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AMEE announced today that they had closed a new round of financing . I think this is a fascinating company and compelling opportunity. Given the chance, would I have for certain chosen to invest? Based on what I know of the company and its management, I would like to say yes. Probably. I’m forced to hedge my opinion because I just don’t know enough, especially with respect to the …
Five years ago I wrote a thought piece called ‘Through the Looking Glass’ to provoke non-linear thinking and foster debate on the possible future direction of the financial services industry and market structures. (I later turned it into a short video called AmazonBay.) It was a retrospective told from the point of view of an observer in 2015. It was never meant to be taken literally – in particular with respect to (most of) the specific corporate mergers – rather I used these as a concise and dramatic way of highlighting the possible or even probable consequence of the deep secular currents that I felt would inevitably work to reshape the landscape.
(December 2015:) …The global securities and investment banking groups that dominated the market in the last century are now extinct. In their place we have an intelligent galaxy of new specialist advisory, investment management, algorithmic software and consulting firms networked with a universe of powerful transaction facilitation exchanges. Banks now exist only as giant regulated pools of capital.
Following the sweeping banking reforms proposed last week by President Obama, and the fact that we are now halfway to this hypothetical future, I thought it might be worth doing a quick mark-to-market of how my ideas have lined up with reality.
Oracle
stock exchange consolidation and emergence of new exchange venues (A-) pretty close both in outcomes and timing – the major stock exchanges have been merging a-go-go while at the same time new trading venues have proliferated, and exchange (or quasi-exchange) trading of new asset classes continues to develop strongly.
sports/outcome trading in US legitimized (B-) my narrative had this happening in February 2010, not there yet but Congressman Frank’s bill might open the doors later this year and the trend seems to be on the right track and will probably be signed into law by Obama (!); as an aside was way early on a Betfair IPO…
giant bank mergers followed by break-up of vertically integrated universal banks, with Goldman Sachs leading the way (A) we have seen the big get mostly even bigger (RBS/ABN, BoA/ML, Barclays/Lehman…and while JPMorgan didn’t buy MS, they did get Bear Stearns and WaMu); GS hasn’t yet broken itself into three as predicted but I’m still confident it will lead the way when/if industry structure changes, and more generally the trend of regulatory thinking across the globe is definitely a trailing wind for the kind of change I envisioned. The 2010-2012 timeframe for the re-organization of global banks is probably a bit early but plausibility has certainly gone up (from near zero) significantly since I wrote this.
more (and more) algorithmic / automated intermediation of markets (A-) this was obliquely referenced in my article but was really at the heart of the idea that this fictional ‘AmazonBay’ platform would end up dominating this aspect of markets; clearly the market is heading this way – in fact it may seem obvious now but most people did not fully understand this even as little as five years ago.
Amazon anything (B+) The jury is probably still out on this one, but in my view it is looking increasingly likely that Amazon.com will become a giant of the next economic paradigm; whether or not they use their vast intellectual and technological resources to participate more directly in the financial services arena is not yet clear, but I can tell you the only ‘big company’ job I would not hesitate for two minutes to accept if it were offered would be CEO or CSO of Amazon Financial Services (AFS) Jeff are you listening?
(Note: Remember I used real company names mainly to add vividness to the ideas underlying the narrative. The key concept I wanted to convey with this GS break-up vignette was that the vertically integrated model would decompose under the light of new technology and regulations into a (technology-centric) Sales & Trading component, a more focused, relationship driven Advisory component (cf. the emerging proliferation of pure advisory ’boutiques’) and independent, conflict-free Asset Management businesses (cf. the secular growth of hedge funds and Barclays sale of BGI, etc.))
(February 2009:) …Reacting to new competition, Goldman Sachs becomes the first major investment bank to break itself up. Securities and distribution are sold to Ebay Financial Markets, while the remaining activities are split into two new companies: GS Advisory Services and GS Capital management…
Charlatan
eBay anything (D) Despite the fact that the actual companies cited are more symbolic than literal, the choice of eBay to represent the cutting edge of online, data-driven, algorithmic marketplaces was simply awful. To the extent that it risks distracting the viewer from the key, underlying messages. It is now entirely implausible and so instead of bridging the cognitive gap, the inclusion of eBay simply extends it. Thank goodness this is somewhat mitigated by my inclusion of Amazon.com (see above) as the other new markets avatar but they come late to the narrative…
sports trading developing as an asset class (C+) this clearly hasn’t happened, although there are one or two small funds and firms offering managed accounts; and a vibrant ecosystem of professional traders and the associated software has emerged around the Betfair and other exchange platforms. In my defense, I picked sports as just a provocative and emotionally attractive example of the idea that – enabled by technology – a vast array of new tradable markets in goods but also outcomes, would emerge. Work in progress.
credit crunch and asset bubbles (D) although the overall purpose of the piece was to provoke thinking on the sustainability of existing business models in financial services in the face of radically shifting underlying technological, economic and demographic trends, I failed to include a thread touching on the possibility of catastrophic systemic discontinuities arising as a result of the prevailing market structure and business models. It’s a significant ommission, especially as at the time of writing this I was in the process of exiting my former responsibilities as a senior executive in the credit business due in part to my increasing discomfort with the sustainability and prudence of the risk pricing in that market.
