’s truly happening, they’ll recognize… what’s going to help deliver financial services to everyone at the lowest possible price, how are we going to truly have transparency, is knowing both where a transaction starts and ends and what the true costs are going to be.”

Gilbert’s stance reflects a growing interest in public blockchains by bank executives as well. A Cognizant survey released this week of 1,520 executives from 578 financial services firms shows 86 percent see public blockchains becoming more prominent in the next five years; 80% said the same about private blockchains.

In the original bitcoin blockchain, transactions are recorded on a public ledger anyone can see, although users are pseudonymous, identifiable only by alphanumeric addresses. That doesn’t mesh well with the need for privacy in high-stakes transactions between massive companies, which is why banks — which were initially hostile have sought “permissioned” blockchain-like solutions that allow for more privacy in terms of how data is stored and who can access it.

At least two of Propel’s portfolio companies have raised money through token sales. For example, the blockchain-based digital advertising system Brave “managed to raise $24 million in about 29 seconds,” Gilbert said.

In financial services, the token sale opportunity could perhaps manifest in payments, through a bank transfer service that uses these types of tokens as a means of compensation.

It’s hard for the everyday person to justify paying $17 to wire $100 from the U.S. to Mexico, especially when the cost of that wire probably looks more like 75 cents. But using these kinds of tokens, the supply and demand sides can come together to “dictate the true price of that token for the value exchange… whether that payout point at Guadalajara or Mexico City actually has that cash from the sales of the day to disperse to you as a recipient.”

Other investors are more cautious. Mike Sigal, a partner at 500 Startups, didn’t comment on his investments but noted that one of the hardest things for an early stage company to do is acquire customers and activate the entrepreneur’s community, and that a token sale could be a tool for it to truly get its community engaged, speaking at the Bloomberg Bloomberg Buy-Side Week Focus on Fintech event this week. For Citi Ventures, they’re still a solution in search of a problem. Arvind Purushotham, the group’s co-head, said it looks at blockchain investments with direct applicability to its business. It’s an investor in Chain, but hasn’t made any cryptocurrency investments.

The early-stage fund Future\Perfect Ventures has several portfolio companies now planning ICOs, said Jalak Jobanputra, its founder and managing partner. But it’s a Wild West, and it’s unclear whether these token sales have real technology behind them or if it’s just a quick way to make money and take advantage of momentum, she explained.

“There will be something really lasting out of this but there will be a lot of catches in the process,” she said. “Tokens related to the business are one element of it but some companies want to raise just to have a capital raise. You really have to dig in and see what you’re going to own… It would be dangerous for these companies if there was immediate liquidity or lack of liquidity. All of those terms are up in the air right now.”

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Blockchain Capital’s Spencer Bogart: ‘Wall Street should be paying attention to blockchain right now’

What do you do as a sell-side analyst when you write the seminal research report on Bitcoin? You join a new type of venture capital firm that invests solely in the blockchain ecosystem.

That’s what Spencer Bogart, head of research at Blockchain Capital, which has made dozens of investments in blockchain did. Bogart was previously at Needham and Company, joins us on this week’s episode of the Tearsheet podcast.

We talk about the transition from the sell-side on Wall Street to venture capital and how his experience impacts his research. We also discuss his newest fund which was funded in its own cryptocurrency, BCAP. This form of investing, still really just an interesting experiment, could potentially change the mechanics of investing in private companies.

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Below are highlights, edited for clarity, from the episode.

What was it about Bitcoin that caught your attention when you were on Wall Street?
“Like a lot of people, I looked at Bitcoin as something highly unlikely to succeed, but also very intriguing intellectually. Eventually, it finally got to a point with Bitcoin and its underlying technology that it made sense for a company like Needham & Co. to get out in front of the opportunity, start meeting all the companies in the space, and become a thought leader.”

