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From: Glenn Petersen1/15/2018 10:24:15 AM
   of 138
Open banking: The money revolution nobody knows about

It’s going to transform the ways you manage your money but you've probably never heard of it

Felicity Hannah
The Independent
Thursday 11 January 2018 18:20 GMT

Concerns have been raised that fraudsters could capitalise on the new development Getty

This weekend a major change in the way banks manage your data takes place, one that could completely revolutionise how we bank, who owns our financial data and which companies can offer us targeted financial services.

It’s called Open Banking and it’s driven by a new EU directive and new UK competition rules. Changes taking effect this weekend mean that banks will have to share financial data such as transaction history and spending patterns with other (regulated) third-party providers if the account holder requests it.

That might sound like baffling small print, but it could genuinely shake up the way in which you manage your money.

Instead of your personal data being something jealously guarded by your bank, you’ll be able to request that approved companies can also access it. That will mean they can help you analyse and improve your spending habits or simply just point you at financial services that better meet your needs.

But it’s not without its critics, and those critics argue that Open Banking will actually strip power from the consumer by creating complex chains of data access, making it harder to prove who was at fault if information is stolen.

Concerns have also been raised that fraudsters may capitalise on this development by tricking customers into sharing their login information under the banner of ‘Open Banking’.

Perhaps most alarmingly, though, very few people seem to have actually heard about it. As far as revolutions go, this one is remaining firmly within the palace walls so far.

Who needs it?

There has been some real fintech innovation in recent years and months. There are now apps that analyse your spending habits and save affordable monthly amounts on your behalf, and apps that drip-feed your money into your account so you don’t overspend (check out our favourite apps here).

With Open Banking, such apps can get your permission to use your data instead of relying on co-operation from the banks. It could allow innovative firms to develop app dashboards that list all your financial products in one handy place.

It could also make it easier for third parties to assess which bank account is best for you by actually analysing your use. For example, many of us have no idea how much our overdrafts cost us but a company that could access your account could provide far more clarity about cheaper alternatives.

Rachel Springall, finance spokesperson at, says that this change could do far more than just make switching accounts easier.

She says it could be used to help get people approved for finance or to allow debt management tools to better recommend current accounts.

“One example of how the data could be used is for those consumers looking to save money for a specific goal who feel that they don’t have enough disposable income. Sharing their data with a budgeting app could uncover some unnecessary purchases and work out where they can save money, whereas before they may not have been as motivated to look deeper into their transaction history themselves.

“Using an app to easily see every account in one place will be helpful for consumers with multiple accounts from different firms.”

Concerns remain

Those consumers who have actually heard about the Open Data revolution may well be worried about whether shared data will remain secure.

After all, ‘open’ and ‘banking’ are not two words that naturally go together in a world where people have to guard their financial data against fraudsters.

That reluctance could be key in whether new Open Banking rules herald a revolution or a slower, more hesitant pace of change. And that could allow banks a head-start in making use of the rule change.

“Open banking has the potential to transform consumers’ relationship with financial products, but it hinges on consumers’ willingness to embrace it,” said Jeremy Light, a managing director at Accenture who leads the company’s Payment Services Practice in Europe.

“Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage.”

Some commentators have sought to reassure consumers by highlighting that Open Banking does not mean a free-for-all.

Springall says: “It’s likely that some consumers remain concerned about sharing their personal information or having it hacked. However, Open Banking was set up to create software and security systems that comply with the data security standards and protect any information. Data is to remain encrypted and any usage of information is tracked.

“Consumers would need to give companies their permission to access any data and then expressly authorise the bank or building society to supply it.”

Nobody knows

Astonishingly, despite being one of the biggest developments in consumer banking in decades and one that could totally transform how we manage our finances, most people don’t know that anything is changing.

Back in September, the consumer champion Which? carried out a survey that showed 92% of the public had not heard of Open Banking.

What’s more, over half (51%) said they were fairly or very unlikely to consider sharing their financial data, even if doing so would mean they were offered more relevant products and services.

That reluctance was also apparent in a survey carried out by Accenture. It questioned more than 2,000 UK consumers and found that 69% said they would not share bank account information with third-party providers. In fact, 53% said they would never change their current banking habits and make use of Open Banking rules.

But Dave Tonge, chief technology officer at Moneyhub Enterprise, says that the data security will be at least as robust as existing security protocols such as direct debits, as well as having to be renewed every three months.

He says: “Technology is transforming financial services and will bring huge benefit to consumers, particularly in how they organise and take control of their finances, but one of the biggest barriers remains fear around sharing data. This reflects legacy issues within the sector and also how difficult banks have made it for consumers and new entrants including third-party money management tools.

“There is still…education needed to bring consumers up to speed with just how much Open Banking can improve their financial interaction, through monitoring spending and making better saving and investing decisions.”

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From: Glenn Petersen1/22/2018 11:10:17 AM
   of 138
h/t The Ox

More than 10 percent of $3.7 billion raised in ICOs has been stolen: Ernst & Young

Anna Irrera
January 22, 2018

NEW YORK (Reuters) - More than 10 percent of funds raised through “initial coin offerings” are lost or stolen in hacker attacks, according to new research by Ernst & Young that delves into the risks of investing in cryptocurrency projects online.

The professional services firm analyzed more than 372 ICOs, in which new digital currencies are distributed to buyers, and found that roughly $400 million of the total $3.7 billion funds raised to date had been stolen, according to research published on Monday.

Phishing was the most widely used hacking technique for ICOs, with hackers stealing up to $1.5 million in ICO proceeds per month, according to the report.

The research also noted that the volume of ICOs has been slowing since late 2017. Less than 25 percent of ICOs reached their target in November, compared with 90 percent in June.

The study comes amid a cryptocurrency investing craze, with young companies raising hundreds of millions of dollars online to fund their projects, with often little more than a handful of employees and a business plan outlined in a so-called “white paper”.

