Category Archives: Banks

Real-Time Trade

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Fascinating article on how stock market is getting completely automated in a matter of seconds. Who was saying something about real-time.

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Article found on MIT Technology Review. 5 pager can be found here.

Some extracts:

The profits go to the company with the fastest hardware and the best algorithms–advantages that enable it to spot and exploit subtle market patterns ahead of everyone else

TheTabb Group, a consultancy based in Westborough, MA, estimates that high-frequency automated trading now accounts for 61 percent of the more than 10 billion shares traded daily across the numerous exchanges that make up the U.S. market.

Trading is now essentially a virtual art, and its practitioners put such a premium on speed that NASDAQ has considered issuing equal 100-foot lengths of cable to the brokers who send orders to its exchange servers.

Hardware used at the facility will operate at a 40-gigabyte-per-second standard, enabling it to handle as many as a million messages a second.

New York City-based Lime Brokerage, wrote the SEC in 2009 to voice concerns over the proliferation of brokers who allow major clients to engage in high-frequency trading without validating their margins–that is to say, without making sure they actually have enough money to back a trade

Jacobs regularly sees algorithms executing more than 1,000 orders a second. At that rate, one algorithm trading the wrong way could execute 120,000 orders in two minutes. At 1,000 shares per order and an average price of, say, $20 a share, that’s $2.4 billion inunintended trades in 2 … SECONDS.

Institutional traders like Fidelity, which buy large blocks of shares for their mutual funds, use algorithmic trading to split their enormous orders into blocks of 100 to 300 shares so that other traders don’t recognize the true demand and take advantage of that knowledge for their own profit.

These are big numbers. And it happens every day. Scary.

Innovation at the Core and beyond the core

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If you consider yourself as an innovator, I guess you all want to create some Edison effect. So that when you launch your innovative solution, you can refer to the old days as “how could we ever live like that ?”

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The fundamental premise of this blog post is that organizations need a two-speed strategy for innovation.

  • One for innovation in the core, which is more about creating efficiencies in the core.
  • And one for innovation beyond the core, where you basically look for the next xxx Million EUR/USD new business stream (*).

*(Fill in the xxx based on the type of business you’re in). Think twice: by filling the xxx, you already frame your innovation to relative small innovations or real bold disruptive ideas.

Beyond the core you can NOT apply the same traditional core principles, decision criteria, mantra’s, etc.

Even more importantly, you need different governance and funding mechanism to succeed in innovation beyond the core. You also need a tail of your innovation process.

You need a governance that is not based on consensus (or even worse, on the principle of pleasing or obfuscating the no-Sayers), but on

the power of the believers

Team up with the believers.

You need a funding model where for each project – aka read new revenue stream of xxx Million EUR/USD – you have a FEW share/stakeholders, so that decisions are fast and don’t get watered down by yet another consensus process.

Because you want to make decisions on change of direction fast. You do not want to go through a lengthy consultation process with all sorts of stakeholders. In this sort of innovation beyond the core, often you take entrepreneurial decisions, that is taking decisions without knowing all the elements of the equation. In other words, their is some risk taking involved.

And when you take risk you can fail.

Fail wisely

And make corrections as you go.

For that you need fast assessment of the situation and fast decision taking to change course.

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In this innovation beyond the core, you probably don’t ask customers what they expect from the next problem, as they are probably framed in the existing core products and probably think in extensions of existing familiar products. When Apple launched the iPOD, do you really think they asked their MacBook customer base what they expected of a portable music player. Do not think so.

They probably would have ended up

with a cassette-player in the cloud

It took the nerve and courage of a visionary with – euh, a vision – and then execute very well on that vision.

You need to define a radically new and very clear tail to you innovation process. That tail must be agile, with few to decide and fund, to move fast before your competitor gets there. If not you end up with a number of cool ideas that never get further than prototype. And you create a big illusion and disappointment with all those who spent often a lot of their free time to come up with ideas and work them out into prototypes and initial business cases. (not everybody has the Google luxury to dedicate 20% of your work-time to innovation). And you loose the “clout” of your innovation team/work. See more about clout at the end of this blog post.

If you still need to be convinced of this principle, please read on and see what a number of very smart people have to say on this.

I found inspiration for this blog post in two great recent articles on Innovation by Adam Hartung in Forbes and one other on his great blog. Reader subscription mandatory if you do something in innovation in real business. Adam is author of Create Marketplace Disruption: How to Stay Ahead of the Competition.

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First article was in Forbes in October about the myth of efficiency.

Most organizations embrace the creation of new ideas and the fun exercises that surround "ideation." Then they hope they can somehow develop the momentum to roll out those ideas. As if that were what organizations do.

We all know that organizations are not designed to create and implement new ideas. To the contrary, they usually exist mainly to manage legacy businesses, to defend and extend them.

Organization leadership focuses on order and control. Thus a recent spurt of articles across the business press bemoans the problem of business "inertia," as the management expert Gary Hamel calls it.

When you take a hard look at efficiency, you can see that it’s never a good source of higher returns.

