More on Bitcoins….

Posted on : 31-01-2014 | By : richard.gale | In : Finance, Innovation

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Our article last year on the future of virtual currencies provoked a great deal of interest (“Bitcoins: when will they crash and what is coming next?“). One area we didn’t touch on was the threat to banks and other payment systems. Transaction costs for payment systems are very high and Bitcoin may offer sellers a much cheaper way to transact.

We are using Bitcoins as an example but it could be applicable to any virtual currency out there.

Obviously the internet has revolutionised the way we buy and sell products and services. New payment firms such as Paypal have emerged through clever technology, become massively successful and then bought for huge amounts of money.

The issue is with Paypal and other transaction systems such as Visa/Mastercard is the charge to the retailer can be excessive. If a company is working in a high margin space then this is less of an issue but a the majority of internet companies rely on a large number of low margin transactions. With Paypal & Visa generally charging between 1 & 3% of total cost this can reduce and almost eliminate any profits. If multi-currency exchange rates are then applied then profit can disappear altogether.

It is generally accepted that Bitcoins transactions costs are insignificant compared to Paypal, Visa etc –  there is some debate around the actual costs (Bloomberg’s Matt Levine thinks transaction costs are on a par or higher than Visa)  but transaction cost of using Bitcoins is around 0.1-0.2%.

Another potential advantage of Bitcoins or alternative currencies generally (Altcoins?) is that the exchange rate transaction can be controlled and may not be needed at all. Money can be held in Bitcoins and so if an individual or company buys and sells in Bitcoins it can be used as a common currency (like having a consolidated FX bank account) so eliminating expensive foreign exchange transfers.  Unless Bitcoins replace all existing currencies then at some point some money would have to be transferred but it would the net difference after buying and selling rather than a ‘tax’ on each transaction.

The success of Bitcoins, as with any currency or payment method, depend on a wide enough acceptance (with associated trust etc) to make transactions viable and easy. Bitcoins have a long way to go for general acceptance but more and more places both virtual and real are starting to accept them.

Obviously there are other important factors including general acceptance, volatility & reputation that may impact the acceptance of the alternative payment methods but it should make sense for etailing firms and will be keeping Paypal Executives awake at night. An obvious way for them to fight the risk could be to reduce their transaction costs. Paypal is immensely profitable and their model would probably still work with a lower margin, we are not so sure in regard to Visa & Mastercard with heavyweight organisational structures and legacy processes & systems.

If nothing else the rise of the virtual currency will provide some competition and lower costs for retailers and so hopefully buyers too!


Bitcoins: when will they crash and what is coming next?

Posted on : 29-11-2013 | By : richard.gale | In : Innovation

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Bitcoin is the first implementation of decentralised money controlled by cryptography rather than any central authority…

What this really means is it is a currency independent of any one government’s control and the supply is limited (by a set of algorithms) which govern the speed new coins can be generated. Transactions are verified by a third party (known as ‘miners’) to eliminate fraud and there is an upper limit  (around 21 million Bitcoins) to control the supply of the currency. Bitcoin transactions are like cash in the sense that they can be anonymous with the seller having no knowledge of the buyer’s identify & visa versa. Bitcoins are also a payment system like Visa or Paypal (via the miners) as well as a currency.

The origins of Bitcoins are slightly murky (the architect’a name ‘Satoshi Nakamoto’ is a pseudonym) and emerged from a convergence of cryptology and the open source movements in 2008. As with most new technology, early adopters of Bitcoins used the currency for illegal activities on the ‘Dark Web’ such as Silk Road, laundering and as payments for electronic blackmail. Now the currency is gaining more acceptance with a wide range of on-line and other businesses accepting it as a valid alternative payment method.