The challenges faced by more recent ICOs in reaching their targets are partly attributable to the lower quality of projects, as well as issues that have emerged around earlier projects, said Paul Brody, global innovation leader for blockchain technology at Ernst & Young (EY).

“The volume just exploded, people raised their fundraising goals and the quality just dropped,” Brody said in an interview.

“We were shocked by the quality of some of the white papers, we see clear coding errors and we see conflicts of interest between the companies issuing tokens and the community of token holders.”

In ICOs companies typically raise money to build new technology platforms or to fund businesses that use cryptocurrencies, also called tokens, and blockchain, the software that underpins them. Yet for many of these projects the need for blockchain and cryptocurrencies is often unjustified, according to EY.

It also noted valuations of ICO tokens are often driven by “fear of missing out”, or “FOMO”, and have no connection to market fundamentals such as project development. EY said “FOMO” has led investors to pour money into ICOs at record speeds, with the 10 shortest lasting ICOs attracting $300,000 per second on average.

The study also found several instances in which the underlying software code of a project contained hidden investment terms that had not been disclosed, or contradicted previous disclosures. For example, a whitepaper might state that there will be no further issuance of a cryptocurrency, while the code might leave that option open.

Reporting by Anna Irrera

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From: Glenn Petersen1/29/2018 10:08:48 PM
   of 138
A crypto startup that vanished and changed its website to the word ‘penis’ allegedly stole the identities of its team

Becky Peterson
Business Insider
January 29, 2018
  • Three blockchain experts linked to an illegitimate startup called Prodeum told Business Insider they have nothing to do with the organization and are victims of identity theft.
  • The startup, Prodeum, raised $11 in an online fundraiser before disappearing on Sunday.
  • Prodeum's website went blank late Sunday aside for the text "penis" in the upper-left corner.

The Prodeum website went blank, aside from this message, soon after the company raised $11. Reddit

Three blockchain experts linked to a bizarre cryptocurrency startup that sought to raise $6.5 million before vanishing have told Business Insider that they are victims of identity theft and have nothing to do with the company.

The startup, called Prodeum, had billed itself as developing a system to use blockchain technology for agricultural commodities, like fruits and vegetables.

But Prodeum caused waves online Sunday evening after trying to sell tokens to investors through a risky fundraising technique and subsequently disappearing from the web, leaving only the word "penis" on its homepage.

In the end, the company appears to have raised only an almost comical grand total of $11 from investors in its initial coin offering, or ICO. But the bizarre incident highlights the chaos and risks lurking in the unregulated world of cryptocurrencies, as well as some of the unexpected dangers that are likely to become more common as interest in cryptocurrencies continues to surge.

Darius Rugevicius, Vytautas Kaseta, and Mario Pazos were all listed as team members or advisors on TokenDesk fundraising page for Prodeum.

While fake founders are a common trait among questionable cryptocurrency startups, Rugevicius, Kaseta, and Pazos all actually work with blockchain startups. All three expressed concern to Business Insider that the Prodeum scam could have an negative impact on their reputations.

Their photos and names were posted on the original website, along with links to active LinkedIn profiles. A fourth team member, Petar Jandric, does not appear to be linked to a real person.

All traces of Prodeum, a startup on the Ethereum blockchain, have been wiped from the internet, and its homepage now redirects to an anonymous Twitter account.

'It could be some Russian based scammers. But we can't confirm this yet.' Rugevicius, a general partner at Connect Capital in New York, was at the airport Monday morning on his way to South Korea for a conference hosted by the blockchain company ICON.

"I have personally worked with number of most prominent projects in blockchain field and certainly have no ties with this project," Rugevicius told Business Insider.

Profiles for the team, listed on TokenDesk, included at least three members who claim their identities were stolen. TokenDesk

Pazos, a Miami-based blockchain startup advisor and angel investor, said he didn't know about Prodeum until he was contacted for this story. He advises the blockchain startups WaBi Project and Kairos, and is closely involved with both of their ICOs.

An ICO is an unregulated fundraising technique used by blockchain companies where cyptocurrencies like bitcoin and ethereum are used to purchase "tokens" from a startup. In theory, the tokens will be valuable if the company takes off, though many people buy random digital tokens in the hopes that they can trade them like stocks.

Though he said he hasn't thought much about scams until this happened to him, Pazos said that he takes the legitimacy of the companies that he works with very seriously, and has turned away clients that he didn't feel confident would succeed in the space.

"We run a very thorough due diligence process and interview with the CEO and their team. In fact, we have face to face interactions. I make sure that they're legitimate companies," Pezos said, adding that he also looks at companies' financials to make sure they are not struggling to make ends meet.

Kaseta, a Lithuania-based blockchain engineer and advisor, said he and Rugevicius are looking into taking legal action against the alleged scammers. He also said he is working with the crypto community to find the people behind the Prodeum.

"From the first information, looks like it could be some Russian based scammers. But we can't confirm this yet," Kaseta said.

Though Prodeum ultimately raised just $11, the company originally set out to raise 5,400 ether, or $6.5 million. The project goal was to "bring fruits and vegetables to the blockchain." It may sound silly, but tracking produce from farm to store is one of the more practical uses of blockchain technology, with companies like IBM and Walmart partnering on similar projects.

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From: Glenn Petersen2/3/2018 10:38:47 PM
   of 138
SEC halts one of the largest 'ICOs' ever as it wades deeper into the murky world of cryptocurrency offerings
  • U.S. Securities and Exchange Commission announces it has obtained a court order to halt and freeze the assets of AriseBank's initial coin offering.
  • The Dallas-based firm claims to be a "decentralized bank" and says it raised $600 million.
  • AriseBank announced Thursday it was correcting an announcement made the prior week about the acquisition of an FDIC-insured bank.
Evelyn Cheng | @chengevelyn
Published 9:58 AM ET Tue, 30 Jan 2018 Updated 2:36 PM ET Tue, 30 Jan 2018

Zach Gibson | Bloomberg | Getty Images
Jay Clayton, chairman of U.S. Securities and Exchange Commission

The U.S. Securities and Exchange Commission announced Tuesday it has obtained a court order to halt and freeze the assets of what is likely the largest initial coin offering ever.