As appealing as cost cutting sounds, it can’t improve returns except within the shortest time frame. Why? First, most cost cutting is easily matched by competitors, thus offering little or no competitive advantage. Second, most cost cutting is simply distributed to customers through lower prices, in a fight to maintain revenue and stay ahead of fast-moving competitors. Price wars break out as a business spirals into lower margins and declining growth.

We know that the return on innovation is very high

As I mentioned earlier, it has been shown in many industries that investment in new products and services creates substantially higher returns. Why? Because real innovations are harder for competitors to match and keep up with, especially the more radical or disruptive they are. Also, genuine innovation prompts more customers to buy, increasing sales. Innovation grows a business. And since it leaves competitors behind, it generates higher margins.

Second article also in Forbes a couple of days ago. About Innovation beyond the core.

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Few businesses are any good at innovation. For all their brainstorming exercises and "open innovation" programs,

they mostly just come up with reformulations of existing products,

new pricing plans and basic updates

the same old things just a little cheaper, faster or better

Businesses ask their "strategic customers" where to innovate and get little advice. Those customers are usually strategic only in that they are large, not because they have any particular market insight. They too just want more, better and cheaper, which are hardly recommendations for true innovation.

The criteria are developed by reviewing "core technologies," "core markets" and "core capabilities."

"Leveraging the core"

becomes a refrain

All of which just increases the likelihood that what comes out will be remarkably non-innovative, like reducing the dirt-removing strength in Tide, slapping the word Basic on it, lowering the price and calling the result an innovation.

This leverages the "core brand" while extending its reach to more low-price customers, but how much can it possibly increase company revenues?

Even if you get that far, and have some form of Innovation evangelists in your company (i hate the word Innovation “Manager” as innovation has to come from everywhere inside and outside your company) that is in no way a guarantee for success and often a source for cynicism.

As ideas are developed, they get pushed through the wringer. Managers try to add value by applying a critical eye to them. With little more than their own past experience to guide them,

they cut out ideas they fear

won’t work technologically,

won’t be accepted by distributors,

might cannibalize existing product sales,

could require entering unknown markets

or otherwise are disruptive.

The number of ideas quickly shrinks.

Why is failure the norm? Defending and extending the business is what we’ve trained our business leaders and managers to be good at. They know how to remain close to "core" by staying "focused." They work on improving "operational excellence" and seek the "low cost position" while striving for "customer intimacy" with the biggest customers (encouraged by Michael Tracy and Fred Wiersema, the authors of The Discipline of Market Leaders).

Third article on his own blog just before the week-end. Referring to another great article by Andrew McAfee, in essence about the management illusion of (brand) control in this Web 2.0 world.

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Executives who feel like

they have "control" of their business

are under an illusion in 2009. 

And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts.  There are many things managers can control.  But many of the most important things to success are completely out of management’s hands. 

Thus, the ones who succeed aren’t trying to control their brand, or business. 

Instead they are building organizations that have great market sensing and are quick to react. 

Just compare GM to Google and you’ll see the gap between what worked in 1965, and what works 45 years later.

Fourth and last article is from James Gardner.

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James Gardner is a Director in Corporate Information Technology at the Department of Work and Pensions in the UK, where he is accountable for innovation, architecture and strategy. Before that he was Head of Innovation and Investment & CIO Technology at Lloyds TSB. For quite some time he is writing about innovation in Banker’s Vision. His latest post is about innovation backlash and innovation clout.

Consider this scenario. You use the tools of innovation to create a pile of new thinking that results in new prototypes or experiments getting built. Everyone is excited, and loves the new approach. New things start happening, so everyone declares the exercise a success.

But the situation is illustrative of something that you always see when you send an innovation team into the wild: the new ideas getting created threaten someone’s interests, no matter how well the innovation team influences those around it.

You get a backlash that is as inevitable as it is hard to manage. In fact, I’m not certain it is possible to manage it.

If you’re about changing the status quo and you don’t ruffle some feathers, it is surely inescapable that you’re not really changing anything at all.

My conclusion is that you have to invest your innovators with sufficient political clout that they can – in their own right –

protect themselves

from the backlash when it happens. If the clout is invested via proximity to a powerful senior figure, then so much the better.

There is a downside to giving innovators clout, of course. The downside is they then have the ability to disrupt strategy and “get distracting”. My own view, though, is that a strategy that doesn’t know how to deal with the new stuff without falling apart isn’t very much use anyway. It’ll only be current in the short term.

Try this: give your innovators their head and protect them from harm.

You’ll be surprised as the results you get.

This sounds very much like the Red Monkey story from Jef Staes, already mentioned elsewhere on my blog.

Summary: Innovating in the core or beyond the core is fundamentally different.

PS: of course, this blog post was written during my free personal time.

Cloud Computing and Marketplace are just happening

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Three interesting news items that Cloud computing and marketplace are just happening.