Governments, central banks & law enforcers are concerned about the emergence of Bitcoins for two main reasons;

  • Loss of control – controlling the value of a currency (through supply, interest rates etc.) is a mechanism to control demand and so impacts inflation, balance of payments and so on. If a new payment mechanism outside of this starts to gain popularity then these levers become less effective;
  • Criminal opportunities  – anonymous transactions allow opportunities for criminals to safely transaction between themselves, and to provide a secure mechanism to extract money from legitimate businesses and individuals through blackmail, extortion in addition to the potential for exploiting the public’s lack of knowledge of Bitcoins. It is starting to make inroads into the criminal’s oldest friend – high value currency notes.

After a relatively quiet introduction in 2009 the value of Bitcoins rose relatively steadily until 2013 when the first boom and crash was experienced in April with the value doubling and then halving in a month. At the present time a Bitcoin is worth $1,100+ dollars which is over 10 times the value it was in January and more significantly 5 times what it was worth in October…





Even criminals are affected by this currency inflation. Cryptlocker – a popular piece of ‘ransom-ware’ (which infects and encrypts a person’s files and only then provides the password for a fee) used to charge 2 Bitcoins for the release of the key and now has a 1 and also a 1/2  Bitcoin version to cope with the rising value and to make it viable for people and business to pay.

Looking at the graph it seems likely that a correction in value for Bitcoins is overdue but, assuming acceptance of them continues to grow then the upward rise of the value may well continue upwards at a fast pace before slowing. The Bitcoin community recognise this as likely with the limited supply and increasing demand. They are fully expecting to break each Bitcoin into  millibitcoins (0.001 of a Bitcoin). We think there will be a major correction soon but, as long as confidence in the currency is not knocked too significantly, then the upward valuation of Bitcoins will continue to gather pace.

So what can stop the onwards march of the Bitcoin? We see a number of risks before Bitcoin becomes mainstream;

  • Distrust – The concepts of  cash, currencies and banks have existed for hundreds of years. A new model built on obscure algorithms and codes without any obvious ‘owner’ may take some time to resonate with the public
  • Reputation and moral obstacles – Bitcoins have been tainted with the utilisation by criminals and this may reduce or slow down take up of the currency. This has been highlighted by press and law enforcement agencies and could limit it’s acceptance
  • Governments, central banks and police forces are generally against Bitcoins. Some are trying to limit it’s growth and others are trying to ban the currency. It will be an interesting battle to watch
  • Competition from other new forms of currency. Bitcoins are the dominant cryptology currency but there are many other electronic ‘Coins’ out there. There is no reason why one or some of the others will not increase in popularity
  • Other payment mechanisms have very deep pockets and will not give up without a fight. Paypal & Visa will embrace the concept but will want to take advantage and build their own currency businesses out. How they do that is a work in progress but they have the transaction value and trust of consumers and businesses.
  • Technology – there must be the ‘next big thing’ waiting in the wings to supersede Bitcoins – Quantum computing is the obvious direction for this as the levels of complexity and so encryption & security would go up immensely. Also emerging technology may be able to break the encryption so destroying trust and so value in the Bitcoin.
  • Volatility – this is probably the oldest but most likely impact to acceptance of Bitcoins. We are currently in a phase of Bitcoin ‘hyper-deflation’ where 1 bitcoin in October would buy $200 and  now it would buy $1,100. This is a major positive if you are a holder of Bitcoins but the cost of purchasing Bitcoins has risen 5 fold. If this continues or stabilises as the Bitcoin community expects then all will be fine. But if there was a decline in value it would likely be accelerated given the volatile nature of the currency which may trigger ‘hyperinflation’ and a crisis of confidence….

Whatever the future of Bitcoin itself it looks like there will be significant growth in alternative currencies and payment mechanisms. In time this will have major impacts on how nation’s economies are run and controlled. There will be opportunities for many new forms of businesses to take advantage of these electronic currencies; new forms of gaming, selling and treasure hunting for lost Bitcoins.

Exciting times! – and unlike cash you are less likely to lose a Bitcoin down the back of the sofa but don’t forget to  backup your Bitcoin wallet!



How should banks target technology innovation?