The complaint was filed in Dallas, Texas, on Thursday and unsealed late Monday. The SEC said Dallas-based AriseBank "used social media, a celebrity endorsement, and other wide dissemination tactics to raise what it claims to be $600 million of its $1 billion goal in just two months."

The court approved an emergency asset freeze over AriseBank and its two co-founders. The SEC said that for the first time in connection to an ICO fraud, it has appointed a third-party custodian, or receiver, to secure the firm's cryptocurrency holdings. Those assets include bitcoin, litecoin, bitshares, dogecoin and bitUSD.

Mark Rasmussen, a Dallas-based partner at law firm Jones Day, was appointed as the neutral receiver. Investors seeking additional information can contact, according to a release.

If AriseBank did raise $600 million in an initial coin offering, that would surpass the largest token sales so far.

"The ICO is an illegal offering of securities because there is no registration filed or in effect with the SEC, nor is there an applicable exemption from registration," the SEC complaint said.

Fundraisers for projects based on the blockchain technology behind bitcoin are called token sales or initial coin offerings. They have raised more than $3.7 billion, but more than 10 percent of those funds have been lost to hackers, according to a study from Ernst and Young. Filecoin, which is building a decentralized storage network, raised the equivalent of roughly $252 million in the largest ICO to date, according to financial research firm Autonomous Next. subsidiary tZero is in the middle of a $250 million token sale, down from initial plans to raise $500 million.

The SEC alleges AriseBank "falsely stated that it purchased [a Federal Deposit Insurance Corporation]-insured bank which enabled it to offer customers FDIC-insured accounts."

AriseBank calls itself a "decentralized bank" and announced Thursday it was correcting an announcement made the prior week about the acquisition of an FDIC-insured bank. Two websites for AriseBank were unavailable Tuesday morning, and lawyers for the firm couldn't immediately be reached for comment.

The SEC seeks to recover the funds, and wants to bar the co-founders from serving as officers or directors of a public company, or offering digital securities in the future.

The Texas Department of Banking announced on Friday that it issued a cease and desist order on AriseBank in early January.

The SEC has increased its scrutiny of initial coin offerings in the last several months. Last week, commission chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo wrote in a Wall Street Journal commentary piece that "The SEC is devoting a significant portion of its resources to the ICO market."

The commission issued an investor warning in July, temporarily suspended trading in several small stocks due to questions about claims regarding their involvement in initial coin offerings. Last fall, the SEC also froze the assets of those involved with at least three token sales.

Many initial coin offerings officially prohibit U.S. residents and citizens from participating out of fear of the SEC.

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From: Glenn Petersen2/8/2018 3:28:19 PM
1 Recommendation   of 138
WhatsApp has launched person-to-person payments into beta in India

by Sarah Perez ( @sarahintampa)
February 8, 2018

WhatsApp has begun testing a new payments feature in India that will allow people to send money to other WhatsApp users, excluding merchant accounts. The feature is currently in beta, according to sources familiar with the company’s plans, but hasn’t been publicly announced because it’s not widely available at this time.

The company has been working on support for a payments feature for some time, which would take advantage of UPI (Unified Payments Interface) and include support by a number of Indian banks, including State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank.

Beta testers have now found that this functionality is live, with a large list of supported banks displayed in the WhatsApp user interface.

Image credit: iPhoneHacks

According to screenshots posted to Twitter and elsewhere, including this post from the blog iPhoneHacks, those who have gained access to the new functionality will see a payments feature appear in their WhatsApp Settings menu.

Users must then configure the feature by first verifying their phone number via SMS and choosing a bank. The option to send a payment is then available from the main WhatsApp interface, in the same area where you can also share a photo, video, file, contact or location into your chat session.

The Facebook-owned company had received approval from the Indian government to integrate UPI into its messaging service last July in order to implement payments, according to T he Economic Times.

The addition puts WhatsApp into competition with other messaging services that already support payments, including the recently launched Tez from Google and Tencent-backed Hike, for example, as well as digital wallet platform Paytm, which expanded into messaging in order to take on WhatsApp more directly.

However, WhatsApp’s support for payments is highly anticipated because of the app’s huge popularity among Indian users. India is WhatsApp’s largest market with over 200 million users active daily users. In fact, it’s so heavily used in that country that it’s even led to issues as Indians grapple with the social norms involving daily messaging ranging from phones’ storage filling up with “good morning” messages, to drama over exiting family group chats.

The potential for WhatsApp to dominate Indian P2P payments is strong, given that millions of people have come online in the region thanks to lower-cost data plans and cheap smartphones. The country even surpassed the U.S. for combined iOS and Android downloads for the first time in Q4 2017, according to App Annie, as smartphone adoption is surging.

We understand that WhatsApp will let users know when P2P payments becomes more widely available in India, after the best testing phase completes.

WhatsApp declined to comment on the launch.

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From: Glenn Petersen2/15/2018 10:07:45 AM
   of 138
Hyperinflation meets tech: Cash-scarce Venezuela sees boom in payment apps

By Andreina Aponte and Corina Pons
February 15, 2018

Information for Vippo app is seen in a fruit and vegetables stall at Chacao Municipal Market in Caracas, Venezuela January 19, 2018. REUTERS/Marco Bello

CARACAS (Reuters) - Widerven Villegas and his brother wash some 30 cars a day at a parking lot in Caracas. Despite charging less than 50 cents, nobody pays them in cash.

In tech hubs from San Francisco to Tokyo, payment is conveniently made through software on phones and watches on a routine basis. Amid a dire economic crisis in Venezuela a similar innovation is taking hold, though for very different reasons.

People from vegetable sellers to taxi drivers have registered to use mobile payment applications to attract customers who do not have enough paper money, which is in short supply due to soaring prices. The maximum daily amount Venezuelans can withdraw from cash machines is around 10,000 bolivars, around 4 cents at the black market exchange rate.