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Nobody else than Salesforce – a 10-year old company running a 10B+ $ cloud business, with 60,000 customers and 1,5M users (talking about reach…) – has as helped to launch FinancialForce.com , a new company that offers financial software. The new startup is funded by Unit 4 Agresso, the parent company of Coda, which had sold the Coda2Go SaaS through Salesforce.com’s on-demand application store. The new company is co-headquartered from Salesforce.com’s offices in San Mateo, Calif., and from an office in Harrogate, England. Salesforce.com will provide the customer support for the startup’s core product, also called FinancialForce (formerly Coda2Go). Salesforce.com is looking to position Force.com as a platform to launch new SaaS companies. FinancialForce.com is one of their first big case studies. The new solution includes general ledger accounting, user-defined budgets, spreadsheet integration, accounts payable and receivable, and invoicing. Pricing starts at $125 per user per month, and customers do not have to be Salesforce.com customers. Yes, i know, it is "just" accounting. But if you know that force.com already has 80 Financial Apps on their marketplace, it’s obvious on how the dots will connect.

The second is nobody else The U.S. Defense Department. They just put into operation their cloud computing services for military personnel. Originally launched a year ago, the platform, called RACE (Rapid Access Computing Environment) , was initially used for testing and development of new applications. The military says RACE is ready to go live with 99.999% uptime.

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The third is a company Schumachergroup .

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Their CIO was speaking at the Cloud Computing conference in London this week. This presentation was by far the best of the whole conference.

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75% of all their business critical apps are now in the cloud. And targeting 90 % by 2010. The rest in a traditional on-premise data center. The cloud is 99,5% uptime and is manned by 25% of their IT FTE’s. This is the area where they innovate. Their data-center is 98% uptime, has 75% of the IT FTE’s running it and it’s the data center that keeps the CIO awake. In the cloud, they can deliver 5-10 times more value faster. What does faster mean: on average 5 months to deploy a new app into the cloud.

We have invited this CIO to Innotribe at Sibos2010 to deliver a real-life case study from another industry.

Print

See also the article "Marketplace – a commodity" on my personal blog here . Some people believe a Marketplace for Financial Services is years away, even beyond 2015. Don’t think so. It’s getting build-in in platforms.

Marketplace: a commodity

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Here is force.com from Salesforce. As far as i am concerned, the way a marketplace should look like. Already more than 800 apps available, more than 70 of them are financial apps.

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Also have a look at the US Government marketplace.

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Everything’s up there. With pricing info, liability clauses, shopping basket, etc

Some believe building an application marketplace is something exotic, and if your not an Force.com, Apple, Google or the US Government it is something that is years away.

Reset your thinking. Picked up via ReadWriteWeb. Microsoft is going to offer application marketplace in SharePoint 2010. See the interview in the article on ReadWriteWeb.

What is even more interesting in this article is the video from Citrix Dazzle solution, embedded below:

Search for a financial application, make sure you get the right approval level for being allowed this app, mix and match online and offline apps, etc. It’s like an iTunes for apps, but then in an enterprise environment.

Can’t wait to see an out-of-the box offering that allows me to set up a marketplace of financial services in the cloud.

Failure is NOT an option (you don’t know until you try)

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A couple of weeks ago, i was attending the Web 2.0 Summit. Actually, it is the Web² Summit (read as Web Squared).

If you want to stay up-to-date a little bit, a must read is the Web Squared Whitepaper. You can read it online here or download it here.

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One morning, i was taking the elevator to have breakfast. In front of me in the elevator was somebody i never met, but he had a conference badge. So i started a chat. By the time we got to the ground floor, i understood i was chatting with Don Dodge, Director Business Development Emerging Business Team at Microsoft. UPDATE: just learned via Don’s blog that he has left Microsoft

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I identified myself as part of SWIFT’s Innovation Team, we got connected, and Don invited me to join him for breakfast.

We chatted about innovation cultures and where we were coming from. About our deep DNA of FNAO (Failure is not an Option), and how people in such culture usually feel reluctant to come up with idea of dare to take risks.

Don told me i gave him inspiration for a new blog post on The Next Big Thing.

Never thought he would do this, but hey ! Today i received from Don a mail with a link to his post. I have copied it here below in it’s entirety. Don’t hesitate to comment on this blog on on Don’s blog.

BTW: i have invited Don to be part of our Innotribe @ Sibos 2010 in Amsterdam in Oct 2010 :-). Hope he accepts.

PS-1: I am not an “Exec”. I am just part of SWIFT’s Innovation Team.

PS-2: “Make a mistake and you are fired” is of course a metaphor to indicate that an FNAO culture does not promote taking risks and being innovative. Sometime to the contrary. But that metaphor does not change anything to the important message Don has for big and small companies trying to innovate.

+++ start Quote from Don’s Blog

Failure is NOT an option – Why this can be a bad strategy

An exec at a large European financial company recently told me his former CEO believed “Failure is not an option”. Great, I thought. This means they will do whatever it takes to succeed, try five or ten different approaches until it works, get the whole company focused on the goal, etc. No, he told me. What it means is “Make a mistake and you are fired.” Wow! Another example of the difference between startups and big companies. I have worked most of my career in startups where you are always pushing the envelope, taking big risks, where there are no obvious answers, and you just keep trying until you find the combination that works.