All in all, I would give myself a mid-term grade of B+/A- with room both to improve and to slip back. Mostly on the right track, especially with respect to big themes but perhaps a bit optimistic in terms of some of the timelines. What do you think? Better? Worse? To be fair, the correct measuring stick is not so much whether or not I was right or wrong, even in terms of ‘macro’ predictions but whether or not this article and video helped catalyze serious discussion, debate and thought about the potential for disruptive and non-linear change in the financial services industry. Alas I have no idea how one could even attempt to measure that, but any thoughts or anecdotes you might have with respect to this would of course be appreciated.
I would set upon transforming the company into a retail financial services powerhouse, focusing in particular on developing markets like India and Brazil; and
I don’t have time to articulate the whole thesis here (and besides, if they want the whole thesis they can hire me!) There are some hints in my Platforms, markets and bytes presentation.
All this will no doubt help Nokia come up with better, if not magic, products. The firm may even reach its goal of 300m users by the end of 2011 because its efforts are not aimed just at rich countries, but at fast-growing emerging economies where Nokia is still king of the hill, such as India. There, services such as Nokia Money, a mobile-payment system, and Life Tools, which supplies farmers with prices and other information, fulfil real needs, says John Delaney of IDC, another market-research firm.
Which only strengthens my view that their path to salvation lies in (yet another) complete re-invention, this time to a 21st century, sixth paradigm, retail financial services platform (built on a mobile substrate.) They might even want to keep (at least some of) their handset engineering know-how: it might come in handy for building handsets that are particularly well adapted to mobile financial services.
In any event, if Nokia want their share price to go up, they better hurry up and change their frame of reference. I mean really, who would you rather compete with? Apple? Google?
One of the downsides of having a reasonably ‘international’ life is having to manage foreign exchange risks and effect international currency transfers and payments reasonable regularly. If you only do this once every few years for a few thousand pounds/dollars/euros/etc., you may not notice or care that your bank generally makes this quite hard to do and charges you an arm and a leg for the pleasure (no commission is just dishonest marketing-speak.) If however, you need to make a few foreign currency payments or transfers each year; and/or you have more significant sums at stake, your bank is probably not the best place to do your FX business.
You could (and perhaps do, as I did) use one of the literally hundreds of FX brokers, and if you have the time, knowledge of spot rates and inclination to haggle and shop around, you will get a good price. For a transfer of £10,000 for example you could easily save on the order of £100 or more compared to your bank. However (aside from needing the time, skill and energy to haggle and shop around), in my experience that is the easy part. It is only once you have traded that the fun really starts. Faxes, printing pdfs, clunky websites… getting your money to the broker and then back out in the new currency to the destination account is all too often a long and painful experience. Not completely surprising given the traditional business culture found in financial services: the trade is done (and revenue is booked), the rest is just ‘back office’, paperwork…boring. But from a customer point of view, this is upside-down: the trade is the easy part, undifferentiated, relatively painless (notwithstanding the see-what-you-can-get-away-with pricing algorithms of most of the industry.) Your time (and mental health!) is valuable, being able to trade painlessly in just seconds is often times as valuable or more than a tight price. In any event, you shouldn’t have to choose between them, and now you no longer need to.
So when an ex-colleague of mine Nigel Verdon came to me with a new concept in FX payments and broking, one that was predicated on transparency, simplicity and automation, I listened. I liked what I heard and I became one of the first guinea pigs customers. I liked it so much, I bought (a stake in) the company. The company of course is FX Capital Group which I’ve written about previously, here and here. Nigel and his team have built an extremely robust and technologically modern FX payments platform that essentially acts as middleware between any end user and their bank accounts and the enormous and highly efficient wholesale, interbank currency markets. On top of this platform, they have built two applications: FX Capital – adapted for corporate customers, and RabbitFX for private clients. In the coming weeks, they will also release their API, with the clear objective of allowing anyone to embed FX and international payments into their website, workflow or application. Indeed, one of the first target markets for their platform technology is the hundreds of FX brokers who currently struggle with poor or non-existent technology. By allowing them to focus on what they do best (generally distribution – client acquisition and relationship management) and improve the level of service to their customers by outsourcing the technology to FXCG, everyone – client, broker, FXCG – is a winner. Think of it as FXaaS (FX as a Service.)
…[FX Capital Group provides] FX-as-a-Service.
The reason for today’s post however is to announce the new RabbitFX website, which I hope you will agree looks fantastic and even more importantly is easy to use and understand. It’s not perfect (still lots of improvements and features in the pipeline) but we think it is ‘good enough’: we are confident that the user experience is better than any other specialist FX broker in the market. And this starts right from the beginning: sign up for an account today and you’ll see what I mean. For UK customers, you should be able to get everything done online; customers based outside the UK (and some UK customers) can do 90% online and will need to send some identity documentation (in order for RabbitFX to fulfill its ‘know-your-customer’ regulatory requirements.) And once your account is open, I’m sure you’ll find like I did that making a FX payment has never been easier.