The transition from sell-side research to venture capital
“One of the hardest things going from a traditional sell-side research role where you’re covering large publicly traded companies to a venture role is that you really have to go without a lot of data in the beginning. With a sell-side research approach, I would start with a quantitative approach when analyzing a company, look at its multiples and growth, how it compares to its peers, and then layer on a qualitative aspect of whether we believed a company would continue to grow and whether it has a sustainable advantage.

With venture capital, it’s the exact opposite. You have to start with a qualitative aspect and then layer on a quantitative approach when thinking about an investment opportunity. We call ourselves ‘stage agnostic and seed biased’. The vast majority of our investments were made in seed and Series A rounds. Companies at this stage just don’t have a lot of data to work with.”

Why should the vp of marketing at Goldman Sachs care about blockchain and Bitcoin?
“We look at blockchain as fundamentally changing the way value is transferred in a digital world. If you think about some of the other ways to transfer value digitally, like Paypal, they generally have made it easier to use legacy infrastructure, but they haven’t created new pipes. Blockchain is that new infrastructure and architecture for value transfer.

For a company like Goldman Sachs, it’s definitely time to be diving in to blockchain. It could still be a year to five years out, though, that blockchain is knocking on their door, ready to disrupt their business.”

Blockchain Capital’s new venture coin
“For our third fund, we did what we believe is the first fully-compliant Initial Coin Offering. We sold tockens, BCAP, the ticker for our ICO, on a one-to-one basis with the U.S. dollar. Doing it this way, we raised capital from over 700 investors around the world in an average check size you wouldn’t normally see in a venture fund.

We wanted to practice what we preach and use the technology we advocate so strongly for to disrupt our own industry. Venture capital suffers from two primary problems: access and liquidity. VC has typically been the domain of privileged endowments and institutions. And capital is normally locked up for 5 to 10 years. Our tokens will be traded in a way that their holders won’t have to wait this long to sell their investments.”

 

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How Fidelity is experimenting with bitcoin

Fidelity Investments may be one of the few incumbents that are bullish on bitcoin.

It sees “a future where bitcoin and blockchain thrive,” according to CEO Abigail Johnson, speaking Tuesday at the Consensus conference in New York. “We still think this scenario has a reasonable chance of coming to pass — despite what the skeptics say.”

This week, the price of bitcoin shot past $2,000 for the first time and is currently trading at about $2,200. Ethereum increased 1400 percent in the last three months and is now trading at about $180 — which community observers and conference attendees say has much to do with new interest in ICOs. But despite the growing interest digital currencies and public blockchain networks, few if any financial institutions haven’t come out and said they’re interested in working with them, instead focusing on the technology that powers them: blockchains, distributed ledgers, smart contracts — for their industry or organizations’ own needs.

In the original bitcoin blockchain, transactions are recorded on a public ledger anyone can see, although users are pseudonymous, identifiable only by alphanumeric addresses. That doesn’t mesh well with the need for privacy in high-stakes transactions between massive companies, which is why banks have sought “permissioned” blockchain-like solutions that allow for more privacy in terms of how data is stored and who can access it.

Judging the future by the present is not a productive approach, Johnson said.

“If you only look at this technology through the lens of the problems that exist today you won’t find a lot of compelling use cases, at least not that can be implemented at scale,” she said. “If you’re looking for bitcoin to beat Visa at the point of sale today you’ll be disappointed. If you’re looking at this technology as just a faster settlement system for financial transactions you’ll also be disappointed. But I’m still a believer.”

Johnson’s remarks aptly represented the mood at this year’s conference, the third for Consensus, and industry-wide. While the energy of the inaugural event came largely from crypto-enthusiasts, last year’s was filled with bankers in suits, on and off the main stage. Attendees tripled from the first year to 1,500 in the next; about 2,500 came out this week, with balance interest in private blockchain networks for highly regulated industries and a rebound in interest in public blockchain networks.