Poker ChessStartups play poker, big companies play chess – This “failure is not an option” discussion reminded me of the huge differences between startups and big companies. Success is not easy in either case, but the approaches are radically different. Using a game analogy, startups are more like poker players. They take big risks, they bluff, they make quick decisions, change direction constantly, and they keep their competitors off balance. Poker is an aggressive game where if you play your cards right you win big, and win fast. If you lose a hand you can come back and double your money in the next hand. There is no time to wallow over a loss. You did your best. Move on and your luck will be better next time. Chess is a different game. Both require incredible skill and talent. A great poker player is rarely a good chess player.

Big companies think long term. Like chess players they think four or five moves (years) ahead. They protect their assets, play defensively, think strategically, and carefully consider the options before making a move. Big companies have a lot to lose, while small companies don’t. Big companies leverage their assets (conservatively) and flex their muscles where they can. They go for incremental improvements in position. Big company CEOs, like chess players, work a long term strategy. Each short term move plays a part in a longer term strategy that is not visible to the casual observer. In fact, their strategy is often kept secret, and they take care to make sure their short term moves don’t reveal their long term plan. Strategy is a competitive advantage.

There is another interesting topic on how to make the transition from startup to successful big company, but we will save that for another day.

Fail Fast – If you are going to fail, do it fast and move on to the next thing.More in depth thoughts here. The only thing better than a “Yes” is a quick “NO”. When you are raising money, selling a customer, or trying to get a deal done, it is the long drawn out process that never ends that will kill you. It is the same thing with startups. Being successful is always the goal, but if it is going to fail…Fail fast.

Bill Warner, founder of Avid Technologies, Wildfire Communications, etc, said recently “Some of you guys are so smart you turn what should have been a one year failure into a five year death march.” Entrepreneurs are resourceful, smart, and have that indomitable spirit that doesn’t allow them to quit. This can be good and bad. Sometimes it is better to “fold” and move on to the next game.

Hold ‘em or Fold ‘em? – “You got to know when to hold em, know when to fold em, know when to walk away, know when to run.” Kenny Rogers. The toughest decision any entrepreneur makes is giving up on a company. It just isn’t in their DNA to do it. In fact, they rarely decide to do it, it is the investors who finally make the call. How do they decide? It is really about passion and commitment – from the founders, investors, employees, and customers. If the passion is lost in any two of the four groups…it is probably time to “fold” and move on.

Fine line between success and failure – There are no easy and obvious answers. If it were easy everyone would have already done it. Timing and luck play a big part in success…bigger than most people will admit. There are four key elements to success in any business; great people, great idea, great timing, and luck. If you don’t have any two of the four…you are probably going to fail. I have seen startups with great people and a great idea that were too early (timing), or had bad luck on things they couldn’t control. They failed. The same idea tried five years later succeeded. Timing matters. The market needs to be ready to adopt your ideas. The answer is never obvious. You don’t know for sure until you try.

+++ End quote

Google and Finance 2.0

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Umair Haque has written an Open Letter to Google titled “Can Google take on Wall Street – and Win ?”

It starts with: “Dear Google,…”

and goes on with:

Every day, you handle more searches than the NYSE handles trades — and that difference, I’m guessing, is about to hit an order of magnitude more. Every day, you connect people, businesses, and communities in deeper and tighter ways than besuited beancounters do. From my tiny perspective, it seems that you just might be in the best position of any organization in the world to take on Finance 2.0.

Umair’s open letter is nothing more (or less) than

asking Google to implement

his Finance 2.0 Manifesto

written some months ago, and commented in this blog here. I strongly recommend to read the Manifesto.

And he continues:

What would a Googlier

finance industry resemble?

What would a more Googly set of capital markets look like? That’s the $12 trillion dollar question. After all, markets are just search engines — remember?

You still think you’re in the media business. You’re not. In the 21st century, everyone’s in the same business: the awesomeness business. It doesn’t matter what you make, as long as it offers maximum awesomeness. And right now, better finance would be pretty awesome.

Yesterday, you used to change the world. If you think a bit harder, a bit smarter, a bit more disruptively — you still can. If you don’t — well, the biggest catfish in a parched, dried up pond sure ain’t the smartest catfish.

And he gives some “leading” examples:

Tracked, ValueCruncher, StockTwits, and many more are the leading edge of a revolution — a revolution in what finance has been for the last several centuries, and what it must become in the 21st.

Something i don’t like in Umair’s post is the polarizing tone as if all in financials services is bad, and Google is “doing good” and Google being positioned as the solution to cure world hunger. Although i have already promoted many times on his blog that

polarization fosters innovation

Also, the “leading” examples offered above are putting Google in its traditional role of information manager, searcher of information.

I believe we could also look at Google as a utility. They have some great tools that could be applied in a big way to financial services. What if for example a neutral party would host a federated Google Wave as a SaaS solution for the financial market ? Running on a secure messaging platform like SWIFT ? Next generation person to person communication ? Or apply the same technology to do Collateral Margin calls for example ? Where every new call is a new Call “wave”. Think about it.

