The Bitcoin & Blockchain Divorce by Banks

Not A Day Goes By Without The News Mentioning Bitcoin & Blockchain

Back in the 1980’s, people could go to their local grocery store and buy products even if they didn’t have any money. The shopkeeper, with a physical notebook ledger noted down how much money you owed to him and by when you were due to pay him. Think of this concept but the ledger is online and each page is a blog that can never be changed. This is blockchain technology.

Similar to how the internet changed the world by providing greater access to information, blockchain is poised to change how people do business by offering trust. By design, anything recorded on a blockchain cannot be altered, and there are records of where each asset has been. So, while participants in a business network might not be able to trust each other, they can trust the blockchain.

Not a day goes by without a fresh announcement on how banks and financial institutions are using blockchain technology to aid efficiencies and transform their processes. Blockchain firms raised more than $240m of venture capital money in the first half of 2017. Much of it from banks, including $107m raised by R3.

Bitcoin Claims To Be Proven But Banks Are Still Skeptical

It is difficult to speak about the positivity of blockchain without mentioning bitcoin. Bitcoin transactions are stored and transferred using a distributed ledger on a peer-to-peer network. This network is open, public and anonymous. Blockchain is the underpinning technology that maintains the Bitcoin transaction ledger.

Our company, Finocracy, recently attended a Blockchain & Bitcoin seminar at Capital Club in Bahrain. Blockchain was met with unprescedented support whilst bitcoin faced sharp skepticism from the audience.

There are two key reasons why bankers and industry experts rejected bitcoin:

1. The Bitcoin Brand Is Tainted: Bitcoin is often associated with cyber-crime and illegal substance dealers. By allowing the anonymous collection of ransom without intermediary banks or governments, Bitcoin is probably the single biggest enabler of ransomware. Much has not been done to reshape the brand  perception of Bitcoin in order to provide trust, reliability and credibility in the minds of GCC bankers.

2. Bitcoin Is Too Volatile: There’s volatility. And then there’s bitcoin volatility. Bitcoin is now trading at $7,300 at the time of writing. During the time taken to write this post it had shot up by almost $1,500 in just a week. However, it has seen significant negative jumps in price over it’s history. For e.g. the value dropped $1,000 dramatically on the announcement of China banning ICO’s.

Can We Use Blockchain Without Diving Into Bitcoin?

The short answer is yes. MasterCard announced last month it is offering the ability to send money over a blockchain rather than by swiping a credit card. The move is to open up its blockchain to certain banks and merchants as an alternative. This provides an efficient method of paying for goods and services.

There is one fundamental difference between Mastercard’s blockchain and other tech giants such as IBM. The blockchain developed is cryptocurrency agnostic. The IBM blockchain transmits money in the form of Lumens, a virtual currency. Mastercard’s blockchain operates independently of a cryptocurrency, instead it accepts payments in traditional local money.

“We are not using a cryptocurrency, and we are not introducing a new cryptocurrency, because that introduces other challenges—regulatory, legal challenges,” Justin Pinkham, Senior VP Mastercard Lab. (Fortune, 2017)

This model stands in difference to current blockchain systems, where the ledger of transactions are tied to a specific cryptocurrency.

So What Other Ways Are Banks Practically Using Blockchain Without Bitcoin

Bank Transfers – The era of near instant bank transfers is nearly here. Ripple, a digital currency and blockchain open payment network allows for bank transfers to be complete in 2 to 7 seconds. Earlier this year, Thailand’s Siam Commercial Bank in collaboration with Japan’s SBI launched an instant remittance service. This remittance corridor sees approximately $250 million transferred each year.

Identity – KYC and verification of counterparties is vital for banking. The average bank spends £40m a year on KYC according to a recent Thomson Reuters survey. JP Morgan CEO Jamie Dimon wrote in a letter to shareholders that the firm had spent £1.6bn on their Compliance Department, employing 13,000 people to ensure they were addressing regulatory issues. For years banks have been trying to set-up a shared digital utility to records customers identities and keep them updated. However, they have failed to find the right solution. Through a blockchain system incorporating identity checks, banks could save millions in operating costs and penalties.

