Case for CBDC – Market Efficiency

Given that I’m building a new Company focused on Crypto acceptance in physical assets (stealth – pilot in 3 weeks), I thought I would share some perspective on the drivers of Crypto, CBDC and Decentralized Finance (DeFi).

There are about 50,000 people that read this blog.. Glad you enjoy it.. I’m most surprised anyone can stand my writing style for that long (sorry for all the typos – no editor). 

As most of you know I love to read the arcane (ex favorite book is Weak Linksrelated blog) and I love economists. Today I’m reading some of Thomas Phillippon’s research (NYU’s economist and author of The Great Reversal: How America Gave Up on Free Markets). Many of you will recall I covered Dr. Phillppon’s work in my 2015 blog Changing Economics of Payments. My summary of Phillippon’s work:

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ApplePay Accept (Mobeewave) in October

My track record on Apple is pretty good.. having broke the Apple Pay news in 2014 and Last August I announced the Apple/Mobeewave acquisition. Apple is great at keeping secrets… perhaps the best tech company in the world in this regard. My latest forecast? Apple will enable payment acceptance in the US this October with Elavon as payment processing partner.

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Retail Banking’s “Blockbuster” Moment?

Sandy Weill’s financial supermarket vision is coming to an inglorious end…. The Blockbusters of Banking…

Last week, in his annual shareholder letter (page 28), Jamie Dimon stated “Banks have enormous competitive threats — from virtually every angle,” he said. “Fintech and Big Tech are here… big time!”

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Short Blog – BNPL Recap

BNPL specialists have found a way to help merchants serve consumers that were unserved, achieve sales growth and improve consumer experience.

101 Blog… probably not for the BNPL experts. Recap at bottom. 

While CDBC may impact debit networks in a 5 yr view, I thought I would write a short blog on BNPL’s impact to credit networks in near term (See Insider’s BNPL market Analysis and MRC’s overview of solution providers)

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Digital Dollar – Biggest Threat to V/MA (and USD Hegemony)

Over the last 20 yrs, most countries have implemented an RTGS system. A CBDC is a generational leap: Money itself becomes an immutable digital object that is assigned and can’t be destroyed or created without the specific direction of the Central Bank.

I doubt if this blog will be beneficial for the crypto and CDBC experts. But for my friends, I’ve linked several very detailed articles and reports… which I’ve tried to summarize.

With respect to payments, let me start with the quote of the week

“Tom look at the pace of change in China as a model. 15 yrs ago they were cash. 7 yrs ago they were China Union Pay, Now they are Alipay/WeChat Pay.. 3 tremendous changes in 10 yrs.  I believe change will happen much faster than anyone could imagine.”

– Top 5 US Retailer

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Walmart – Banking and FinTech

Imagine a world where bank accounts don’t matter. You select services that solve your problems when you have them. Walmart (and Amazon) are unbundling banking.

As always pardon the typos

It seems like only yesterday that 30 members of Congress wrote the acting chairman of the FDIC to stop Walmart Bank.

“Wal-Mart’s plan, to have its bank process hundreds of billions in transactions for its own stores, could threaten the stability of the nation’s payments system,”

30 Members of US Congress, March 2006

Of course, we all know that Walmart pursued a different course to deliver services. Partnerships (MGI, Moneygram, Paypal, …) and banking in a box (literally an isle with prepaid cards). Most analysts discount or “write off” Walmart’s achievements in financial services.  Given Walmart doesn’t break out financial performance of Money Center, analysts are left with the tea leaves of MGI and GDOT reports. There is little doubt that comparing Money Center financial metrics to tier 1 banks would leave most unimpressed. However, Walmart has created a portfolio of banking services that supports their overall retail strategy and creates overwhelming loyalty amongst their core customer base.  

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No Visa/Plaid

As predicted in my June blog.. We heard today that Plaid will not happen.