I thought I’d play a little markets jeopardy with the headline to this post. The question of course is: “what would happen if Google stopped mucking around and just came out and said it?” Said they were going to take their massive dataset, brilliant algorithms and (hire) all the smartest people in all the lands and offer a free service to “do anything anyone anywhere might conceivably want to do.” That should be enough to cast a pall over even the most profitable or promising companies. Sell everything (else) and buy Google, right?
Many of you are of course thinking no, not right: the premise is far-fetched (not to say ridiculous) and even if you accept it in the spirit of the thought experiment it so obviously is, the conclusion – that they take out every other competitor at the kneecaps – is not a given by any stretch of the imagination. And yet, when Google announced that they were going to launch a free property listing plug-in to enhance their UK maps product, the market reacted pretty much as if Google were indeed Merlin the Magician and just by waving it’s googly wand it could take over any market at will just by unleashing its fierce intellect and sizzling technology on the hapless incumbents. In this particular instance, Rightmove’s (the leading UK property portal) shares collapsed on the news trading down 10% on the day and c. 15% in all since the story broke. Now to be fair, having traded as low as 156p at the start of the year, RMV shares have had a pretty solid 2009, hitting a high of just over 600p and trading around 550p before the Google ‘news’ hit the market. And since investing (and especially trading) is not about picking the prettiest asset but picking the asset you think most others will find prettiest, I don’t blame any fund manager for selling first and asking questions later. And I have much sympathy for those that think that Rightmove’s market leadership is vulnerable in the medium term; only I don’t harbor much fear that this threat will come from Mountainview. The competitor that Rightmove’s shareholders should be keeping a close eye on isn’t Google, but Zoopla of course. (Reminder: we are investors in Zoopla.) Ah, but Zoopla has a silly name, it can’t be a real threat. Google however…
And it’s not just UK property where I think the mainstream markets and pundits breathlessly get it wrong about Google. In area after area they have proven not to be a very successful or threatening competitor and in other areas their entry has often been a boon for specialist competitors in the segment due to the legitimizing power Google brings to the table. They are able to (implicitly) validate new business models in ways a smaller, more specialist start-up could never dream of, and yet this market validation very often plays right into the hands of folks who, well, know what the hell they are doing.
Don’t believe me? Let’s take just a couple areas where – if you believe the logic in the argument used to justify Rightmove’s downtrade – Google should be causing wholesale panic and disruption:
Financial Information: maybe I’m wrong but I don’t exactly see Thomson Reuters or Bloomberg shaking in their boots, and yet here is a sector that is tailor made for Google’s engineering, distribution and technology assets, and one where they have had years to refine the value proposition; and yet Google Finance remains essentially a working prototype of a back-of-the-napkin sketch of what a Google financial information portal could become. Umair challenged CEO Schmidt to take up this challenge a couple months ago but I’m not convinced it would be as easy as it looks.
News aggregators: Google News is all we need right? (Perhaps supplemented with Google Reader…) There’s no reason for sites like Digg or Daylife or the Huffington Post to exist. I mean what are these guys thinking: some of them even started after Google News went into public beta. Crazy. Except they actually work, they have customers willing to use them despite Google News existing. But really, how long can this last?
Advertising: I must be joking now. After all advertising is the one market Google owns; the market that gave them their billions that allowed them to hire all the smart (non-evil) people and enter and take any other market at will. Right? Well if you think so, have a look at this recent post from Paul Kedrosky. It’s why vertical search and specialist sites exist. It’s why you (usually) go to Amazon.com if you know you are searching for a book, and not necessarily via Google.
And I could go on. But the point of this post is not to say that Google are useless, yesterday’s game, past their prime. In fact my best Google-fanboy guess would be that they are far from the point of diminishing returns and structural foolishness. My point is rather that they are not – or at least not universally – the ‘destroyers of all economic worlds’; that as they grow to become a company of thousands of employees in dozens of locations they will inevitably have to deal with some of the structural pathologies that this involves, including rising mediocracy and products looking more like camels than horses. Oh yeah and evil too. Yes they are a fierce competitor and certainly there is some risk that they could destroy your business model and take your business with it. But this is far from certain. They are human. They make mistakes. They execute poorly. They don’t always (or even often) win. And best of all, once you’ve proven that you can beat them, they just might buy your company.
Update:
I forgot to send you to a great essay by John Borthwick, thinking about the challenges Google faces going forward and highlighting the structural shortcomings of trying to regulate behavior in the fast moving world of technology, inspired by Ken Auletta’s book Googled: The End of the World As We Know It.
And of course Jeff Jarvis wrote a book about the opening premise of this post (which perhaps Santa will bring me) called What Would Google Do?
I have long been concerned by the rise and rise of the global mega-bank, first due to my conviction of the impossibility of managing such complex behemoths (with the dangers as we all now know having repercussions far beyond any individual bank’s shareholders or creditors) and also due to the increasing rents such a de facto oligopoly could (and so logically does) extract from the rest of the global economy. I’ve started and then stopped writing this post at least half a dozen times in the past year; partly due to a sense of ‘what’s the point’, partly due to the problem being covered by many with much (much) more influence than I, and partly (I’m somewhat ashamed to admit) due to a small underlying element of self-censorship. As some of you know, we have ambitions to raise capital to allow us to catalyze the re-invention of financial services by investing in companies with disruptive new business models in this sector, and well the big banks are not only potential sources of capital in their own right, but also have significant influence with many of the people and institutions who are potential sources of capital for us. As regular readers know, I try always to tell it like I see it but if I’m objective, I probably have had a tendency to pull my punches a bit when discussing the banking industry. But as the debate on reforming global banking takes centre stage, and at the risk of annoying some of our potential future investors with a dissident opinion, I thought it would be worthwhile to lay out my key thoughts on the subject.