There is of course a lot i like in this article, especially the implicit push for extreme – even “impossible” innovation. Last week, i was attending the 11th European Conference on Creativity and Innovation. One of the keynotes came from Mark Raison, titled “The Power of Impossible”

The Power Of Impossible By Mark Raison Yellow Ideas Eaci Ecci Creativity Congress 29 10 09

View more presentations from mark.raison.

Look at this presentation. Internalize it. And then let’s play-back Umair’s open letter with The Power of the Impossible in mind.

What would happen then ?

PS: Mark Raison is on my target speaker list for Innotribe @ Sibos 2010.

Wikipedia for Data

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My colleague Mariela popped into my office the other day: “Peter, when we talk cloud computing we should highlight something fundamental: it’s about making DATA more accessible/interoperable, more than making applications interoperable”.

In essence, she saw that Cloud computing is in essence about

OPEN DATA

Mariela is right on.

This is btw one of the big beliefs as well of Russell Daniels from HP, who was a speaker at our Innotribe @ Sibos. Short video interview with Russ below right after the cloud panel discussion:

Over the last couple of days, i found some more evidence on several blogs.

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There are positive ways to proceed. Google, for example, a leader in cloud computing, has recently launched a specific project — The Data Liberation Front — explicitly including as a key facet the goal of making sure that users can quickly and easily export data from Google products. This ambitious and extremely important effort should be a model for the rest of the cloud computing industry.

See also Wolfram Alpha API to be released later today and the actual release page

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And also the release of the WolframAlpha iPhone app:

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My friend Peter Hinssen installed the iPhone app and tweeted yesterday this is the COOLEST thing he has ever seen.

Lots of writers have compared Alpha to Google, but I think that’s a mistake. it’s a data source, not a search engine, and that’s a significant difference. What matters with a data source is the ability to ask a question, get an answer back, and use it as easily as possible. An API minimizes the impedance mismatch: you can do computing directly with Alpha’s curated data.

But there’s another comparison that’s even more relevant: Twitter. What has made Twitter success isn’t so much the web application that lives at twitter.com. What has made Twitter valuable is the huge ecosystem that has grown up around that application: alternate clients for all sorts of platforms, web sites for searching, slicing, dicing, and remixing. Those have all been enabled by a simple and well-thought-out API for dealing with Twitter programmatically. The web isn’t about web pages; it’s about interactions between data sources.

Some other newcomers on the scene:

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Good Data raises $2.5M for business intelligence by Andreessen Horowitz, the firm run by Netscape billionaire Mark Andreessen. Btw the same firm is one of the candidates for acquiring Skype, but the Skype founders don’t seem to like it very much. Have a look at the great video on Gooddata’s homepage.

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There is Factual.

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Factual wants to be the center of the web’s open data. Not a minor detail: Elbaz, who co-founded Applied Semantics and sold it to Google, has self-funded the company. Well-known technology commentator and investor Esther Dyson recently joined Factual’s advisory board. Also Nova Spivack blogged about Factual here. Nova Spivack and Ester Dyson are two of the smartest people when it comes to semantic web and new technologies

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And Techcrunch Erik Schonfeld had a blog as well last week. With a link to a great video:

This is like Wikipedia but then for structured data ! It not about mashing-up user interfaces anymore. The next web is about being able to source good data sources and mash them up.

Imagine if we would start using this for all sort of financial services.

Semantic data/web will definitely be a topic for Innotribe @ Sibos 2010 in Amsterdam. Book already the dates in your calendars: 25-29 Oct 2010.

New Money and Payments

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The last couple of days there have been several blogs reporting on new types of money and payments.

First there was the great interview of Steve Boyd with Jamais Cascio.

Some highlights of the highlights:

You have to get a critical mass of people to agree in a new fantasy.

Groups with shared purposes could in fact have new currencies.

The unbanked are the source of many innovations in the world, right now.

Governments start to care when economies arise.

The question of anonymous money and the roll of cell phones in future money.

Then there were 2 news items on micropayments to news publishers:

The first one related to a New platform for micropayments to news publishers

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The key comment in the Spingwise article being that:

…for bitcents to work, it will need to attract enough publishers who produce content that readers are willing to pay for. Meanwhile, other ventures—like the soon-to-be-launched Journalism Online—are also working to create a new economic model for the news industry. Keep a close eye on this space—change is in the air, and business opportunities won’t be far behind.

Especially if the big boys want a piece of the cake. Here comes Google again.

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I found this one via my Twine subsription, and Nova Spivak was the first one posting it.

Again, some highlights only:

Google is developing a micropayment platform that will be “available to both Google and non-Google properties within the next year,” according to a document the company submitted to the Newspaper Association of America. The system, an extension of Google Checkout, would be a new and unexpected option for the news industry as it considers how to charge for content online.