Clearing & Settlement – Accenture estimated that investment banks could save $10bn by using blockchain technology to improve the efficiency of clearing and settlement. The current clearing industry is dominated by centralising institutions such as central banks. Yet blockchains are meant to be decentralised. ‘Clearing Institutions’ are working with banks and start-ups to consider shared ledgers to reduce their operational costs. Critics identify that legal and structural challenges need to be overcome in parallel to technology advancement in order for it to work.

But Bitcoin Was Needed To Inspire A Generation

The success of bitcoin and it’s underlying technology inspired other coins to be created that provide a more realistic benefit for banks and financial institutions.  The value of the most popular offshoot, a cryptocurrency called Ethereum. Whereas bitcoin’s blockchain is used as consumer payment technology, ethereum’s blockchain can also be used for its ‘smart contract’ applications – which is what attracted the interest of MNC’s such as Accenture, Microsoft and UBS.

“The sky is the limit in what I can express” with a smart contract, said Grainne McNamara, who runs financial blockchain programs for PwC, at an SEC conference in November. “I can write a check that says, ‘Look, I’d like to fund your Kickstarter, I’d like to give you $5,000, but only if you have raised the $5 million that it’s going to take you to shoot your new indie film. Otherwise, the money reverts back to me.’”

In a recent survey of 1,100 virtual currency users, 94 percent were positive about the state of Ethereum, while only 49 percent were positive about Bitcoin, the industry publication CoinDesk said this month.

Perception is always key.

What’s Next, Apple Coin?

Whilst banks and regulatory bodies are implementing digital strategies for cryptocurrency adoption by citizen’s and ecosytem players, key experts believe that it will be key industries themselves that define which cryptocurrencies wil be used using Blockchain.

In our closing session at the Bitcoin & Blockchain seminar at the Capital Club in Bahrain we were left with a thought to ponder on.

If Apple were to launch an ‘Apple Coin’ and now made it mandatory that you can only buy Apple products using the ‘Apple Coin’ would that deter you from buying another Apple product or not?

And the thought continues …. unless you are an Android fan.


FinTech’s Are The New Rule Makers

Finocracy’s Head of Strategic Alliances, Tayyaba Ahsan, recently had a chance to attend a short yet crisp session arranged by HSBC UK, meant to cover the hot topic; “Banks and FinTechs, collaborating for a better future”.

This session was particularly of interest as Finocracy positions itself as an implementation partner bringing together banks and global FinTech players in collaboration to accelerate the digital agenda in GCC. Here is her personal insights blog below.

Very Few Know Why Collaboration Is Critical

In a hall full of some 80+ professionals, one wondered how this session will add value to what is already known – yes collaboration is the way forward, for banks boost years of heritage, legacy systems and customer base, while FinTech startups have the innovation/technology to keep these banks relevant for the millennials.

But beyond these clichéd words, very few people know the practical implication of why collaboration is critical at this stage, and what way forward are we referring to in every opening remark that introduces the concept of FinTech. Are these startups a piece of the missing puzzle? Is it an extra engine to boost performance and revenue?

Seldom have I seen an in-depth discussion that talks about the real challenges faced by banks resulting from significant shift in customer’s preferences, the pressing need to ‘collaborate’ with FinTech startups and finally, finding the most relevant strategic fit to embark the digital journey.

The session started off with some interesting insights shared by Raman Bhatia, Head of Digital, UK and Europe, HSBC. It came as no surprise that a place like UK, more than 90% of HSBC’s banking interactions are done digitally, and interestingly enough, the last 5 years have witnessed reduction of their branch footfall by 40%.

Globally, it is predicted that in a couple of years about a quarter of the world’s population will be mobile banking users, a number close to whopping two billion users, and that is happening in a very pronounced fashion in places where the use of technology is not yet prevalent. For example in Asia, the leapfrogging has already begun and we have seen the emergence of some very prominent and impactful financial eco-systems. So yes, the need for banks to embark on their digital journey and to ‘get it right’ is very real and very urgent. So what does this mean for the financial institutions?