Venezuela's hyperinflation, one of the first of the digital era, is producing surprise winners in a tough business climate: small technology companies based in the crisis-stricken country.

"I accept transfers. I have Tpago, Vippo and almost all the applications out there!" said Villegas, 35, as he clutched a worn-out tablet and a basic cellphone.

"We don't handle cash because our clients don't have it," he added. "With the applications I use, I've got their money before they've even left the parking lot."

Without these apps, even simple transactions like tipping a waiter or paying for parking become nightmares. Still, banking websites and mobile apps often crash, as the outdated telecoms infrastructure cannot cope with surging demand.


Requests for a taxi on the Nekso application, somewhat similar to Uber, doubled last year, according to its head of strategy Leonardo Salazar, speaking at the company offices that boast a Playstation console and ping pong table.

Vippo, a Caracas-based payment app, saw a more than thirty-fold increase in the number of people registering last year. Citywallet, born as a pilot project for online parking payments at a private university, was extended to several shopping centers.

"The cash crisis is getting worse every day but is giving us the opportunity to capture more and more transactions with our solution," said Citywallet co-founder Atilana Pinon, 29.

She and two partners set up the app which is now expanding to Chile, after winning a scholarship from its government.

Creating an app in Venezuela usually requires little capital, given low salary expectations from coders and near-free electricity and data costs.

Developers were surprised by the rapid adoption of the applications and are betting on further growth in 2018.

"There are times when the point of sale machine stops working," said Maria Lozada, selling cleaning products at a market stall in the wealthier Caracas district of Chacao. "This is the way to solve the cash crisis," she says, pointing to a Vippo sign.

Venezuela's central bank inadvertently buttressed the boom by slowing cash production just as inflation was spiralling into quadruple digits.

At the end of 2017, the volume of banknotes increased by only 14 percent, less than half from a year earlier. That coincided with price rises of more than 2,500 percent, according to National Assembly figures.

Some 18 private Venezuelan banks last year launched an electronic payment app for consumers. MercadoLibre, one of the largest online commerce companies in Latin America, also offers a local payment solution.

Even leftist President Nicolas Maduro is getting in on the act, although critics blame him for the root problem.

"With the digital wallet we are going to perform miracles at all levels," Maduro said recently, announcing a QR code to be included on the government's social welfare identification card.

Despite some of the world's lowest internet speeds and a significant fraction of the population without bank accounts and cellphones, cash is falling out of favor in Venezuela.

"Perhaps our economy will be cash-less before Denmark," quipped Miguel Leon, an electronic engineer leading Vippo, in his open office featuring hammocks.

(Writing by Girish Gupta; Editing by Alexandra Ulmer and Chizu Nomiyama)

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To: Glenn Petersen who wrote (101)3/1/2018 10:04:30 AM
From: Glenn Petersen
   of 138
OSTK is down about 10% in early trading:

Overstock: $250 Million tZero ICO Under SEC Review

Michael del Castillo
Mar 1, 2018 at 12:32 UTC | Updated Mar 1, 2018 at 14:26 UTC

A filing with U.S. Securities and Exchange Commission (SEC) released Thursday has revealed new details about's ongoing $250 million ICO for its tZero alternative trading system.

However, most notable amid the stream of information on the sale structure and advisory board, is the public e-commerce company's confirmation that the sale has been under review by the SEC since February.

While the documents explicitly state Overstock is not aware of any legal proceedings that could have an "adverse impact," on the company, they do shed light on a Wall Street Journal report Wednesday that confirmed the agency is conducting a sweeping probe of companies and firms that have sought to raise money via the mechanism.

"In February 2018, the Division of Enforcement of the SEC informed the Company that it is conducting an investigation in the matter re:, Inc. and requested that the company voluntarily provide certain documents related to the Offering and the Tokens in connection with its investigation," the filing reads.

It continues:

"The SEC is trying to determine whether there have been any violations of the federal securities laws, the investigation does not mean that the SEC has concluded that anyone has violated the law. Also, the investigation does not mean that the SEC has a negative opinion of any person, entity, or security."
As reported by CoinDesk, much remains unknown about the ongoing fact-finding, including the number and timing of SEC inquiries, with sources speaking on background varying widely as to the details related to the probe.

The president of tZero, Joseph Cammarata told CoinDesk: "We are actually happy that the SEC is scrutinizing the space."

Still, the admission that Overstock has received such an inquiry is likely to further speculation as to what might result from the ultimate investigations, building on comments from SEC Chair Jay Clayton, who has suggested he believes legal non-compliance is rampant in the sector.

Platform switch

Elsewhere in the filing, Overstock confirmed it has concluded its ICO pre-sale after raising $100 million, and has initiated its subsequent fundraising round. However, this shift is coinciding with a large technical change.

In an interview with CoinDesk, tZero president Joseph Cammarata confirmed tZero will switch from SaftLaunch, a platform for managing crypto token sales, to StartEngine, a platform first developed for equity crowdfunding management.

"SaftLaunch was utilized for the presale. We're now augmenting the subsequent sale to bring on StartEngine," Cammarata said.

According to Cammarata, tZero's decision to switch platforms was not due to regulatory issues, but stems from SaftLaunch's complicated and time-consuming anti-money laundering (AML) and know your customer (KYC) process, which resulted in a bottleneck as the ICO attracted huge interest.

As such, the presale of tZero's tokens for interacting with the company's alternative trading system for blockchain securities, was extended. The sale, which was modeled under the simple agreement for future equities (SAFE) framework was initially set to end on January 18, and only concluded today.

A spokesperson for SaftLaunch confirmed there were delays in the onboarding process, saying, "Because of strong demand, there was an initial backlog in managing inquiries from interested investors but there is no backlog now, and the offering remains open."

Early investors in the pre-sale will continue to be able to use the SaftLaunch platform, but investors in the subsequent round, which kicks off today, will go through StartEngine.

And just how much

The ICO's delay, no surprise, also brought out the skeptics.

Top among the concerns around the token sale is whether or not tZero has actually raised the $100 million it claims to have already taken in.