Posted on : 02-09-2013 | By : john.vincent | In : Finance

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We have written a lot about the pressures on financial service companies and how they are responding differently in order to adapt to these challenges (such as are the banks Too Big to Succeed?, how to manage Technical Debt and are they Missing an Opportunity with Bank Accounts). What we see is one common theme emerging – the need for banks, wherever they are, to continue to innovate in order to protect existing markets, build share in emerging ones and service their clients in a new more agile way.

“Innovation” and “Agility” are words too often scattered liberally in corporate life through mission statements and strategic objectives…a strap line or comfort blanket for C-Level communities. Box ticked.

However, do we really consider the practicality of applying these in today’s environment? Do we modify and target based on situation? Important questions. Let’s consider further.

If we look at the mature financial markets there are a number of external pressures which influence and inform our ability to drive technology innovation. Here we see Risk and Regulation forming a large part of the technology discretionary spend, up to 60% some estimate. This naturally has a big impact on the investment portfolio and how much can be targeted for projects in the innovation category. Indeed, the impact is often disproportionate as resources in the compliance area, such as contractors and consultants, are often sourced from the premium end of the market, thus further eroding what remains. This is something that needs to be addressed, quickly.

Another factor affecting the mature markets is the continued pressure on costs and internal resource burden. Even if funding for nurturing innovation exists, the staff that understand the business AND underpinning technology often cannot be freed up from the day to day fight for survival (an example of where this is being addressed is at Aviva with the creation of their “Digital Unit”).

Contrast this with the start-up communities located close to the key financial hubs…here funding exists to focus solely on the new future technology innovations, such as mobile payments, big data analytics and data science.

In response to this, the larger banks are engaging with the start-up community to drive new technology, such as through the Fintech Innovation Lab – a 12 week programme running through to March 2014. Shaygan Keradpir, CTO at Barclays, said “The increasing role of technology in financial services is accelerating the pace and breadth of innovation and driving the kind of cutting-edge services which our customers and clients demand.”

By engaging in this way banks are more likely to have an agile approach to innovation to combat both their market challenges and not insignificant legacy infrastructure (indeed, only recently Barclays lost their key mobile guru behind PingIt to real-time mobile payments start-up, Zapp).

Switching to emerging markets, a different approach to how technology innovation is approached needs to be considered. Here growth is a priority…in South Africa 67% of the population do not have bank accounts. This represents a huge opportunity to both on-board and drive innovative solutions in a different way. Indeed, Standard Bank has implemented a system with local stores acting as “access agents” to provide South African clients access to bank accounts for deposits, withdrawals and money transfers. They are currently opening at a rate of 5000 accounts every day.

Again in Africa, it is predicted that countries such as Nigeria, Kenya and Tanzania will be at the forefront of mobile banking and payments. In fact, whilst they have been under developed from a banking infrastructure and telecommunications perspective, this is expected be a benefit as competition enters the continent and drives mobile platform innovation without the burden of legacy investments.

It is interesting to watch how technology innovation differs from market to market and country to country. Awareness of this, targeting the innovation portfolio and truly understanding agility are key.

Technology Innovation – “Life moves pretty fast…”

Posted on : 25-09-2012 | By : john.vincent | In : Cloud, Data, Innovation

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We recently held an event with senior technology leaders where we discussed the current innovation landscape and had some new technology companies present in the areas of Social Media, Data Science and Big Data Analytics. Whilst putting together the schedule and material, I was reminded of a quote from that classic 80’s film, Ferris Buellers Day Off;

“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it”

When you look at today’s challenges facing leadership involved with technology this does seem very relevant. Organisations are fighting hard just to stand still (or survive)….trying to do more with less, both staff and budget. And whilst dealing with this prevailing climate, around them the world is changing at an ever increasing rate. Where does Technology Innovation fit in then? Well for many, it doesn’t. There’s no time and certainly no budget to look at new way of doing things. However, it does really depend a little on definition.