Weak competition is obvious to customers: financial companies demand high fees that are often calculated according to illogical tariffs. Fund managers’ charges, for example, are usually large and are often not linked to the quality, or the real costs of their services.
The lack of competition shows up to economists in the sector’s staggering profitability. In the second quarter of 2009, 29 per cent of US domestic profits came from finance. The profit-generating power of financial companies across the developed world has stubbornly remained higher than that of other companies.
There is, in addition, good reason to suppose that competitive pressures will weaken further. The recent wave of bank failures and mergers, born of the crisis, have left the sector more concentrated. With fewer players on the field – many enjoying implicit state guarantees – competition will be further enfeebled.
But in more advanced economies, rent-seeking takes more sophisticated forms. Instead of 10 per cent on arms sales, we have 7 per cent on new issues. Rents are often extracted indirectly from consumers rather than directly from government: as in protection from competition from foreign goods and new entrants, and the clamour for the extension of intellectual property rights. Rents can also be secured through overpaid employment in overmanned government activities.
Rent-seeking is found whenever economic power is concentrated – in the state, in large private business, in groups of co-operating and colluding firms. Private concentrations of economic power tend to be self-reinforcing. This problem was widely recognised in America’s gilded age. The well-founded fear was that the new mega-rich – the Rockefellers, Carnegies, Vanderbilts – would use their wealth to enhance their political influence and grow their economic power, subverting both the market and democracy. Today it is Russia that exemplifies this problem.
But America has a new generation of rent-seekers. The modern equivalents of castles on the Rhine are first-class lounges and corporate jets. Their occupants are investment bankers and corporate executives.
So much of the conversation seems to revolve around this question of how do we deal with financial institutions which are “too big to fail”, with the turkeys running the world’s mega-banks almost unanimously (and somewhat breathlessly) insisting that breaking banks up would achieve nothing except to hurt customers.
Back in June, I set down my thoughts on what the key issues were in terms of (fixing) banking regulation, highlighting that size (of assets or business) was not the only variable to consider when assessing systemic risk, but that ‘connectedness’ was probably even more important. Certainly the combination of both is something that should ring alarm bells.
Wouldn’t it make much more sense to build a set of rules that explicitly addresses the vulnerabilities of a scale free network and as such focuses disproportion attention and resources on protecting the hubs from attack or failure. The beauty is that the digital global financial system of the 21st century and advances in the science of networks actually now allows us to do this: we can empirically and quantitatively observe, measure and manage the ‘connectedness’ of institutions. Forget the rating agencies, companies like Bonabeau’s IcoSystems and others could help the regulators create, maintain and monitor network ‘maps’ and score each market participant in terms of their connectivity. This should be the defining core metric of financial regulation and mirroring the power law distribution of the underlying network, financial regulation should focus its attention and resources in geometrically increasing fashion.
However it’s pretty frustrating to continue to read much of the ‘financial establishment’ – people who have the luxury and the privilege of being able to speak from the pages of the FT – continue to miss the point entirely and cling to a (slighty) new and improved version of the regulatory status quo. I have enormous respect for Jamie Dimon, and while I agree with him that the system must be re-engineered so as to allow any bank of any size to fail without jeopardizing the system, I disagree that breaking up the biggest banks would be damaging and serve no purpose. The rules need to be reset (to build-in automatic and steeply increasing impediments to growth in size and connectedness), but at the same time the biggest global and domestic mega-banks need to be pruned back to a size that is commensurate with this new paradigm.
The parallels between the rise and rise of Standard Oil in the late 19th and early 20th centuries, and its subsequent government mandated break-up and the rise and rise of giant global banks in the late 20th and early 21st centuries are real. John D. Rockefeller sounded every bit as sincere and paternalistic in calling for an ever bigger, ever more dominant Standard Oil – a company that would bring ‘order’ and ’stability’ to the market making customers’ lives and choices ‘easier.’ Well of course we know that the market for oil products didn’t suffer as a result of the break-up of Standard Oil, nor did anarchy descend on the US telecommunications markets following the break-up of AT&T. I think you’ll actually find that there is a decent case to be made that things got better in both cases, with more robust and innovative markets and better value for customers. (I highly recommend that legislators everywhere take a moment to read Chernow’s great Titan: The Life of John D. Rockefeller, Sr. before reaching their conclusions as to the merits (or not) of breaking up the biggest banks.)
But the most important long-term reason to consider government intervention in the size and power of the world’s largest financial institutions is that failing to do so will inevitably starve one of the key sectors of the economy of innovation and progress with increasingly damaging results. Indeed, in the conclusion to his column Mr. Kay hits the nail on the head:
Because innovation is dependent on new entry it is essential to resist concentration of economic power. A stance which is pro-business must be distinguished from a stance which is pro-market. In the two decades since the fall of the Berlin Wall, that distinction has not been appreciated well enough.