Fidelity has built proofs of concept for bitcoin micro transactions, set up a small bitcoin and ethereum mining operation “in the spirit of learning, but miraculously we’re actually making a lot of money,” she said. It enabled bitcoin payments in the Fidelity cafeteria — and had fewer than 100 employees purchase bitcoin. It has also partnered with bitcoin wallet Coinbase to allow clients to contribute bitcoin to there donor advised funds accounts with Fidelity Charitable; it has facilitated more than $8 million in bitcoin contributions through that platform.

Fidelity also gave its employees the ability to view their Coinbase holdings on Fidelity.com and will be rolling out the same functionality to its customers “soon,” Johnson announced.

It was through the hands-on experimentation — testing the Coinbase user experience, making purchases with bitcoin and even trying to make returns — that the future-present dilemma became clear. A lot of the work with blockchain technology, in financial services or otherwise, is about the future. But in the learning process, people naturally try to compare their experiences with the present.

“When people are exposed to new concepts they need to make sense of something they don’t already have a mental model for,” Johnson said. “Our research teams noticed what was happening when people encountered their recovery phrase,” a random string of words to be written somewhere and stored somewhere that acts as a backup of a user’s funds, “for the first time. They tend to struggle because they don’t have a mental model for this kind of thing.”

Fidelity found three types of reactions: one in which people reacted by trying to compare the situation with something they’re previously familiar with — for example, treating the recovery phrase like a password and expecting there would be a Forgot My Password button they could press — one in which a fair few were able to develop a new mental model and one in which the users quit and never adopted the technology.

Usability is a challenge, Johnson concluded.

“In the same way users we studied defaulted to known mental models, all the regulators will go through the same kind of process and it will cause some growing pains,” she said. “Too often we see bitcoin and blockchain technologies as solutions in search of a problem. We need them to be more user friendly — not just technically better.”

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Major global banks back R3 with $100 million

Bank consortium R3 CEV has secured $107 million in the second portion of its series A funding round — one of the largest blockchain funding rounds to date.

R3 said it is using the funds on the deployment of its technology and to develop more strategic partnerships. The company endured some minor PR blows last year when some of its high profile members defected from the consortium, including Goldman Sachs, Santander, Morgan Stanley, National Australia Bank and as of last month, JPMorgan Chase.

Bank of America Merrill Lynch, Bank of Montreal, Bank of New York Mellon, Barclays, BBVA, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, HSBC, ING, Mizuho, Royal Bank of Canada, Societe Generale, TD Bank, The Bank of Tokyo-Mitsubishi, The Northern Trust Company, The Royal Bank of Scotland, U.S. Bank, UBS and Wells Fargo are among the 43 member participants. R3 made the first and second portions of the round open to the consortium’s bank members only; the third and final part will also be open to non-member institutional investors. R3 expects to reach at least $150 million when the third tranche closes.

“Our strength has always been our global reach, helping people do business within and across borders all over the world,” said Kaushalya Somasundaram, head of fintech strategy and partnerships at HSBC. “We’re keen to explore ways to make financial markets, and payment and trade networks more connected, more accessible and more secure,” which HSBC plans to achieve through the collaborative approach at the heart of R3’s model.

The company will focus its technology deployment efforts on Corda, its blockchain-like distributed ledger for exchanging financial agreements among financial instituttions; as well as its infrastructure network for partner built financial applications.

R3 did not disclose its valuation or its investment framework, in which interest initially rose in November members began dropping out of the group. Santander said it would refocus its blockchain efforts on other bank co-led projects — like Utility Settlement Coin and the Global Payments Steering Group — and JPMorgan, which is also involved in other bank blockchain collaborations, wanted to pursue a technology path that’s “at odds” with R3’s strategy. But Goldman reportedly backed out when conditions of the investment framework changed.