For instance,
a report last week placed the actual number at $49 million based on the latest SEC filings, and Cammarata said others have speculated the number is as low as $18 million, with the rest being perhaps inflated by investments from Overstock.

Cammarata discounted those suggestions, however, telling CoinDesk that 70 percent of the ICO's investors have come from family offices, hedge funds and the people who run those institutions, with the other 30 percent coming from non-institutional investors.

And as far as Overstock inflating those numbers with its own money, Cammarata concluded:

"One thing that I'd like to make clear is we're over $100 million and Overstock has not put anything in the ICO at this time. They have not bought any tokens or made any investments at this time."
Update: Language has been removed suggesting Overstock has received a direct subpoena. CoinDesk has updated the article.

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To: Glenn Petersen who wrote (111)3/4/2018 12:02:23 PM
From: Glenn Petersen
   of 138
The private placement memorandum for's tZERO Preferred Equity Tokens (o be acquired pursuant to Simple Agreements for Future Equity):

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From: Glenn Petersen3/8/2018 4:39:43 PM
2 Recommendations   of 138
Shrinking to survive: Japan's banks face a quiet crisis

Thousands of positions at risk as online upstarts threaten bloated megabanks

MITSURU OBE, Nikkei staff writer
February 21, 2018 3:55 pm JST

New college recruits gather for an orientation session at Sumitomo Mitsui Banking's Tokyo headquarters in 2016. (Photo by Yuichiro Takagi)

TOKYO -- "Welcome to our bank!" chime the three uniformed clerks as customers enter Mizuho Bank's branch in Tokyo's Tanashi neighborhood.

The friendly, highly experienced clerks stand ready to help customers fill in the various forms required to open an account, make a large withdrawal, transfer funds or take out a loan. Even in the digital age, such tasks can require plenty of time-consuming paperwork. To confirm their identity, customers are also required to present a hanko, or personal seal.

Once the forms are filled out, the customers take a paper ticket and wait for their number to be called by one of the handful of tellers sitting behind the counter, who handle simple requests on the spot. More complicated jobs are handed over for processing by a dozen or so other clerks sitting behind them.

These days, however, most customers walk straight past the three clerks at the entrance and toward the bank of eight ATMs or three machines for updating passbook records. Many customers never make it into the branch at all, choosing instead to do their banking online.

But despite the popularity of internet banking, the retail bank experience in Japan appears little changed from a decade or two ago. Personal attention to the customer and a thick, sturdy passbook are still regarded as hallmarks of quality in Japan's banks, even if there is less demand for such service.

Branches of Japan's megabanks are a ubiquitous sight in Tokyo. (Photo by Ken Kobayashi)

There are signs this is beginning to change, however. The country's three biggest banks have announced plans to close branches, eliminate thousands of positions and introduce more automation -- radical steps in an industry where employees expect to have jobs for life. But critics warn they are still not moving quickly enough to prepare for the next wave of digital disruption heading their way. One senior executive says Japan's banks are experiencing a "quiet crisis."

Raymond Spencer, senior vice president at Moody's Investors Service in Japan, says retail banks need to be run more like convenience stores. "Banking is not a complex business, particularly for retail. So there is a lot of competition and it has become a commodity," he said.

The banks' short business hours, typically from 9 a.m. to 3 p.m. on weekdays, are an anachronism in the digital age, he says. "Why are branches open when nobody can visit them?"

At Bank of Tokyo-Mitsubishi UFJ, the nation's largest bank, the number of customers who visit its brick-and-mortar branches has dropped 40% in the past decade, while the number of internet banking users has risen 40% in the last five years.

The mismatch is becoming difficult to overlook for an industry bearing the twin burdens of low growth and low interest rates. With a shrinking population, the fall in customer numbers is only expected to accelerate. Yet the number of bank branches in Japan has changed little in the past 10 years, at around 13,500. With each branch typically staffed by about 30 clerks, shrinking or eliminating them will mean cutting a lot of positions.

Toshinao Sakai, a former executive at Mitsui Asset Trust and Banking (now Sumitomo Mitsui Trust Bank), described the problem succinctly: "There are too many banks in Japan."

This legacy infrastructure is weighing on the banks' profitability. In the nine months through December, core profit at the top five Japanese banks declined an average 22% from the year before. At the same time, Japanese companies in other industries enjoyed the benefits of an improving economy, racking up record profits across the board.

For banks, low profitability means less capital, or a lower cushion against future downturns. According to Moody's, Japanese banks' return on assets stood at 0.3% in fiscal 2016, compared with 0.7% for Australia, 0.8% for the U.K. and 1.0% for the U.S. Only banks in Germany were worse, at 0.2%.

In October, the International Monetary Fund took the unusual step of naming nine global banks that it says are likely to struggle to remain sufficiently profitable. Japan's top three banking groups -- Mizuho, Mitsubishi UFJ and Sumitomo Mitsui -- are on the list.

Besides sagging profits, the banks face a wave of further technological disruption as consumer finance increasingly melds with mobile technology. U.S. consulting company KPMG predicts that global technology companies will dominate banking in the future. By 2030, banks will be relegated to behind-the-scenes roles, such as creating financial products or operating and maintaining massive transactional infrastructure as a utility, the consultancy forecast in a recent report.

KPMG predicts the disappearance of large parts of the traditional bank, such as branches, sales force and the back office. "The transition would be painful and costly, to say the least," the consultancy said.

"Black Ships"

The Japanese banks' predicaments did not start yesterday, though.

Growth in loan demand started slowing almost as soon as Japan's double-digit growth began to cool off in the 1970s. The property bubble of the late 1980s helped keep the banks going until it burst in 1990, triggering a banking crisis. The banks needed to recapitalize themselves and collect more deposits to remain solvent, so adding more branches made sense.

Employees at Sanwa Bank, a predecessor to Bank of Tokyo-Mitsubishi UFJ, count money at a Tokyo branch in 1994. (Photo by Naomi Ono)

In the meantime, the banks made their own efforts, partly in response to prodding from the government, to reduce costs through a series of mergers that cut the number of money-center banks from 13 in 1990 to four today.