It’s time for a change. It’s time to shake things up a bit. No?
Anyone who has ever used an Apple product understands that a key part of the value flows from the design aesthetic that covets simplicity, intuition and beauty; harnessing these attributes to provide solutions and services that users find a joy to use right out of the box. The complexity of their products is hidden from view, Steve Jobs having understood that the extra effort needed to transform complexity into simplicity was something that created tremendous value both for his customers and his shareholders.
Creating simplicity is hard. Much harder than creating complexity. Entropy and all that. But it is very often worth the effort. Helpfully, John Maeda wrote a great guidebook “The Laws of Simplicity” where he articulates 10 basic laws:
Reduce: The simplest way to achieve simplicity is through thoughtful reduction.
Organize: Organization makes a system of many appear fewer.
Time: Savings in time feel like simplicity.
Learn: Knowledge makes everything simpler.
Differences: Simplicity and complexity need each other.
Context: What lies in the periphery of simplicity is definitely not peripheral.
Emotions: More emotions are better than less.
Trust: In simplicity we trust.
Failure: Some things can never be made simple.
The One: Simplicity is about substracting the obvious, and adding the meaningful
Finance and financial markets are often complex. This complexity can arise within products (exotic derivatives), infrastructure (clearing, settlements and payment platforms) or regulation. And most financial services firms (and professionals) revel in this complexity. Not only do they not seek to hide it away, but they often compete vigorously to show it off in all its glory (and of course by association they seek to validate their virility and cleverness by navigating all this complexity on behalf of their hapless customers.) Of course – sticking with the computing metaphor – this ‘look how clever I am’ approach is very Microsoft-ian (and no, that isn’t a compliment) and very rarely does it provide the most utility or best value for the customer. So one of our key investment themes is to find and nurture companies who are to finance as Apple is to computing (and media!) The complexity of modern finance and markets is the ideal substrate for simple products and services, to quote John:
Simplicity and complexity need each other. The more complexity there is in the market, the more that something simpler stands out. And because technology will only continue to grow in complexity, there is a clear economic benefit to adopting a strategy of simplicity that will help set your product apart. That said, establishing a feeling of simplicity in design requires making complexity consciously available in some explicit form. This relationship can be manifest in either the same object or experience, or in contrast with other offerings in the same category—like the simplicity of the iPod in comparison to its more complex competitors in the MP3 player market.
One of our portfolio companies does exactly this. They take a simple service, using technology and their market knowledge to engineer a solution that keeps the complexity away from the customer and behind the scenes. (Where it should be.) A solution that embraces simplicity and transparency in a market heretofor characterized by complexity and obfuscation. It’s not a new music site or social network. It’s probably not something anyone would get too excited about. It’s boring. But it’s big. Billions big. And important. And for many individuals and corporates, unavoidable.
The service is foreign exchange (aka FX) and international payments. And the company, as you might now have guessed, is FX Capital Group. (See also my FX 2.0 post from this spring.) And the reason I am writing about them today is that they have just launched their new website and online trading platform and it is by far the best FX user experience I have seen. Simple. Transparent. Complete. Easy-to-use. From the initial client take-on, all the way through to the onward payment to the account of your choosing, every last detail of the process has been engineered to make the customer’s life simple. The “iTunes of foreign exchange”. After all selling one currency to buy another should not be that hard.
And now, it isn’t.
FX Capital Group’s vision is to combine technology and traditional phone base services with competitive and transparent pricing to deliver on the promise of simple, cost effective, and customer friendly foreign exchange and international payments services for clients.
Leveraging experienced individuals, the best technology and a deep understanding of both international foreign exchange and payments markets, FX Capital Group brings transparency, simplicity and automation to meet the foreign exchange needs of clients in a robust, easy and effective manner.
Buy, Sell and Hedge Currencies: A full range of phone based and online services to buy/sell currencies and hedge currency risk. Competitive, consistent and transparent pricing for all customers.
Manage Currency Risks: Guidance on strategies to hedge currency risk within your business. A great service for firms who contract in multiple currencies or import / export goods and services.
Sell on Your Website in Multiple Currencies: Expand your online customer base by selling to customers in multiple currencies using our real-time FX API’s at rates that are better than those “bundled” with merchant service providers.
Invoice in Multiple Currencies: Invoice your international clients in local currency. Embedded hedging of any currency movements and no need to maintain bank accounts in multiple currencies.
Make International Payments: Our international payments service (online and phone) will save you money over you bank for making international payments and may be free if you transact your FX with us.
And other brokers and financial intermediaries are also welcome to partner with FX Capital Group, either via API or white label agreements. Indeed, first and foremost this is very much a platform company, FXaaS really. The customer facing website is in fact just an implementation of the underlying platform, and shortly the company will be launching the second implementation – RabbitFX – which will be tailored specifically to private and retail clients. Going forward we hope that many other partners choose to build innovative and customized services on top of the core FXCG platform. We also are excited by the ability for partners to integrate FX into their products and workflows simply and powerfully. Imagine for example an ERP provider, or online accounting services, or an ad network, etc. etc. …the list of potential partners is almost endless.