R3 initially sought to raise $200 million from its members in a round that would have granted them 90 percent of the firm’s equity with the remaining 10 percent going to R3 itself. That deal was renegotiated in the fall to a $150 million target that would give members a a 60 percent equity stake and R3 the remaining 40 percent. Goldman allegedly sought more leverage in the deal and a board seat.

The funding announcement comes a day after R3’s rival Enterprise Ethereum Alliance, the R3-like group building solutions with the open source ethereum, revealed it has exploded in new members — bringing its total membership to 116 from 30.

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Inside the creation of Citi’s blockchain payments platform

Speed before scale is the name of the blockchain game for Citi.

On Monday, the bank unveiled an agreement with Nasdaq that allows it to actually put money on blockchain technology by linking its business payments services to Nasdaq’s blockchain platform, which is used for buying and selling shares of private companies, among other things. It’s not a proof of concept or an announcement of an upcoming announcement. It’s ready now for “real world” use, according to Morgan McKenney, Asia Pacific head of core cash management, at Citi’s treasury and trade solutions arm.

The technology integration means there can be a direct exchange of funds between Nasdaq and Citi — when someone purchases a share, for example — without the time consuming in-between messaging normally involved. Today when people try to move money, they do so through messaging platforms that need to be verified and reconciled so funds can be released. This partnership merges the ledger that shows moving shares and the one that shows moving money — and removes the need for a reconciliation process.

It’s significant to witness a blockchain solution in the wild. The more common strategy is to build large networks of technology contributors and co-creators of applications for the technology; those groups hardly have completed work to show. The idea behind the Citi-Nasdaq partnership, using Chain’s technology, was to create a “minimal viable ecosystem,” of just a few trusted partners — to be able to get a product to market faster, and focus on scaling the network later.

“Everyone is used to a minimum viable product, how do you extend that thinking to something thats going to involve multiple players?” said McKenney.

To have impact, blockchain technology needs a network effect — the more people use it, the more value it has. But building a network before executing a product or service can slow a group down, and the bigger the group, the easier it is to get caught up in ideas without much execution. One of the things that “helped translate the theoretical thinking to actual application” was considering the project’s “feasibility,” McKenney said.

“Could we launch this thing within a year? We did not want to be in this space where blockchain was too new,” to use in the foreseeable future, McKenney said. “Citi didn’t build a true killer app… it solved a true customer painpoint.”

It helped that Citi, Nasdaq and Chain have a previous working relationship and “didn’t start from scratch,” McKenney said. Citi and Nasdaq are using the fourth iteration of Chain’s Open Standard protocol. At this time last year, Chain unveiled the first version, which it built with Citi and Nasdaq as well as Capital One, Fidelity, First Data, Fiserv, Mitsubishi UFJ Financial Group, State Street and Visa.

Citi is involved in many collaborative efforts: R3 CEV, the 43-member bank consortium focused on building a distributed ledger for financial agreements; Hyperledger, a cross-industry collaborative effort to create a fabric layer with blockchain technology on which members can build other applications; and the Enterprise Ethereum Alliance, the privacy-oriented group developing solutions with open-source ethereum.

McKenney’s remarks about a minimal viable ecosystem highlight a growing conversation in the blockchain space and in fintech more broadly: that startups and legacy firms often refer to younger technology firms as “partners” instead of “vendors.” It’s difficult to be a vendor of new technology for financial services because no legacy institution wants to be tied to a single provider.

“We really have forged the new innovation model,” McKenney said. “This was created for Nasdaq with Nasdaq. The concept of co-innovation, or co-creation, is relatively new. Banks are still relatively early in that space.”

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Recruiter Nako Mbelle: ‘Fintech skillsets in demand right now are pretty exotic’

Nako Mbelle fintech recruiting podcast

There’s a talent war brewing in financial technology. On this week’s Tearsheet podcast, Nako Mbelle, who runs the global recruitment company Fintech Recruiters, joins us to discuss how difficult the market has gotten.