While currently in the early planning stages, micropayments will be a payment vehicle available to both Google and non-Google properties within the next year. The idea is to allow viable payments of a penny to several dollars by aggregating purchases across merchants and over time. Google will mitigate the risk of non-payment by assigning credit limits based on past purchasing behavior and having credit card instruments on file for those with higher credit limits and using our proprietary risk engines to track abuse or fraud. Merchant integration will be extremely simple. [grey bold emphasis Google]

In a brief paragraph entitled “business model,” Google suggests that it would share revenue in a similar fashion to the iTunes App Store and its own Android Market, both of which take a 30% cut of revenue.

I downloaded the document and besides what’s covered in the blog post, it contains some other interesting facts about Google Checkout:

Key statistics:
• Tens of millions of registered Checkout users
• Several hundred thousand registered merchants, high number of sellers selling digital
goods
• $ Billions of orders processed

Planned Roadmap:
• Simplified Merchant Integration – Dramatically increase the speed by which merchants
integrate with Google Checkout. Target early 2010
• Guest Checkout – Allow users to buy goods with Checkout-enabled merchants without
creating an account. Target Q4 2009
• Stored Value – Gift cards and maintaining a balance for buyers on Google Checkout.
Planned for future
• Micropayments – Aggregation of small payments by buyers for purchasing digital
content. Planned for future

The PDF also mentions some really interesting thinking on what i would call “convenience” in a multi-vendor marketplace environment:

Easy Subscription Sign-up and Management for Users Plus Content
Packaging and Multiple Payment Forms for Publishers
o Single sign-on capability so users can use one login for access to premium content and a central place to manage subscriptions and payments.
o We envision the typical scenario to be where a user pays a monthly fee for access to a wide-ranging package of premium content. One example of a "package" might be full access to the WSJ; another "package" might include the top 10 business publications. Google believes that there is real power and benefit to publishers in providing these sorts of broad, multi-publication access passes.
o For multi-publication packages, publishers will receive a revenue disbursement that is proportional to the usage of their content in the package.
o While providing an option for micropayments will be important, we do not believe it will be the norm for accessing content. Example 1: A user has access to the "basic" premium content package. She hears about the latest Sarah Palin article in Vanity Fair, which  is not part of her package. She can make a one-off payment of $0.10 to read that article, which will show up on her bill as part of the monthly payment.

Just think: replace publishers by financial services providers, and micropayments by regular monthly payments. Sounds like a marketplace for financial services. With a single-sign on for the marketplace syndicated/federated to the underlying providers of services. But i am deviating, this post is about new money and payment systems.

Last but not least there is the iPhone Payment App by Twitter creator Jack Dorsey:

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Here are the dongles again ! And i thought that the whole idea of smartcards, USB-Tokens, and other physical tokens were gone, as they do in my opinion no sense in a mobile world. Wrong again, Peter ! (Don’t worry, i am stubborn 😉

The innovation is in a small, plastic card reader that fits in to the headphone jack of an iPhone (or iPod Touch) and transfers the credit card’s swipe data to the app. After the employee enters the amount to charge, the customer confirms by scrawling their signature with their finger and then either one enters the customer’s email address to send the receipt to. The payment is processed by Square for a small percentage plus a fixed fee; the funds are transferred directly to the store’s bank account, cutting both time and complexity on the processing side. The customer’s receipt includes a map showing the location of the transaction which is handy for those who record, sort and file such things.

Jack Dorsey (please DO read the man’s Wikipedia bio), the man who all but built Twitter in a matter of two weeks, has been working on a half-secret start-up project since around May. His new venture — dubbed, funnily enough, Squirrel — is based around the concept of using the iPhone as… yep, a portable, personal cash register; essentially the exact device which Square has created

Two links if you want to know more. Here and Here.

Big changes coming in this area. Have you seen any bank involved in these innovations ?

Re-Inventing Wall Street: Finance 2.0

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When Umair Hague posts something on his blog, i always take some extra quality time to read.

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Umair Haque is Director of the Havas Media Lab, a new kind of strategic advisor that helps investors, entrepreneurs, and firms experiment with, craft, and drive radical management, business model, and strategic innovation.

Always sharp, and always in for a good controversy and/or polarizing opinion. I am a strong believer in polarization being a big driver for Innovation.

Have a look at his latest blog post titled “Reinventing Wall Street from the Bottom Up”

Some super-quotes:

Welcome to the new trickle-down economics. Here’s how it works:

  1. Banks massively misallocate capital.
  2. The government uses money reserved for public goods — education, transportation, healthcare — to bail out banks instead.
  3. The bailout should trickle down, as lending to businesses and consumers alike sparks economic activity.
  4. No effort to settle bad debt is made; little reform of corporate governance, industry structure, or competition is necessary — because banks are too big to fail.
  5. Little oversight of steps 2, 3, or 4 are necessary, because markets are perfect resource allocators, and market actors are rational.

Result? In trade terms, a shock worse than the Great Depression, as Paul Krugman has noted.

In employment terms, a lost generation.

In monetary terms, a flight from the dollar.

In microeconomic terms, the stagnation of America’s industrial base.

If it weren’t for Apple, Google, and a handful of old-school companies pursuing dramatic reinvention, like Wal-Mart, we would be in a Great Depression.