One area that is particularly close to my heart is the ability to allow even the smallest start-up to offer their customers payment in any currency – easily, cost effectively and transparently. Or helping start-ups with geographically dispersed operations pay employees, contractors and suppliers in any currency without having their eyes ripped out by their bank or payments provider. I’m sure most of the seedcamp finalists from the last few years have foreign exchange payments to make from time to time, many on a regular basis. In the spirit of helping to get the ball rolling on this front, I’ve convinced them to sweeten the bargain for all the companies that have applied to seedcamp (or mini-seedcamp) over the past three years.
If you have been a seedcamp applicant, finalist or winner, if you open a corporate account and do a trade before December 25th, FX Capital Group will send you a £25 iTunes or Amazon gift card and also contribute £25 to the charity of your choosing. Just let them know when you register for which seedcamp event you applied or attended. They’ll do the rest. And then sit back and save time, money and energy and never worry about managing FX payments again.
Like all good start-ups a big part of the excitement and frustration is knowing what is ‘in the pipeline’ and wanting it all to be released to users ‘yesterday’. However we also know that the best ideas and certainly the best prioritization algorithms emerge from getting a product into the wild and so after 9 months of development and private alpha, I can’t wait to hear ways in which customers and developers will want to use the platform. So for all you early adopters out there, know that the platform is probably not perfect (although we’ve stress-tested it up to 250,000 trades a day without any problems, which gives us a bit of headroom to grow into! lol) but (we think) it’s damn good and would rather challenge you to help us make it even better than pretend we’ve got it all figured out.
In case you were wondering, the team is indeed working on putting a screencast/video demo of the trading platform online and but in the mean time they are more to happy to walk you through a short online demo if you are interested. Alternatively you can go yourself to https://demo.fxcapitalgroup.co.uk/ and use the following credentials:
username: demo@splashypants
password: demosplash
pet’s name: splashy
favorite animal: whale
favorite city: atlantis
Have a go and be sure to let the team know what you think. Best channel is probably twitter where you can find them at @FXCapitalGroup or on Facebook.
Finally it’s important to make clear that I’m not just writing this post as an investor, commentator or director but first and foremost as a customer. My entire adult life I have had to deal with managing FX risk and struggle with the pain and cost of doing international transfers. When the founder Nigel Verdon came to me with his vision, I thought ‘Hallelujah!’ – at last. It may not be the sexiest business in the world but there is real pain and real profits to be made in using technology to disrupt the old way of doing business and give customers a better deal. And so I did a ‘Victor Kiam’. So next time you have to make a foreign payment, whether its for yourself or your company, give FXCG/RabbitFX a chance, I’m sure you won’t be disappointed.
I first wrote here about Ken Banks and FrontlineSMS a little over a year ago, after having seen him speak at Supernova in San Francisco where he made a tremendous impression. I remember immediately being excited by the obvious possibility of leveraging the Frontline:SMS platform to provide financial services, not only in developing countries but also in more mature markets. I put ‘try to set up meeting with Ken to discuss’ on my to do list, but it never quite made it to the top as the myriad challenges of setting up our business (and moving house) in the midst of generalized global financial calamity conspired to keep it from becoming an urgent priority. Of course (and thank goodness) the world does not wait for me and an enterprising young man, Ben Lyons, spotted the same opportunity and (much) more importantly has moved to action, teaming up with Ken and FrontlineSMS to create FrontlineSMS:credit:
FrontlineSMS:Credit aims to make every formal financial service available to the entrepreneurial poor in 160 characters or less. By meshing the functionality of FrontlineSMS with local mobile payment systems, implementing institutions will be able to provide a full range of customizable services, from savings and credit to insurance and payroll.
Launching FrontlineSMS:credit a few weeks ago, Ben wrote:
Our mission is simple: leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities. To achieve this end, we are constructing a series of free and open source financial modules that will allow FrontlineSMS to communicate with mobile payment systems in real time, turning FrontlineSMS in to a microfinance management information system, a payroll center for small & medium enterprises (SMEs), a collection and distribution center for micro-insurance premiums and payouts, and a detailed center for individual credit histories and scores.
Now if this isn’t a massive opportunity, well I don’t know what is. At the risk of sounding churlish, it’s an order of magnitude more substantial and important (socially, financially, economically…) than half the me-too start-ups chasing funding and customers amongst the western digerati. Take another look at Ben’s mission statement:
… leverage the mobile space to extend access to affordable financial services to rural, disconnected and impoverished communities.
I suspect the first time you read that you thought “in Africa”, or perhaps India, or developing countries more generally. But these same under-served communities (alas) exist in every country in the world, and one could even make a case for saying that for those living in a developed economy, the relative disadvantage of not having access to basic financial services is even more damaging. It seems inevitable that the approach taken by FrontlineSMS:credit will become the primary channel through which universal access to basic financial services is delivered in any country or economy. Which leaves the politicians of many European states very little time to figure out what the hell to do with all the postal employees currently cashing cheques and taking payments for utility bills, who will soon need to find more productive work. And I’m not sure how complacent I would be as a shareholder in an incumbent retail banking operation (the top executives I doubt will lose much sleep as the timeline for this kind of transition is probably 10-15 years or so, much longer than their expected tenure…) as this bottom up, platform approach to delivering financial services has the very real potential of blowing a giant hole right in the middle of their business and revenue model.