FinTech’s Are The New Rule Makers

The rules of the game is now being set by the FinTech scene, and this digital era is more of a challenge than opportunity for large legacy banks. Suddenly, and not so, there is an urgent need for banks to invest heavily in improving their innovation cycle and match the speed of change and the very intuitive nature of change that startups are offering to customer now. HSBC has not shied away from openly declaring immediate areas that needs attention:

  • First and foremost, there is a pressing need to invest in technology platform that will address all the legacy challenges that can be expected out of a large enterprise like HSBC.
  • Secondly, if the digital era is a result of change in customer preferences, then there is an urgent need to transform the way bank interacts with customers. The real promise of digital is in many ways a return to the healthier days of banking where we walk into the bank and the teller behind the desk knows all about you, your family, your goals and if you could do that with scale now, digitally. Hence the challenge lies in the ability to digitally personalize banking, with heavy investment in data and analytics.
  • The third area of investment, and most important one yet, is changing or defining the banking of the future through collaboration and partnerships. In the next few years if you have to survive and thrive as a universal bank, you need to go from product manufacturing mind-set to an eco-system walking station one, where you are collaborating with select FinTech players, who share the same vision as you. In addition to having select partnerships around learning and testing, banks need to have a separate budget to invest in FinTech players to help launch platforms in areas such as big data, cyber security, open banking and automation.

HSBC’s New Strategic Partnership With Bud

At this stage, HSBC went on to announce its strategic partnership with Bud, who is building an app for HSBC’s subsidiary First Direct that will trawl databases for the best broadband and energy deals, personalized for each customer. To quote Bud’s CEO “We’re trying to change the banking app from the place where you do your banking to the place where you get things done in your life,” Rather than just going to the bank when you need a mortgage, Bud could help banks build an app that lets customers search for houses, sell their own property, and get a mortgage all in one space, for example.

At the end of the session, there was one thought-provoking query from the audience. What enables large banks like HSBC to partner and take small startups like Bud seriously?  In addition to this, what intrigued me the most was how did two under-30 co-founders, of a 2-year old startup called Bud, convince one of the largest banks in the world to collaborate with them? Upon doing a quick search, I not only found out that it has raised GBP 1.5 million from backers including investment bank Investec and Spain’s Sabadell Bank, as reported by Business Insider UK, but is currently in talks with 42 other banks around the world for possible partnerships. So what makes them so successful? To quote Bud’s cofounder and chief technical officer George Dunning:

“We have a completely full understanding of the end-to-end journey of every user, we can control that journey and we can tailor it however we see fit. When we were talking to the banks and they had a challenging technical question, we were prepared. If you get into those conversations and there’s ever a question that you can’t fully answer, then you’ve lost.”

I guess I got my answer.

Finocracy Leverages Leadership Development and AI to Scale Higher Education Financing for Underserved Young Women

Finocracy to provide innovative higher education financing solutions to underserved communities, through Human Capital Mudarabah linked with Artificial Intelligence.

Wedu, an award winning leadership development organisation, partners with Finocracy to launch Winnisa platform, to serve higher education financing needs of female students in Asia.

Winnisa intends to deliver income sharing agreement solutions in Bangladesh, Pakistan and Indonesia, in an initial phase over 5 years, targeting to serve thousands of students.

Dubai, 31st October 2017, 

Finocracy announces the launch of Winnisa, a platform dedicated towards promoting Income Share Agreements (ISAs), and other innovative mechanisms, as solutions for higher education financing needs.

To grow Winnisa, Finocracy has teamed up with Wedu, a multi-award winning leadership development organization, with a mission to unlock the leadership potential of women in Asia. Finocracy brings its expertise in developing Islamic Finance and tech driven solutions, while Wedu will draw on its experience of developing ISAs in Asia.

Income Share Agreements, also called Human Capital Mudarabah, are an affordable and equitable means of financing higher education, with multiple benefits to students and other stakeholders.

Mohammad Raafi Hossain, founder of Finocracy said, “This will be the first ever social solution that uses Human Capital Mudarabah at scale. Since inception, Finocracy has always keenly pursued avenues that unlock human potential.   Through Winnisa and working with Wedu, we seek to link opportunity with talent – starting with the three largest Muslim majority countries in the world.”