In macroeconomic terms, value is transferred from you, me, and our grandchildren to Wall St — permanently.

And also:

The greatest transfer of wealth in history is taking place. It is already roughly worth a year’s output of the entire United States, or about 5% of the entire world’s output.

Or…

It’s is faith-based economics — and it’s Barack Obama’s biggest mistake. (Consider for a moment that 20+ per cent of hedge funds misrepresent info.) For years, George Bush hunted for phantom WMDs, while terrorist networks flourished under his nose. Now Barack Obama is hunting for a phantom prosperity, while the greatest robbery in the world is happening right under his nose.

In the same blog post, he is referring to his Finance 2.0 Manifesto, published back in April 2009, where he makes 9 recommendations for a better financial system. I have cut & pasted the whole lot, not because i am lazy, but because the context is worthwhile reading as well (orange/red highlighting by myself)

Edge funds. An edge fund is the opposite of a hedge fund. Where hedge funds are opaque, edge funds are transparent. Where hedge funds are closed, edge funds are open. Where hedge funds are run for near-term gains, edge funds are in it for the long run. Where hedge funds create artificial book value, edge funds create value that accrues to real people and society. Where hedge funds focus on long and short transactions, edge funds focus on relationships. Think Marketocracy on steroids.

Macro and microcurrencies. A currency tied to national interests determined by a political elite? That’s so 20th century 16th century. A better financial system needs better currencies. Finance 2,0 will be built on microcurrencies and macrocurrencies: currencies which operate hyperlocally and transnationally. Why? Because people shouldn’t have to bear collective responsibility for bankers looting or regulators cahooting. In the 21st century, the quiet tyranny of economic collective responsibility is intellectually bankrupt: it is fundamentally unjust, deeply inefficient, and vastly value-destructive.

Social banks. Despite what marketers tell you, banks do not exist to maximize profits. They exist to maximize the safety of deposits. We’ve been taken for a very expensive ride. Next-generation banks will be structured as social enterprises — because the incentives to safeguard deposits and reinvest profits for the common good perfectly converge to a dominant strategy for long-run value creation.

Fair markets. Markets are free like a shark is a fish. Anyone can play — but only at the risk of being manipulated, looted, and defrauded by the deepest-pocketed. The anonymous arms-length transactions orthodox economics lionizes are, in practice, just a hyperefficient mechanism for front-running, predatory trading, and bid rigging. Next-generation markets aren’t just free: they’re fair. They are markets where information about reputation, reliability, and relationship thickness are hardwired into the DNA.

Stakeholder communities. Institutional investors are so 20th century. Centralizing control over our biggest corporations in the hands of a bunch of old dudes asleep at the wheel was as good an idea as the spork: interesting in theory, useless in practice. Tomorrow’s radical innovators are already updating corporate governance for the 21st century, by letting communities of stakeholders shape managerial decision-making. Think mega-Etsy.

Whisper bullhorns. Why is trading such a great business? Because traders have access to info that you don’t. Why can’t everyone get in on the whisper circuit that powers prop desk profits? Because no radical innovator has taken on the challenge yet of amplifying the secretive whisper circuit into a blaring bullhorn. But imagine if the rumours that drive share prices up and down on trading desks were Twitterfied. The result would be a financial revolution: the market power Big Trading enjoys would vaporize faster than you can say "insider info."

Googlizing financial instruments. What business is Wall Street really in? The business of hoarding information: to seek a so-called informational edge. Of course, markets don’t work if everybody’s hiding info — they only work when people are revealing it. Google can help me find a tennis racquet, Match can help me find a date, and Last.fm can help me find some tracks to rip — but who can help me find a better place to put my cash that effortlessly? No one. And that’s a massive reason why we’re stuck with a 1.0 financial economy.

Anti-ratings. Your credit is rated mercilessly. But does anyone rate lenders — not to mention brokers, banks, and investors? Today’s crisis would have been far less severe if consumers had access to knowledge about who was a trustworthy lender — and who was going to sell them the financial equivalent of a roadside bomb. Credit ratings alone cannot create more efficient financial markets — doing so requires better information about both buyers and sellers of every kind of financial product.

Open source modeling. Every bank built the same models. Every bank built the same flawed models. Every bank built the same flawed models on similarly erroneous assumptions. How dumb is that? Incredibly. Unleashing the power of open source to vaporize this black hole of incompetence is going to be a tremendously powerful path to innovation. The peer review, voluntary contribution, and always-on negotiation at the heart of the open source model create powerful incentives for quality — which is exactly what the hare-brained quants at banks lacked.

Finance 1.0 cannot power growth 2.0. Yesterday’s finance cannot power tomorrow’s prosperity. Bailouts, taxes, nationalization, regulation are what your discussions this week are focused on. These can limit the depth and intensity of the crash. But what they cannot do is build a radically more efficient, productive, and effective financial system.

See also my previous post about Peter Thiel and the Singularity, where he said that credit only works in a growth society.

That requires a better kind of finance altogether — one designed not merely to make the worst among us richer, but

to make us all authentically, meaningfully wealthier.