“The demand for talent right now is very much outstripping the supply,” said Mbelle. “If you’re interested in pivoting in any way in your career, I highly recommend going to a blockchain meetup or an Ethereum meetup in any city you’re in. Microsoft is heavily involved in the Ethereum community. That would be a great place for people to explore and learn Solidity. Nobody has work experience in it — you just have to get on to Github and contribute to fixing bugs and involved in projects.”

 

Subscribe: iTunes I SoundCloud

Below are highlights, edited for clarity, from the episode.

The challenge of fintech recruiting
“Fintech hires aren’t the easiest to make. Both startups and midsize fintech companies find it hard to hire people with technology and finance experience. Blockchain and cryptocurrency companies really want people who understand finance. They don’t want to train people, because they want their developers to deeply understand the tribe that they’re marketing to. Payment companies might be a little more flexible. It really depends on how bleeding edge the company is.”

What skills are firms looking for?
“The skillsets in demand right now are pretty exotic. Blockchain companies are recruiting heavily. Bitcoin is built on C++, so we’re looking to fill a lot of roles in C++. Python is big. Scala is another one. Solidity, which Etheruem uses, is also in demand. JavaScript all of a sudden is in high demand because the industry wants its stuff to look pretty and be easy to use. We’re also seeing a lot of AngularJS and Node.js requests.”

What questions should hiring managers ask of recruiters?
“You should ask if a recruiter understands the industry. It’s hard to do this work if you don’t. There’s a lot of politics in certain parts of the industry. There are multiple camps in the Bitcoin community. If you’re speaking to a developer who is a Bitcoin purist who thinks that blockchain is synonymous with Bitcoin, you’re probably going to piss him off. It’s important to understand the political aspects and the philosophy behind the cryptocurrency community. They’re in it for very personal reasons and it’s much more than just about the money.”

Trends in salary packages and loyalty
“Many developers want to get paid in the cryptocurrency they’re working on, as well as having a regular salary and option packages. I’m always surprised how risky some of these packages are. I’m seeing more consultancies arise, covering a variety of industries that want smart contracts. This opens the field to people from other fields.

There’s a lot of job hopping going on. I get guys who passively contact me, looking for greener pastures in the space. What I’m realizing is that culture is everything. It’s really important to create an environment that makes employees happy to come to work, that they’re contributing to something much larger than themselves. I’ve heard good things about Consensys, about their culture. People in this space want to be challenged and have their minds and capabilities stretched.”

 

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Do we need blockchains to build digital identities?

As banks plan their future in identity, either as providers of identity services for security or as authoritative identifiers of customers across industries, they could start to partner with startups working on blockchain based solutions to the fragmented system.

Blockchains and shared ledgers let different companies, organizations or other entities rely on the same source of customer data and other personal information — one that’s secure, auditable and looks the same to each party.

Of the many startups looking to tackle digital identity, at least a dozen are focused on using blockchain technology to find solutions, including Blockstack Labs, Trunomi, uPort and Hypr.

We asked attendees at the K(no)w Identity conference in Washington, D.C. to share their views about blockchain technology’s role in the growing digital identity space, and how heavily solutions rely on it.

David Birch, director of innovation, Consult Hyperion
“The characteristics of shared ledgers are actually to do with transparency. If we take blockchain technology and try to shoehorn it into pretending it can run credit cards and stuff like that, it isn’t quicker, it isn’t cheaper, it isn’t better in any way. If you take its characteristics and say ‘what can we do differently because of this,’ the thing that stands out to me is transparency. The blockchain as it is now, its heritage is payments because of bitcoin but in reality its future is in a whole bunch of other things and i think one of the biggest pain points is identity. Banks would tell you the costs that are unmanageable are the costs of Know Your Customer, anti-money laundering and counter terrorism finance. Blockchain isn’t fintech, it’s regtech.”