Visa is my second largest holding and I’m buying more tomorrow. Why? Plaid would have been:

  1. Visa is building an amazing team, and Plaid is not the right core (in tech, bank permission or in data rights). 
  2. $5B for a company running at a ~$35M Rev (with Paypal as their largest customer) is beyond “good will”.  Apple’s Ring.. their star ship campus is $5B.. there must be something better to buy than a team of 340.. with 300 of them in screen scraping. 
  3. Data rights. Plaid will likely need to cease and renew all consumer agreements. Few customers are aware that their one time share of bank credentials to link their bank account led to 7 years of access to validate balances.
  4. Bank agreements.. banks certainly want to support the distribution of data under consumer permissions.. but this all starts with the bank and the consumer. A bank can’t grant plaid something it doesn’t have.. this is why Banks can’t give Plaid (or Visa) the agreement they want 
  5. Per my “open banking” blog, Banks are creating their own API service in Akoya. 
  6. Investors should cheer Visa’s pull back here. Less regulatory distraction, less org distraction and more fuel for something that makes sense. 

As I related in Open Banking, Open Payments and Trust Networks, Operating Agreements are the #1 factor for investors to asses when evaluating network value. Visa/MA Operating agreements to 15+ yrs to establish and to this day take more than 1yr to change. While this is cumbersome, no network can scale without a firm understanding (by all participants) of revenue, risks and operating costs.

While there may be a technical end run to obtain data and deliver value (aggregation), the hard work of operating agreements must be done. Theoretically, Visa’s existing bank operating agreements could have been extended. After all, they are one of the few entities that have agreement with every bank. But as I mentioned previously, networks become brittle as they expand… their common services become entrenched commodity infrastructure, and most importantly the observation that Trust is Domain Specific, making extension of “trust” in new services … well.. problematic. From my blog:

As networks scale → network effects take hold. Larger networks become more efficient increasing the value of their core services increases, connection costs drop, and ability to retain each node increases. Payment is becoming a commodity service, and payments specialists functions are being assimilated (as their function MATURES they are no longer special). However, as networks scale, they become more rigid and their ability to create NEW services (beyond payments) diminishes. After all, existing participants connect with a purpose (within an operating agreement). Additionally, trust is domain specific, thus current networks are constrained by BOTH the rigidity that comes with scale and by trust extension.

Data Games – Battle of The Cloud Part 6

Understanding flows of data, and the structures in which it is controlled, provides a map of: value, power and margin. What is changing in the flow of data?

Warning.. biggest blog ever.. So I made a two page summary. 

Happy New Year! Best to you and yours. Having completed the successful sale of Commerce Signals to Verisk last year, this blog is a reflection on some of my lessons learned as well as my predictions on where I see things headed. The thoughts here are guiding my investments and launch of my next venture. I love the interaction, so please take time to write a comment on any of this. Also I ask for your pardon in advance for typos.. 

Understanding flows of data, and the structures in which it is controlled, provides a map of: value, power and margin. What is changing in the flow of data? What data is still “unique”? Where is power shifting? My past blogs referred to this dynamic as Rewiring CommerceValue Orchestration and the Transformation of Commercial Networks

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Quick Take – Google Pay – Relaunch

Google just completed a massive “relaunch” of Google Pay this week.

Google just completed a massive “relaunch” of Google Pay this week. 

Recommend you read either of these 2 articles to get the details. There are 4 key elements in the launch

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Google’s “Bank” Plans

THE most bank friendly partner offering that will enable any bank to compete at parity with the NeoBanks.

Summary – Google is not becoming a bank, but rather enabling:

  1. New integrated tools that will provide the BEST mobile bank experience
  2. Instant account opening
  3. Consumer incentives that will unlock the power of data (w/ consumer’s consent)
  4. New predictive analytics, recommendations, alerts, reminders, coupons, offers and engagement

Public PR

Over last 6 months or so we have seen several Press Releases relating to Google’s bank partnerships:

“We had confirmed earlier that we are exploring how we can partner with banks and credit unions in the U.S. to offer digital bank accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools, while keeping their money in an FDIC or NCUA-insured account,” stated the release.

Smart, according to Google, because it will provide its checking accountholders with money management tips to optimize and manage the funds in those accounts – funds linked to payments and identity credentials that consumers can use to buy things, pay bills and send money to others in and outside the Google ecosystem.

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