Once the banks got fully recapitalized by around 2005, new deposits became less of a need. On the contrary, they had added to the burden of finding investments in a slow-growing economy. Still, the banks were able to earn returns of at least 1% risk-free by investing in Japanese government bonds, as they had to pay very little to depositors in interest.

Things changed when Prime Minister Shinzo Abe came into power in late 2012, however. Abe pushed for unprecedented monetary easing in an attempt to stamp out deflation. Under Bank of Japan Gov. Haruhiko Kuroda, recently nominated for a second term, the central bank embarked on a massive quantitative easing campaign that drove yields on government bonds well below the 0.6-0.7% range the banks needed to cover branch operation costs.

In January 2016, Kuroda introduced negative interest rates on the surplus cash that banks were parking at the central bank. At the same time, the BOJ decided to guide 10-year interest rates toward 0%. The theory was that banks would be forced to put money to work, stimulating the economy in the process, if it cost them to simply hold on to it.

The policy has shaken the banks' business model of borrowing at low rates and investing at higher rates to pocket the margin. The shock was especially difficult for banks in regions where population decline was more acute and opportunities for lending were more scarce.

A sign advertises the Alipay payment service in Tokyo on Feb. 8. The rapid spread of the Alibaba-backed business has spooked Japanese bankers. (Photo by Ken Kobayashi)
And if negative interest rates weren't enough, new threats began to come from overseas. In the 19th century, such threats came from Western colonial powers. In the 21st century, they are coming from China.

An affiliate of Chinese e-commerce giant Alibaba Group Holding, Ant Financial Services Group operates the Alipay service, which allows users to make payments with a mobile phone. The sheer speed of Alipay's growth has left Japanese bankers in a panic.

Like in Japan, mobile payments were nearly nonexistent in China in 2013. By 2016, however, they came to account for more than $3 trillion, with Alipay and its rival WeChat Pay, run by Tencent Holdings, dominating the industry.

It didn't stop there. Ant Financial now offers saving, investment, lending, insurance and virtual credit card services, becoming more like a financial conglomerate. Its Yu'e Bao investment fund had attracted 1.58 trillion yuan ($250 billion) in funds from individuals as of the end of 2017, providing its 370 million account holders with a savings service with returns of more than 4% last year -- much better than bank deposit rates available in China.

Now Alipay is heading overseas for further growth. Already, Ant Financial partners with mobile payment service operators in India, South Korea, Thailand, Indonesia and the Philippines -- and it is eyeing Japan. Alipay envisages a future in which its users will be able to shop anywhere in Asia with a single Alipay account.

For Japanese banks, Ant Financial is "a serious threat," said Daisuke Yamada, senior executive at Mizuho Financial Group, in a Nikkei forum last autumn. He likens Ant Financial to the "Black Ships" -- a reference to the American warships that forced feudal Japan to open up to international trade in 1853.

Banking by videophone

The Japanese banks are trying to prove their doubters wrong.

Nobuyuki Hirano, president of Mitsubishi UFJ Financial Group, Japan's top banking group, announced plans in September to "slash the amount of labor equivalent to 9,500 employees." The group's commercial bank, Bank of Tokyo-Mitsubishi UFJ, has about 40,000 employees on its payroll.

It was the first time that Hirano has publicly referred to a concrete restructuring target for the group. The mention of cuts, to be achieved by 2023, was all the more surprising since Bank of Tokyo-Mitsubishi UFJ is thought to be in the best financial shape among Japan's three megabanks.

The plan is to convert up to 100 of its 516 retail branches into automated branches, where services are provided through an ATM or remotely through videophone rather than over the counter.

Rival Mizuho Financial Group quickly followed suit, announcing a plan on Nov. 13 to eliminate 19,000 positions over the next 10 years, as the group is set to close 100 of its some 500 bank branches. Many of the remaining branches will be converted into smaller offices staffed by fewer people.

In all, the three megabanks said they are going to eliminate 32,000 positions.

Clerks do paperwork after closing time at a Tokyo bank on Feb. 20. (Photo by Ken Kobayashi)
Personnel costs are by far the biggest expense item in a bank branch. Mizuho Financial Group, for instance, has some 80,000 full-time and part-time employees, most of whom work in branches. Full-time regular employees at the three largest banks were paid an average 7.77 million yen ($73,270) in salary a year as of the end of March 2017.

But those banks stress that while they eliminate positions, they will also create new posts in the fields of asset management and digital banking, and seek to avoid layoffs. Further cost cuts will be achieved through attrition and hiring cuts.

In the U.S. and U.K., where shareholder interest is paramount, restructuring tends to be more aggressive. According to Reuters, banks and building societies in the U.K. have been closing branches at a rate of around 300 per year since 1989, and the pace has accelerated in recent years. In 2017, banks were set to shutter a record 762 branches. In the U.S., the number of bank branches shrank by more than 1,700 in the 12 months ended in June 2017, the biggest decline on record, according to a Wall Street Journal analysis of federal data.

Even as the banks seek to slash costs, they are looking for growth outside of Japan -- mainly by acquiring rivals in emerging Asia.

Bank of Tokyo-Mitsubishi UFJ has been especially keen on such acquisitions. In 2013, it acquired 72% of Bank of Ayudhya, Thailand's fifth-largest bank. In 2016, it bought a 20% stake in Security Bank of the Philippines, and in 2017 it announced a bid to acquire a majority of Bank Danamon Indonesia, the country's fifth-largest commercial bank. MUFG President Hirano cited favorable demographics in Indonesia as a reason for its investment in Bank Danamon.

The banking business is fundamentally dependent on demographics: the bigger the population, the more demand for mortgages and business loans. When the population goes down, loans can decrease faster than banks can make up through cost-cutting.

"Too many banks are chasing too few customers" in Japan, said former bank executive Sakai. So it makes sense to pursue a blue ocean strategy, even if that means having to deal with borrowers they have less experience with.