To further whet your appetite here is an excellent 10 minute introduction to FrontlineSMS:credit by Ben at Africa Gathering in London a couple weeks ago:
Instead, Wall Street needs to be reinvented from the bottom-up: by a new generation of radical innovators, to create thick value, for an authentically shared prosperity.
Building a disruptively better global financial system is the central challenge —and the largest, richest opportunity — for today’s economic revolutionaries. It’s time for Finance 2.0.
Investors, entrepreneurs, and radical innovators of all stripes: it’s time to It’s time to go big, or go home. You’re happy that social gaming is worth billions. That’s nice. But it’s also chump change. Because the gains that can flow from better capital markets are worth trillions.
Finance — not video games, advertising, cleantech, or social nets — is where 10x+ returns lie for today’s venture investors, and life-changing fortunes lie for entrepreneurs.
Hallelujah. Anyone who knows us knows that this is right out of our pitch book. And yet. It’s not easy. And I’ve been wondering why that might be. How much of it is a ‘turkeys not voting for Christmas’ problem? Or is it a question of ‘Lord, make me chaste. But not yet…’? I don’t know, hard to tell. Anyhow I’m sure we’ll get there in the end, but there is so many exciting opportunities and so much potential sometimes I struggle to understand why we aren’t reduced to beating back hungry investors with a stick. I guess the real answer is that we need to spend more time seeking capital and less time investing it. But I tell you that just doesn’t seem right. It should be the other way round, no?
A wise man (not being sarcastic – he really is wise) once told me of a very large private equity firm where he used to work at one time. He said they had a lot of smart and ambitious people. And a few well, Forrest Gumps. The latter took care of investing, while the former focused on the much more important job of raising more and bigger funds. I thought he was joking. I’m now pretty sure he wasn’t. (Note to self: area no. 697 of financial services ripe for disruption: allocation of capital to private equity managers…)
There has been much recent angst in the venture capital world about funds that are too big, and indeed the same debate flares up from time to time in the hedge fund world where many strategies (although not all) have analogous scaling problems (over-crowded trades, positions too big for the market, opportunities too small to ‘move the needle’ of a big fund.) But investors time and time again prefer to take the safe route and ‘buy IBM’. The classic fail-conventionally-versus-succeed-alone trade. Don’t get me wrong, there are some amazing big funds – where as an investor you get to eat your cake and have it too: ie great returns and the ’safety’ of a tried and trusted organization – but there are also many many mediocre funds who have grown out of their edge and had their business objectives perverted into raising and keeping ever larger amounts of AUM, rather than having the objective of generating the best possible risk adjusted returns. I guess the fund-of-fund structure was one answer to solving the dilemma of how do you scale allocation of funds into many small and/or new managers, unfortunately more often than not, many of these funds find it easier and safer (reputationally not financially) to slide back into allocating to the same old, same old. (And a few bad apples discredited the whole concept by just putting all their money into a ponzi scheme and taking fees for their trouble!) I’ve thought about this a bit, and I must admit I have yet to come up with a clever mechanism that would solve the problem of efficiently (and safely) getting investment capital out into the ‘long tail’. But I’m sure it exists. Especially with the tools and access to information available today.
We also need to fix the supply-side by taking away the naked incentive for asset managers to blindly pursue AUM growth as a priority. This is easy. It was the first thing I said I’d do differently – three years ago – if i ever managed outside capital. It seemed so bloody obvious: management fees pay the cost of running the business, carry or performance fees are the juice. So set management fees at the level of the operating budget. Simple. You would think investors would love this as it reflects the true cost of managing the investments and aligns interests. Sure, it is a bit more complicated than just multiplying the capital by a fixed percentage, but only a bit: the cost structure of an asset manager is not exactly complex – people, an office, some travel, IT (more or less depending on the strategy) and some professional fees (legal, accounting, etc.) Further if there are economies of scale to be had in the strategy in question, these would be naturally passed on to the investors as the costs as a percentage of assets would naturally decline as assets grow, but the managers would be indifferent to this and so aim for an amount of assets that allowed them to create the best returns net of management fees. Indeed this is exactly what Paul Kedrosky suggested the other day. (Once again perhaps we were too early!) We thought potential investors would love this. The reality (so far) is that most have been at best indifferent and in a few cases outright skeptical – “That sounds too clever, why don’t you just stick to 2% like everyone else…” (I’m not making that up!) ie Don’t rock the boat. And that’s a problem, because we’re all about rocking the boat! And I can’t see how we can be otherwise and remain credible when our value proposition is to identify and invest in disruptive business models… (Sigh.)
Anyhow, Umair don’t lose faith, we’re working on it!