That’s why finance 2.0 is the future.

This is the sort or personal and corporate values we want to discuss as underpinning for our Long Term Future. Hence the need for the Think Tank we are building from Flanders to gather like minded authentic people who do care about our next generations.

Peter Thiel and the Singularity

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I am just back from the Singularity Summit that took place in NY during the week-end of 3-4 Oct 2009.

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I will make a separate report on the rest of the event, but i was completely blown away by the 30 min speech by Peter Thiel and following panel discussion with Venture Capitalists.

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Peter Thiel is president of Clarium, a global macro hedge fund. He is also the founder and chairman of Palantir Technologies, a national security software firm, and a founding investor and board member of Facebook, which serves more than 200 million active users. He helps launch many other new technology companies as a founder and partner of the Founders Fund. Previously, he was founder and CEO of PayPal, which manages more than 175 million financial accounts.

Peter Thiel has philosophy and law degrees from Stanford University, where he occasionally teaches on globalization and sovereignty and serves on the board of overseers of the Hoover Institution. He funds research in artificial intelligence and life extension technologies.

See for his other investments on the above link to Wikipedia. It also becomes very apparent what a fine crew must have been at the basis of PayPal. Many of the ex-PayPallers have created very successful companies.

Also his philanthropic endeavors in the Singularity Institute, the Methuselah Mouse Prize foundation (Michael Rose himself was also at the conference) and Dr. de Grey’s work on extending human life span are some examples where Thiel’s long term vision is. I will come back later in this blog post on “time horizons”

But back to his 30 min speech at the Singularity Summit.

First his appearance. He made me immediately think about Steve Ballmer: his eyes are hypnotizing. His body language shows "withhold energy”. His jaws and mouth tense. Ready to explode. Clearly fit and in top shape. Laser sharp attention when somebody asks a question. Always listening and answering with respect.

And he delivered his speech without any supporting slide, and – as far as i could see – without any notes nor an autocue or something like that. Wow !

The title of his speech last Sunday was “Macroeconomics and Singularity”.

He started his speech with letting the crowd choose between a number of catastrophe scenarios: from bio-terrorism, to nuclear war, global warming, and a couple more like that.

His thesis was that the biggest disaster that could happen would be that the Singularity does not happen quickly. It was the start of a staggering discourse on why innovation – and especially disruptive innovation – is key to the continuation of our society. And in a grandiose move, he interweaved the financial crisis in to all of this.

Credit only works against a background of growth. But if claims of the future (singularity is a good example) don’t realize, that has a big impact on credit, on to be expected returns (which he claims are way too high for non-risk taking investments), and on the basis (growth) of our society at large. Society would still be “functioning” by fixes such as working till the age of 80, or earn less, or have low returns on capital, but that’s not what we understand with progress.

Investing in “tech” firms like Microsoft, Oracle, IBM, and even Google is betting that they will churn their revenues and profits in the foreseeable future. In other words, this is betting that nothing disruptive is going to happen.

A lot of this is driven by short term return horizons. We seem to fix the short term problems, but are stuck with the chronic long term problems.

Having a longer time horizon may be the biggest Chinese advantage.

Some other interesting quotes from his speech and following panel discussion:

    • The short run becomes the long run
    • All experts are biased in a positive direction, especially when presenting their start-up to VC’s
    • The risk of the return of fascism is very underestimated (this is about the emergence of a totalitarian regime trying to control AGI (Artificial General Intelligence) in a (pre)-Singularity time-frame.
    • I tend to invest in companies that will loose money for a long time, and a look for disruption
    • For every dollar that the government invests in opera, art, etc i want to see a dollar go to technology
    • We need to dramatically re-invest in technology education, even at primary school
    • I don’t like Darwinism, i prefer guaranteed survival. I could not resist a smile as right after this panel discussion there was Dr. de Grey himself on the agenda.

And about companies to invest in:

    • I am mainly looking at the team. And the potential of the people in that team to stay together for the long run, before founders start to argue and have a “farm" shoot-out”
    • And whether this team is capable to attract excellence. (I personally love this one as a measure for running a successful company)
    • He took his investment in Palantir Technologies as an example for this, where hiring seems to be organized around these themes. Co-incidentally, i had a meeting with Palantir the day before the Singularity Summit. I have mentioned them already several times in my blog and i would like to get them to Innotribe at Sibos 2010.

The effect of his speech was obvious. Where all other speakers at the event got max 2 rows of 4 people queuing for asking questions, there was immediately a row of 15 people of the auditorium eager to ask questions. You could feel the electricity in the air with each response from Peter Thiel.

This guy is sharp. Has vision. Has cred. Has Clout. Is a super-entertaining speaker. Has a story to tell to the financial industry. Peter Thiel would be an ideal keynote speaker for next year’s Sibos in Amsterdam 25-29 Oct 2010. It’s the first thing on my list today: go and see the organizing committee for Sibos 2010.

Of course, he would be great as well for the first event next year of our little Think Tank on Long Term Future (see previous blog posts).