Between fiscal 2012 and 2015, overseas loans at the three megabanks increased by as much as 18% a year, to make up 33% of the total loan book, up from 23%, according to Moody's.

J. Brian Waterhouse, senior research analyst at Windamee Research, said he expects Japan's banks to continue their Asian expansions as long as loan demand from domestic clients remains weak and interest rates remain ultralow. Southeast Asia remains attractive as a destination for them, he said.

"The outlook for growth in the economic zone spanning Vietnam, Cambodia, Laos, Thailand and Indonesia remains potentially extremely strong, with a deep pool of young workers who are upwardly mobile, tech-savvy and increasingly well-educated but still remarkably underbanked," he said. "The big question for Japanese banks remains how to tap into that deep pool of potential new banking clients."

Greener pastures

The prospects of fewer jobs at the banks' domestic operations are already sinking into the minds of clerks.

At job-placement agency Recruit Career, the number of job-hunting bankers who registered with the agency increased about 30% to about 10,000 in the April-September fiscal first half of 2017. The majority of those were 35 or younger.

Junichi Kanda is one of those who have left the banking industry for greener pastures. A former official of the Bank of Japan, Kanda joined fintech startup Money Forward recently as an executive responsible for business development.

He says his pay has gone down, but he wanted to take a risk. If it pays off, his income will go up on a long-term basis.

He hopes that an example like his will lead more people to follow suit and help change Japan's rigid labor market. "The banking industry has appeared stagnant in terms of innovation recently," Kanda said. "By joining hands with people from the technology sector, bankers may be able to create new services and businesses again."

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From: Glenn Petersen9/9/2018 3:45:31 PM
   of 138
LendingTree is the secret success story of fintech

Through acquisitions and a focus on cash flow, LendingTree has avoided the pitfalls plaguing the industry today

Conor Witt
September 9, 2018

For all of the excitement centered around fintech over the past half-decade, most venture-backed fintech companies struggle to acclimate to public markets. LendingClub and OnDeck have plummeted since their late 2014 IPOs after several years of darling status in the private markets. GreenSky, which went public in May of this year, has been unable to return to its IPO price. Square is the exception to the rule.

Sometimes we overlook the companies that hail from the era that precedes the current wave of fintech fascination, a vertical which has accumulated over $ 100 billion in global investment capital since 2010.

One of these companies is LendingTree, which got its start height of the Internet bubble, going public in mid-February of 2000, less than a month before the Dot-com bubble peaked. LendingTree began in 1996 in a founding story that epitomizes the early Internet era. Doug Lebda, an accountant searching for homes in Pittsburgh, had to manually compare mortgage offers from each bank. So he created a marketplace for loans in the same way OpenTable helps you find your restaurant of choice or Zillow simplifies the home buying process. In the words of Rich Barton, iconic founder of Expedia, Zillow, and Glassdoor, this business is a classic “power to the people play.”

The marketplace business model has been the darling that has driven returns for many of the leading VCs like Benchmark, a16z, and Greylock. Network effects are a non-negotiable part of the explanation as to why. Classic success stories that have transitioned nicely into public markets include Zillow, OpenTable (acq.), Etsy,, and Grubhub. LendingTree is often left off of this list, yet, the business sits in a compelling space as consumers and lenders continue to manage their financial lives online.

Insight in a Sea of Ambiguity

The lending process has been defined by significant information asymmetry between borrowers and lenders. Lenders have a disproportionate amount of leverage in the relationship. And that’s not to say it should be different – it’s perfectly logical to require a borrower to prove their creditworthiness. However, aggregation, synthesis, and recommendations modernize a dated dynamic.

Ironically, in an age where consumers are inundated with information, less than 50% of interested borrower’s shop for loans. Most consumers take the first offer they receive. The benefit of a marketplace, however, is price competition and transparency. The ability to shop the market and access the same information that lenders have is a luxury that didn’t exist twenty years ago. The borrowers who do shop through LendingTree reap significant benefits; on average, roughly $14,000 on mortgages and 570 basis points on personal loans. There’s certainly something to be said for comfortability and hand-holding, but at some point the metrics speak for themselves.

LendingTree isn’t a marketplace in the purest sense because of the process that takes place after a borrower clicks “apply.” While a diner can reserve a table at any listed restaurant with OpenTable for dinner tomorrow tonight, she can’t simply take the loan she wants. LendingTree lacks the direct feedback loop between consumers and lenders that characterizes most marketplaces. Instead, the platform aggregates information from a network of over 500 lenders to provide options according consumer’s needs. LendingTree is effectively the onramp for interested borrowers, which necessitates the entry of lenders to fill the borrower’s needs.

As this “onramp” continues to serve a larger audience as more consumers conduct their finances online, banks and lenders intend to seize the opportunity. Digital ad spend in the financial services industry is going to continue to grow rapidly at an estimated 20% CAGR between 2014 and 2020, effectively tripling the size of LendingTree’s core market.

Diversifying away from Mortgages

LendingTree’s revenue mix has change over the years.

For all intents and purposes, LendingTree has been in the mortgage business since its inception. The company experimented with a myriad of business models, including a foray into loan origination through their LendingTree Loans product line, which they ultimately sold off to Discover in 2011. Even in 2013, only 11% of their revenue originated from non-mortgage products.

LendingTree has expanded their platform in a few short years to build their non-mortgage products including credit cards, HELOCs, personal, auto, and small business loans. They have also pursued credit repair services and deposit accounts, with insurance in the pipeline. Whereas mortgage revenue made up roughly 60% of total sales in Q2 2016, it dropped to 36% as of this quarter. They wanted to diversify their product mix, but they realized they were also leaving money on the table.