Mario Ferro, CEO of Wedu commented, “Wedu had started working with ISAs in Asia in 2014 and we are thrilled to work with Finocracy to build Winnisa as a pioneer of innovative financing for education in the Islamic world. When we started this journey, one of Wedu’s advisors told me that if we could make ISAs work, the problem of financing for education would pretty much be solved.”

Winnisa intends to deliver ISA solutions in Bangladesh, Pakistan and Indonesia, in an initial phase over 5 years, targeting to serve thousands of students. Such solutions will harness developments in Artificial Intelligence, contributing towards students’ leadership development and education financing risk management. The initial phase will include the development of a crowdfunding student finance portal, and the structuring of dedicated investment funds – to pool and efficiently manage resources from social investors and others.

Winnisa’s services will initially be provided in Bangladesh, with a launch event in Dhaka in March 2018. Building up to the launch, Finocracy and Wedu will start a pilot project on November 15th, 2017 collaborating to provide ISA solutions to select recipients.

Singapore’s Alpha FinTech teams up with Finocracy to boost GCC’s growing e-commerce market

Singapore’s Alpha Fintech to enter GCC market; eyes predicted $20bn e-commerce sector by 2020.

Alpha’s pioneering multi-vendor enablement platform, valued at $250 million, enables banks to collaborate with Fintech’s by making integration and standardization simple and economical.

Finocracy and Alpha partnership opens up opportunities for GCC retailers to capitalise on 20% year on year e-commerce market growth.  

Dubai, 18 October 2017, 

Singapore’s Alpha Fintech is entering the high-growth GCC market, teaming up with Bahrain based Finocracy.  Alpha Fintech specializes in end-to-end payment solution, enabling banks to quickly access new fintech partners across the entire payments, risk and commerce spectrum. The company is backed by Wells Fargo’s accelerator program and First Quay Capital.

“The GCC region is in a unique and perfect position to surpass most other regions with respect to Fintech. The banks truly understand the need to catch up and have displayed an open mind to overhaul legacy approaches and mind-sets and invest into new technologies and operating models” commented Oliver Rajic, CEO of Alpha.

Almost one-third of retailers in GCC now offer online shopping experience and the trend is gaining momentum. Several high profile deals announced in recent months, including and others have set the pace for accelerated innovation in online commerce in GCC.

“We are truly delighted to be partnering up with Finocracy to bring this solution to GCC. Imagine the impact on new fintechs where as soon as they are ready to launch, dozens of banks and thousands of merchants can instantly and risk-free access and test the solutions. This would accelerate the pace of innovation and new solutions for GCC consumers,” added Rajic.

Banks have been held back from fully participating in the new digital economy due to their legacy technology systems and the costly and cumbersome process to integrate fintech solutions within their offering.

Ashar Nazim, Managing Director of Finocracy said: “The teaming agreement between Alpha and Finocracy promises to significantly bring down the cost and complexity of integration for banks, vendors and fintech players. This will directly contribute to improving the speed to market and the profitability of banks in the region. This will create 2-3 clear leaders in each of the GCC market, and these will be banks that are able to start early.”

Alpha solution has gained impressive traction with leading banks in Thailand and across the ASEAN region. Recently, Alpha entered into a joint venture with Australia Post to accelerate digital commerce endeavours for the Australian market.

Similar to a marketplace, the Alpha platform provides a single user interface connecting merchants with vendors spanning the full spectrum of payments, identity, fraud, risk management and commerce services, such as loyalty, delivery preferences and shipping. With expensive licensing schemes, protracted integration times and associated expenses removed, banks can now shift focus on scaling up their digital footprint.

H.E. Khalid Al Rumaihi, Chief Executive of the Bahrain Economic Development Board (EDB), said: “We are delighted to see further ties between Bahrain and key FinTech markets around the world. Enabling entrepreneurs and businesses in Bahrain to have access to the expertise of leading world-class FinTech centres is a key part of developing the best possible ecosystem and stimulating future growth. We believe that there are real opportunities in the Islamic FinTech sector and are very keen for Bahrain to play a leading role in helping to develop the industry, bringing together decades of experience in Islamic finance and access to some of the most advanced centres of FinTech innovation worldwide.”

