Also:

• 🙉 Don't listen to what your users say

• 🛍 Klarna becoming a shopping motor

⛓ Fintech 3.0

I haven't written about crypto and web3 for a couple of weeks. It isn't because of lack of news, but more about the hose of information and development happening. Most of the development happening is just copying traditional finance, but decentralized and more automatic: 

Flight insurance on the blockchain

You have projects like Axa flight insurance that go a bit further than traditional finance by giving you automatic compensation if your flight is delayed. Truth be told, Axa killed the project two years ago, and it could have been developed without being on the blockchain, but it's still an interesting example of what smart contracts can enable.

Flash loans

Going even further, you have solutions like flash loans that traditional finance can't replicate. A flash loan is a loan that is only completed if the transaction goes through and the loan will be returned in a single transaction. If the loan isn't repaid in the same transaction, the loan isn't getting paid out. This is made possible with smart contracts and is often used to profit from arbitrage opportunities, like when the value of a token varies in different marketplaces. Flash loans are still in their infancy and being tried out (and exploited) for the moment, but imagine if we could have contracts that only complete when everything goes through in the "real" world:

Smart contracts for mortgages

Say that you have gotten yourself a certificate of financing for buying a house. When you bid for an apartment, the smart contract for the sale of the condo could check your certificate of financing if you have enough to pay for the apartment. When the seller eventually accepts an offer, this will trigger the process and pay out the money specified in the smart contract. At the same time, the mortgage will be transferred, and your loan will be started. Everything is happening simultaneously. If some money is missing, everything is reverted as it never happened in the first place — no need for deposit accounts, intermediaries, and constant calls between broker and bank about financing.

Loans that repay themselves

Speaking of loans and what is not possible in traditional finance: In Decentralized finance (DeFi), you can also have loans that repay themselves. Come again, you say? Instead of you having to pay a bank an interest on the loan provided you, the dynamic is flipped on its head: The protocol will put your collateral to work other places, earning interests (yield) different places in the DeFi system. This is then used to pay down your loan automatically over time. Again this is possible because contracts are set to work instead of hiring people. Here is an excellent introduction to other novel concepts in the DeFi ecosystem (Like loans based on your reputation).

From centralized to decentralized

Matthew Harris, a partner at Bain Capital Ventures, argues that over the next 30 years, financial services will go from centralized to decentralized. This move he calls Fintech 3.0 and is in the starting pit at the moment. Fintech 1.0 was going from analog to digital at the start of the century. Fintech 2.0 started five years ago, where some companies went from creating products to delivering APIs and being embedded in software that consumers and businesses use all day long. This move will likely continue in the years to come and also be a part of Fintech 3.0.

Harris argues that banks have a real opportunity in this new environment to provide the underlying rails and the curation and navigation layers for Fintech 3.0. He also contends that some will perceive DeFi as the enemy forever and create a new Cold War. Those who are late to embrace this revolution will eventually go away.

Luckily, Norway's Central Bank follows this topic closely and looks at both the possibility for better services and the risk aspects that are missing in the DeFi-community at times. The Deputy Governor in Norges Bank, Ida Wolden Bache, newly held a presentation about digital money and real-time payments where she talked more about their thoughts on financial stability, cryptocurrencies, and the way forward for payments in Norway.

🙉 Don't listen to what your users say

Nudgelab has written an excellent reminder to everyone that you shouldn't listen to what your users say, but what they do! The CEO and founder of Starling Bank, Anne Boden, says something similar when she claimes that open banking has failed to bring about the change that banks and government had hoped for: People don't want their data or the ability to easily switch banks and use accounts across banks. They want better products and services! 

On the other hand, Tor W. Andreassen, a professor at NHH, declares that it is time for banks to learn to use their data for insight. He claims that banks need to use their customer data to create new products. I would instead argue that our individual data is just not that valuable. Data is not the new oil. It is the new sand. Our data only has value when you aggregate millions of data, and much of the information banks have access to has too little information: They know you bought something at a store, but not what. This is probably one of the reasons why everyone is running to the BNPL-space at the moment – you get to know about which products are bought:

🛍 Klarna becoming a shopping motor

A week after we wrote about untraditional acquisition strategies for fintechs, Klarna acquired Pricerunner, a Swedish price comparison service. The acquisition means that the Klarna universe now will have product reviews, price comparisons, and better opportunities to discover new products. All of this happens while Klarna is discussing its capital requirements with the Swedish financial authority. Klarna is positioning itself more as a competitor to Google, Apple, and Facebook than other financial institutions. Lately, we've also seen indications that Facebook is not just focusing on their digital wallet, Novi:

On another note, these payment screens are getting ridiculous! We have so many payment options that this looks more like a brand show-off than anything else.

That's it for this week 👋

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Marius Hauken, partner Stacc X