Through strategic M&A activity, LendingTree has acquired a number of leading media and comparison properties to expand into new products. Acquiring CompareCards, a leading online source for credit card comparisons, has allowed them to catch up to Credit Karma and Bankrate, who own a large part of the existing market. Additional acquisitions in tertiary products like student loans, deposit accounts, and credit services have enabled the company to expand their market share in markets that are both ripe for growth and sparse of competition. The inorganic growth strategy emulates that of two of LendingTree’s major shareholders: Barry Diller, who’s company IAC previously owned LendingTree before spinning them off in 2008, and John Malone, who owned 27% of shares as of November, 2017.

LendingTree has made significant acquisitions to expand and grow

Enhancing Customer Engagement

The potential scale and success of LendingTree’s business model is predicated on discovering prospective borrowers. If they’re repeat customers, that’s a big win because their promotional costs drop significantly once a customer is familiar with the platform.

My LendingTree, the company’s personal financial management (PFM) app launched in 2014, has 8.8 million customers and generates roughly 20% of the company’s leads. It offers free credit scores, credit monitoring, and goals-based guidance through a proprietary credit and debt analyzer. At the surface, it’s not especially different from any of the other leading consumer PFM apps. That’s been the issue with these apps: the service is valuable, but it’s very difficult to differentiate beyond UI/UX, which is far from a defensible moat.

However, the ability for LendingTree to lock in customers and accumulate customer data to personalize product recommendations is a breakthrough for both consumers and lenders. Consumers outsource the loan diligence process to their phone, which explores the universe of lending options in order to find the most suitable options.

LendingTree’s new personal finance management app. (Photo by LendingTree)

The leader in this space is Credit Karma, and by a wide margin. They’re estimated to have around 80 million customers. Those numbers appear starkly different at first glance, but it’s important to keep in mind LendingTree is relatively new, launching in 2014. Credit Karma developed a more captive relationship with customers from their inception in 2007, beginning as a free credit score platform. They’re effectively in an arms race, trying to emulate each other’s primary value propositions in order to win over a larger share of customer attention.

By all accounts, the My LendingTree product is still in its infancy. Personal loans make up nearly two-thirds of revenue generated through My LendingTree. Credit cards were integrated through CompareCards earlier this year; deposits will be integrated in the fourth quarter through DepositAccounts. As the platform more formally integrates mortgage refinancing and HELOCs, there are more channels to drive user engagement.

For the consumer, this app reinforces the aggregation and connection between interested borrowers and willing lenders. Arguably more significant, however, is the personalization of individual customer experience that will drive further engagement and improve the recommendation engine. With the continued migration to online and mobile for financial services, this product benefits from natural demographic tailwinds.

If LendingTree can successfully reengage with customers on a more recurring basis via My LendingTree, the app should be accretive to overall variable marketing margin because they’ll have to spend far less on promotional activities due to organic customer. The combination of a market-leading aggregator with a comprehensive PFM tool creates a flywheel effect where success begets success, particularly with a major head start in the lending aggregation business.

Removing the Informational Asymmetry

In LendingTree’s business model, customer demand drives the flow of ad dollars and ultimately origination volume. Lenders follow customer demand. LendingTree helps expedite that process. Lenders can expand their conversions by boosting the number of high-quality leads and reducing obstacles to the loan application process. LendingTree improves both catalysts.

On the lender side, My LendingTree fundamentally changes LendingTree’s value proposition. They used to be responsible for connecting lenders with warm leads to drive conversions. With an existing customer base, the lead generation suddenly gets easier. It also significantly reduces the customer acquisition cost for lenders, notoriously a major component of their expense profile.

Nearly 50% of all consumer interactions with banks and financial services companies occur online. It’s not controversial to say that figure is likely heading in only one direction. Currently, credit cards and personal loans are the most automated online application processes because the decisioning occurs relatively quickly. Of the expansive network of mortgage lenders on LendingTree’s platform, only 40 currently enable borrowers to continue their application online. As mortgages and small business loans become more automated through partnerships with third-parties like Blend and Roostify, LendingTree will benefit from more seamless integrations and likely, higher conversions.

The real value proposition for the lender, however, is in the headcount consolidation. Just as the number of stock brokers and equity traders has diminished significant, the role of the loan officer will follow a similar trajectory. LendingTree initially supplemented loan officers in their borrower sourcing from a marketing perspective, which drove loan officer commissions down significantly.

Doug Lebda’s next conquest is to supplant the entire sales function. In response to a question about LendingTree’s impact on lender headcount, Lebda responded: “what will happen is [lenders will] be able to reduce commission. So the real competitor, if you will, to LendingTree…is the fully commissioned loan officer…In the future, you’re going to have LendingTree convincing the borrower through technology and then you’re going to have an individual lender just basically processing and getting it through.”

The relationship between a loan officer and a prospective borrower is marred by informational asymmetry. Incentives aren’t aligned. Soon enough, the pre-approval process launched through their new digital mortgage experience, “Rulo” will help to solve a problem that has plagued LendingTree since its inception: an exhaustive pursuit from loan officers.

With Rulo, LendingTree sorts and filters the list of offers and provides a recommendation based on the best option. Then, the app allows you to contact the lender directly, offering the consumer the freedom they historically haven’t had. Commenting on the early success of the new experience, Lebda said “[the conversion rate is] literally about triple what it is on the LendingTree experience.” LendingTree is streamlining a low value, yet operationally costly element of the lending business that has remained more or less stagnant for half a century.

Seeing the Forrest through the Trees

The fawning over fintech companies has driven exorbitant amounts of global investment from venture capitalists and private equity firms who are ultimately looking for exit opportunities. Two things are happening: first, most of the major fintech companies aren’t going public, although that is beginning to change. Second, and perhaps more importantly, the ones that do go public don’t fare particularly well.

The tried and true strategy of most emerging financial technology startups is to focus on user growth and monetize later. LendingTree did the opposite; they created a cash-flow generating platform that served a critical purpose, simplifying a historically complex landscape for consumers, while simultaneously driving directly attributable revenue for lenders. They have proved their original value proposition, connecting borrowers with lenders, and now they’re playing catch up to provide supplementary tools to add more value for customers. It’s a rare pathway, but a productive one that more fintech startups should consider.

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