Bahrain and Denmark to create FinTech bridge to accelerate bank transformation in GCC

Bahrain based Finocracy, and Denmark’s Copenhagen FinTech Hub sign cooperation agreement to fast track FinTech solutions in GCC 

Finocracy to open up opportunities for Islamic banks to target 10 million consumers through collaboration with FinTech challenger platforms

Talent Bridge and Business Bridge to enable 150 challenger FinTech companies in the Copenhagen FinTech ecosystem to explore entry into GCC market

Telecoms veteran, former CFO of Batelco Sameer Altaf, joins Finocracy board of directors to build telco-banking sector alignment

Dubai, 8 October 2017, 
Former Chief Financial Officer at Batelco, Sameer Altaf, has joined the board of directors of Finocracy. Sameer will advise on the growing convergence of telecom and banking sector across GCC market.

Sameer’s joining coincides with collaboration announced between Bahrain and Danish companies to build new fintech solutions for GCC market.

The agreement was signed between Bahrain based Finocracy and Denmark’s Copenhagen FinTech that hosts more than 40 successful FinTech businesses in their FinTech Lab and more than a hundred outside.  The cooperation will see creation of the Talent Bridge and the Business Bridge to allow for accelerated launch of new fintech solutions across GCC and emerging markets.

Ashar Nazim, Managing Director of Finocracy said: “Business Bridge is a game-changer. It will ease the entry of Danish firms in GCC, collaborating with Islamic banks and bringing innovative solutions for digital ready customers. It also provides GCC startups ready access to Danish innovations.”

Under the Talent Bridge program, Finocracy will take up a seat in Copenhagen FinTech Hub alongside 40 challenger institutions. The channel will allow for entrepreneurs and FinTech players in both markets to work closely to build and launch new solutions. GCC talent will gain access to Copenhagen’s strongly regulated, flexible innovation ecosystem to test their solutions.

The Business Bridge program will enable successful FinTech players from Copenhagen FinTech to roll-out their solutions for GCC consumers. Denmark and Copenhagen is home to several success stories such as Lunarway, a digital bank, Coinfy, a bitcoin payments solution, and Lendino, a peer to peer lending platform. Denmark has earned a reputation for success in innovation, incorporating human-centric design as an essential element in their approach. Finocracy creates access to innovative solutions for Islamic banks in GCC.

Thomas Krogh Jensen, CEO Copenhagen FinTech said: “We are very happy about the collaboration. The fact that Finocracy will have physical presence in the Copenhagen FinTech Lab is a major advantage in building the bridge and the close relationship.” and he continues “Denmark is a small country, but one of the most digitized in Europe with a strong innovative culture. This collaboration opens up a new market for our FinTech companies that offer scale and exciting new business opportunities. We have already now companies looking to bring their solutions to the region”

Over next five years, Finocracy expects between 8-10 million customers in the region to switch to a digital-first relationship. That is a big prize to win.  At stake is up to 25% of banking revenue pool in the region. Leading banks are eyeing between 3 to 7 partnerships with fintech challenger platforms to defend and grow their business.

About Finocracy

Finocracy works alongside Islamic banks and financial institutions to invest in and build FinTech solutions. It brings access to the global FinTech ecosystem to assist financial institutions implement change agenda in an informed, efficient and credible manner. Finocracy is aiming to roll out 15 high-impact FinTech platforms by 2022. The objective is to open up access to 10 million under-banked consumers for its clients.

About Copenhagen FinTech

Copenhagen FinTech is an association built on the vision of creating a Danish growth adventure within FinTech. Copenhagen FinTech combines the visionary ideas of FinTech entrepreneurs, the experience of the established financial institutions, the desire for societal benefits of the public sector and the research from the universities with the overarching purpose of building a thriving FinTech ecosystem for the benefit of all stakeholders.