  • Is switching to more of a consumption based/utility model, be that cloud or whatever makes it more palatable to communicate, classified as innovation?
  • Is using any of the “big data” technologies to consolidate the many pools of unstructured and structured data into a single query-able infrastructure innovation?
  • Is providing a BYOD service for staff, or providing iPad’s for executives or sales staff to do presentations or interface with clients innovation?

No, not really. This is simply evolution of technology. The question is, some technology organisations themselves even keep up with this? We were interested in the results of the 2012 Gartner CIO Agenda Report. The 3 technology areas that CIO’s ranked highest in terms of priority were;

  1. Analytics and Business Intelligence
  2. Mobile Technologies
  3. Cloud Computing (SaaS, IaaS, PaaS)

That in itself isn’t overly surprising. What we found more interesting was looking at how these CIO’s saw the technologies evolving from Emerging, through Developing and to Mainstream. We work a lot with Financial Services companies, so have picked that vertical for the graphic below;

The first area around Big Data/Analytics is largely in line with our view of the market. We see a lot of activity in this space (a some significant hype as well). However, we do concur that by 2015 we expect to see this Mainstream and an increased focus on Data Science as a practice.

Mobile has certainly emerged already and we would expect this to be more in line with the first category. On the device side, technology is moving at a fast pace (in the mobile handset space look at the VIRTUS chipset, which transmits large volumes of data at ultra-high speeds of a reported 2 Gigabits per second. That’s 1,000 times faster than Bluetooth !).

In the area of corporate device support, business application delivery and BYOD, we already see a lot of traction in some organisations. Alongside this new entrants are disrupting the market in terms of mobile payments (such as Monitise).

Lastly, and most surprisingly, whilst financial services see Cloud delivery as a top priority they also see it as Emerging from now through the next 5 years. That can’t be right, can it? (Btw – if you look at the Retail vertical for the same questions, they see all three priorities as Mainstream in the same period).

That brings us back to the question…what do CIO’s consider as Innovation? Reading between the lines of the Gartner survey it clearly differs by vertical. Are financial services organisations less innovative? I’m not sure they are…more conservative, perhaps, but that is to be understood to some degree (see the recently launched Fintech Innovation Lab sponsored by Accenture and many FS firms).

No, what would worry me as a leader within FS is the opening comment from Mr Bueller. Technology and Innovation is certainly moving fast and perhaps the pressure on operational efficiencies, whilst undoubtedly needed, could ultimately detract from bringing new innovation to benefit business and drive competitive value?

There is also a risk that in this climate and with barriers to entry reducing, new entrants could actually gain market share with more agile, functionally rich products and services. We wrote before about the rise of new technology entrepreneurs…there is certainly a danger that this talent pool completely by-passes the financial services technology sector.

Perhaps we do need to “take a moment to stop and look around”. Who in our organisation is responsible for Innovation? Do we have effective Process and Governance? Do we nurture ideas form Concept through to Commercialisation. Some food for thought…

No-win/No-fee: Cost Takeout Services

Posted on : 31-08-2012 | By : jo.rose | In : Finance

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Enterprises are always under pressure to deliver IT value and cost reduction; even more so in today’s climate. Recognising that both resources are scarce and there is no budget to “spend money to save money”, we have developed a model of cost takeout and recovery services that works on risk and reward basis (no win-no fee).

Our partners are currently delivering multi-millions in recovery or avoidance in the four key areas of Fixed Line Telecom, Mobile Tariffs, Software Licensing and IT Assets and Infrastructure.

Some characteristics of the offering;

  • The service is a “light touch” approach. We do not require significant client resources but access and authority to artefacts and contracts which underpin the associated focus area.
  • We have developed this service through years of experience in driving efficiencies and is underpinned by expert staff in financial and contractual management.
  • We agree the success criteria and shared reward targets upfront with our clients.
  • In some areas, such as mobile phone tariffs, costs can be reclaimed retrospectively for up to six years.
  • The only risk to the client is doing nothing!


If this is something that may be of interest please contact Jo Rose to discuss how our approach could help your organisation.