Laura Spiekerman, cofounder, Alloy
“From a data sharing perspective there’s a role blockchains can play. What I hope happens is that blockchain solutions will become one data point and that over time, whoever is using them is able to prove that it’s effective, which in the long run is meaningful to regulators and financial institutions. It’ll take a while. There are interesting initiatives to create, effectively, databases of people, but I don’t think in the next five to 10 years financial services, banks, regulators, auditors will rely on that at all. In order to be part of the regulated financial system you have to use an existing trusted database, which means it’s not going to be blockchain oriented. It’s going to be LexisNexis, it’s going to be the credit bureaus, the old, boring databases we already know. They’re not totally effective but the regulators know them and that means that everyone that’s on the chain has to use them.”

Matt Thompson, director of digital business development, Capital One
“This is just a platform to get us from where we organize to the objective. Blockchain is just another technical platform that enables us to do more things in different ways but at the end of the day it’s just a platform. It has beneficial application to identity management principles around security and privacy, but it certainly isn’t required. And it certainly owns be the only platform that’s used to enable these trusted services. We’re certainly taking a close look at how companies are looking are using blockchain to enable privacy and security respecting identity management principles and seeing where there might be applications within Capital One.”

Andrea Tinianow, division director, Global Delaware
“You need distributed ledger technology to solve the identity problem because you want to be able to maintain information about each individual person without breaching their privacy and you need to make sure it’s secure and cannot be changed. DLT you get the best of both worlds. If you don’t have DLT that means all the information is in the central depository — which can be attacked, which can be changed. It means you have to change the central body and I don’t think people are willing to do that anymore. If we’re going to give away information — everyone’s most private, personally identifiable information — in one place, it needs to be so secure. For that information to be effective it will need to be shared securely and perhaps with a de-identified identifier.”

Steve Ehrlich, lead analyst for emerging technologies, Spitzberg Partners
“Blockchain technology removes the trust from some central party, and in theory can give it back to the individual so they can utilize their applications, wallets smart contract libraries to dictate the terms under which they’re willing to share information, and they can revoke them if they want to. They don’t have to trust them. If, for example, they say to Google ‘delete my information, I want to give it to somebody else,’ you don’t have to trust they’re going to do that. You can be sure based on code that you have the sole right to do something like that. You don’t have to have blockchain technology. There are a solutions short of it that are improvements of what we have today but requires you to trust that whoever is collecting your data is going to abide by the privacy policies, is keep data secure and not use it for any purposes other than the reason they’re able to collect it from you in the first place.”

Frances Zelazny, vice president, BioCatch
“The chain itself is considered trust, but if the beginning is compromised then the whole chain is compromised. You still need to look at the overall ecosystem to ensure that the entry point is just as secure as the transmission to the end. The Blockchain technology has a place but it should not be considered immune to hacks. If you compromise a blockchain, you’re back to the beginning. It doesn’t take away the need to still add additional layers of security on top of the whole chain or to detect for anomalies in the behavior of who’s accessing the chain.”

Travis Jarae, CEO, One World Identity
“It’s not a technology problem we’re solving for. We have a lot of great technologists and technology but right now were trying to solve a people problem. Blockchain does a good job at giving us an easier way to explain identity and pass it off to other people in a secure, private way but there are other technologies that can do the same thing. It’s a foundational platform. Think of the Internet. Google sits on top of that as a universal or foundational platform and you can create a product or service and plug into it without having to build a whole platform. It’s just naturally easier for customers.”

Kim Sutherland, senior director of fraud and identity management strategy, LexisNexis Risk Solutions
“Blockchain is not gonna be the super solution for all digital identity solutions but there seems to be a lot of interesting pilot projects underway leveraging concepts related to blockchains for things that are more peer-to-peer related. We’ve tried to understand how blockchain and identity and fraud and authentication all can work together; if there is a way to leverage this in a commercial organization and with government agencies. Most scenarios have been for smaller populations, unique use cases that really fit the model.”