Finocracy adds Ernst & Young heavyweight, Ashar Nazim, to accelerate FinTech agenda for banks in the region

Finocracy to open up opportunities for Islamic banks to target 10 million consumers through collaboration with FinTech challenger platforms

Ashar Nazim was previously Senior Partner and Global Head of Islamic Banking Practice for Ernst and Young

MENASEA region alone holds a population of more than 1 billion unbanked customers

Dubai, 13 September 2017, 
A group of prominent investors led by Ashar Nazim have acquired a significant stake in Finocracy. Ashar was formerly senior partner and the global head of Islamic banking practice at EY.

Finocracy specializes in operationalizing FinTech platforms. Nazim will take up the role of Managing Director at Finocracy, to lead an ambitious mandate to roll out high impact FinTech solutions in collaboration with partner Islamic banks.

Commenting on his new role, Nazim says: “More than 50% of banks in GCC are experiencing declining profitability, and that is a cause of concern for the boards. Islamic banks are no exception. After five decades of enjoying double-digit growth, the industry is experiencing a sharp slow-down. The forecast for next three years to 2020 suggests between 5-8% growth in Islamic banking assets globally. Finocracy will lead the charge to revive industry growth by operationalizing digital platforms, revenue models and cost structures for Islamic banks.”

According to Finocracy, the GCC industry is positioning for a second wave of challenger digital banks and platforms entering the market.

“Over next five years, we expect between 8-10 million customers in the region to switch to a digital-first relationship. That is a big prize to win.  The business volumes will understandably remain modest in initial years. Still, at stake is up to 25% of banking revenue pool in the region.”

Sayd Farook, Chairman of Finocracy says: “This year, we expect to see 6-9 major Fintech platforms scaling-up across GCC markets, with Series A and B funding. Another, 60-70 serious Fintech solutions are in incubation phase and expected to be launched in next 12 months in the region. Regulators are responding well by helping open up the markets, specially in Bahrain, Dubai and Abu Dhabi.”

Once the disrupters themselves, Islamic banks appear to have been disrupted by a changing customer preference.

Nazim adds: “Bank data suggests that 4 out of 10 GCC consumers are ready to switch to a digital-first relationship. This transition is already in progress and we expect a dramatically different banking landscape over next five years.”

Finocracy estimates that the rapidly evolving banking environment would render 70% of the current skills set at banks irrelevant.

In response, leading banks in GCC expect to sign up between 3 and 7 Fintech partners as part of their transformed business strategies.

Finocracy brings connectivity, access to futuristic technology and a strong track record of its senior team in operational build-outs. Nazim personally led the build-out of 30 major Islamic financial institutions and programmes at EY, and will now be driving the ambitious roll out of high-impact Fintech platforms in the region.

About Finocracy

Finocracy works alongside Islamic banks and financial institutions to build and operationalize FinTech solutions. It brings access to the global FinTech ecosystem to assist financial institutions implement change agenda in an informed, efficient and credible manner. Finocracy is aiming to roll out 15 high-impact Fintech platforms by 2022. The objective is to open up access to 10 million under-banked consumers for its clients.

About Ashar Nazim, Managing Director, Finocracy

Ashar is a FinTech entrepreneur, advisor and investor. Ashar has more than 20 years of experience in the Islamic finance industry: in the profession, the industry and in regulatory capacity with the Central Bank of Bahrain.  He brings a unique track record of corporate finance, strategy consulting, performance improvement and customer experience roles that gives him a holistic understanding of digital influences driving change for his clients.

Prior to joining Finocracy, Ashar was Senior Partner and the Global Head of Islamic Banking Practice at EY and advised on setting up more than 30 Islamic financial institutions across emerging markets. During his tenor, Ashar has advised boards and senior management of Islamic banks on digital innovation, transformation and implementation. Ashar left EY in 2017 to join Finocracy, a boutique firm that focuses on implementing FinTech platforms for the Islamic finance industry. He is the co-founder of a retail banking FinTech solution with ambition to position Islamic banks at the forefront of digital marketplace. Ashar is also advising a prominent institution on equity investments in the FinTech industry in GCC. Recently, he helped assemble a consortium of Islamic banks for accelerated build-out of FinTech platforms in MENA.

Ashar is a regular speaker at influential industry forums, facilitates client strategy sessions, and has directed several thought leadership research on the integration of FinTech solutions and the Islamic banking industry.