This post has nothing to do with new paradigms in finance or markets or anything like that. It does however have a good dash of entrepreneurial zest. But mainly it’s about skiing and how following one’s passion is a great way to start a new business. And it’s also a reminder that not all startups fit the Y Combinator model and that venture capital can (and should) be a broad church…
Just last week I’m happy to say I closed on a modest personal investment in an exciting new ski company called the Faction Collective:
Faction. n. ‘A minority group working within, and in opposition to, a majority group.’
When we founded Faction, our manifesto was (and continues to be) to build the best high performance skis we can, without compromise. Our focus is on providing versatile, progressive products that answer the needs of freestyle and freeride skiers – designed by riders, for riders. Every person involved in Faction, from the people working here in the office through to the guys in the warehouse and the team riders on the hill as well as you the consumer, has a say in how we design, build and manage our products.
Now as many of you know, I am an avid skier, however my true passion is racing. Fast, hard, steep. 5,4,3… So when my friend Alex Hoye first approached me about Faction (where he is co-founder and Chairman) last year, I was skeptical. First, I didn’t know the first thing about investing in a consumer goods start-up and secondly, I didn’t feel I had any way to judge the quality / desireability / competitive position of their products as Faction is focused on freestyle, freeride and big mountain (off-piste) skis. Give me a GS ski, well that’s something I can have an opinion on… But I had a look, and the vibe – reminded me of my teenage skateboarding days, kind of like a 21st century Powell-Peralta for snow: the new Dogtown (and Z-Boys)? – felt great and so I asked him to send me a couple pairs of skis to test. I had them for 2 or 3 weeks and not only did I test them, but I let a number of my ‘local’ friends try them out too, including a teenage ex-racer, a ski instructor and a ski shop owner. Everyone, including me was blown away. Not only that, except perhaps for the teenager, we were all pretty skeptical in an old reactionary kind of way to these ‘newfangled’ funny looking “skis” (if you could call them that.) All of the sudden, I rediscovered the joys of off-piste skiing – powder, crud, bowls, glades – it was so easy and fun. And I’ve never seen skis turn so many heads in a lift-line. The final confirmation that these guys at Faction were on to something is when the teenager didn’t want to give back the skis and kept insisting he would buy them off me! I decided I better dust off the IM and take a closer look…
They are only making about 1200 pairs or so this season (and just the folks I know will probably put a dent in that limited number!) so if you want the ultimate Christmas gift for your teenage son or daughter who spends all day in the snowpark, or if you want to go off-piste or tear up the powder and feel like you are a teenager again, I definitely wouldn’t wait too long to order yours, once they are gone, they’re gone…Contact the good folks at Faction and they’ll tell you who sells them close to you.
And once you’ve kitted yourself out in the latest, greatest gear from Faction, you’ll probably be thinking I need to book a place to stay! That’s where my next set of (non-tech) entrepreneurs come in. Martine and Laurent are good friends, who are living their life’s dream and putting the finishing touches on the brand new 4-star hotel they have built and will run in Meribel. For those of you that don’t know it, Meribel is an absolute gem of a resort in the French Alps, sandwiched between Courchevel and Val Thorens at ‘the heart’ of Les Trois Vallees – the world’s biggest ski resort. We’ve been going there for over 15 years now and I can tell you there is something for everybody. However one of the things that is in short supply in Meribel is hotel beds – the resort has c. 40,000+ beds but most of these are in chalets and apartments. Until this year if you wanted to stay in a luxury hotel, you really only had a choice between two and they were booked up years in advance. With only 20 rooms, and an ideal location, modern infrastructure (the advantage of building from scratch!) I’m sure after this season it will be equally hard to get a room at L’Helios.
Trust me, I had a tour a couple weeks ago – it is going to be awesome! And unlike most alpine hotels it is ready made for families and groups, with many interesting interconnecting suites and modular grouping of rooms, including many with duplexes. Unfortunately you can’t book directly online yet (has to do with banking/payment laws and the fact they are just starting up, don’t ask…!) but contact them via their website and I’m sure you will get a prompt response (especially if you tell them I sent you!) Sadly I’m not an investor in L’Helios but I’m sure it will be a roaring success. And if you do go let me know and maybe we can have a drink together on the sundeck. (I might even be able to get the owners to let us have it on the house!)
And just to make sure you are counting the days until first tracks, here is a little Faction video to get the imagination going:
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before reaching their conclusions as to the merits (or not) of breaking up the biggest banks.)![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=e5e8ed9f-c025-4930-b9a6-b7040251e6f4)
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? – felt great and so I asked him to send me a couple pairs of skis to test. I had them for 2 or 3 weeks and not only did I test them, but I let a number of my ‘local’ friends try them out too, including a teenage ex-racer, a ski instructor and a ski shop owner. Everyone, including me was blown away. Not only that, except perhaps for the teenager, we were all pretty skeptical in an old reactionary kind of way to these ‘newfangled’ funny looking “skis” (if you could call them that.) All of the sudden, I rediscovered the joys of off-piste skiing – powder, crud, bowls, glades – it was so easy and fun. And I’ve never seen skis turn so many heads in a lift-line. The final confirmation that these guys at Faction were on to something is when the teenager didn’t want to give back the skis and kept insisting he would buy them off me! I decided I better dust off the IM and take a closer look…
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_c.png?x-id=862e4090-9f7b-4131-bb6b-c2779368ffec)
