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REVITALISING THE TOKEN MARKET

By Gavin Smith, CEO at Panxora

 

With interest rates near zero and fears that whipsawing stock markets are set for further plunges, many investors are turning to alternative markets in the search for returns. Money flowing into cryptocurrency hedge funds and trusts like Grayscale is at all-time highs and the large cap coins seem to be entering a bull phase, but that capital is not trickling down into new token projects. Why are blockchain token projects struggling to attract funding?

 

Seed investor scepticism

Setting aside the reputational issues with mainstream investors, even those educated in blockchain tech are not signing on the dotted line. This is certainly due in part to the hangover from the early token market.

During the heady days of 2016/17, investors could buy tokens during the token sale, and if the project was legitimate – even if the business case wasn’t particularly strong – prices would soar based on market enthusiasm. Early investors purchased at a discount and cashed out almost immediately for a handsome profit – and then repeated the process again. The token sale allowed founders to amass a war chest large enough to finance the entire token project – without having to give up a large chunk of company equity. Everyone got what they needed out of the deal.

Running a token sale is far more expensive today than it was during the boom. Getting the attention of the token buying public in a market where advertorial has replaced editorial is expensive. This coupled with a regulatory framework that requires the advice of accountants, solicitors and information gathering of KYC details for investors all comes with an escalating price tag.

To accommodate the change in cost structure, tokens now need to acquire funding in two rounds. Frequently there is a first round where capital is raised from a few, large investors. This cash is then used to finance setup and marketing the main token sale. The token sale, in turn, provides the capital needed to run the entire business project.

 

Bridging the gap between token projects’ needs and early stage investors

To successfully get a token through the capital raising process, founders must acknowledge the risk assumed by those very early investors and reward them appropriately. And given that tokens may stagnate or fall in price post token sale means that a deep discount in token price is not necessarily attractive enough to get investors to commit.

Many tokens have turned to offering equity in the business in the effort to raise that first tranche of capital. If you look at the number of successfully concluded token sales, the downward trend has continued since Q2 2018, so offering equity is not sufficiently stimulating the market.

 

Two sides of the coin

So, what is the answer? It’s a complex question but one thing is certain. Any solution must be rooted in a deep understanding of what both parties need to successfully conclude the deal.

On the one hand, token founders’ needs are clear: they need enough capital to get the token ready for and through a successful liquidity event that will provide sufficient funds to build the project. The challenge lies in striking the right balance between accruing that capital and making sure not to offer so much project equity that give up either the control or the incentive founders need to drive the project forward.

On the other hand, while the needs of the seed capital investors are more complex, there are two areas of key concern: transparency and profit incentives.

 

Transparency can mean many things, but almost always includes providing more informative cost and profit projections, as well as answers to a whole range of questions, not least the following:

  • What happens to investor capital if the token sale event fails? Token founders must be transparent from the outset. The token market is highly speculative and early investors run the risk of losing their money should the project fail. Therefore, investors require a well-established fund governance process in place throughout the fundraising so they can make informed decisions on whether the project is worthwhile. 
  • How are the assets for the entire project managed? Investors need to know that their money is in good hands and that proper treasury management techniques are being used to manage cryptocurrency volatility risk. Ideally, an independent custodian will be used to hold the funds and limit founders’ ability to draw down the capital – releasing funds to an agreed-upon schedule of milestones.
  • How are the rights of investors protected, for instance in the case of a trade sale? Investors need to know what happens if the company they are investing in is sold. What impact could this have on the value of their stake? Would a separate governance framework need to be established? These are critical questions and investors aren’t likely to settle for any ambiguity in the answers.

Profit incentives are important when it comes to encouraging early participation in a project. Investors need convincing that the proposition will keep risks to a minimum and focus on providing a strong probability of a return. This means that founders need to be able to defend the case for the increase in the value of their token.

But this isn’t the only incentive that matters. Investors can also be incentivised by preferential offerings such as early access to projects and services that might help their own business.

Let’s not forget that investors don’t support just any project. What really matters is that there is something special and unique about the business being underwritten by the token. Preferably something that could be shared upfront and directly benefit the investor – proof that the investment is really worth it.

And that’s what it all comes down to. Ultimately, while token projects are having a hard time finding funds at the moment, if they can prove their worth and provide full transparency and clear profit incentives to ease investors’ concerns, the money is out there. And deals can be done.

 

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Business

CONSUMERS IN THE COVID ERA CAN LEARN TO EMBRACE STRONG CUSTOMER AUTHENTICATION

By Ed Whitehead, Signifyd managing director, EMEA

 

The changes that COVID-19 has caused in rapid succession make it hard to slow down and think about just how to approach the retail and payments landscape and a world that will never be the same.

But it is important for retailers and financial institutions to take a breath, think about where consumers are headed and come up with a strategy to take your enterprises there in time to meet them when they arrive. Granted, all this is going on in the midst of great disruption in the world of online payments.

First, ecommerce sales have accelerated at an unprecedented rate. When the World Health Organisation in March declared a global pandemic and government began ordering non-essential stores closed, consumers turned to online shopping for necessities and nice-to-have items.

Ecommerce sales in Europe peaked at 70% year-over-year at the height of online buying during the pandemic, according to Signifyd Ecommerce Pulse data. With non-essential stores reopening and with consumers less inclined to stockpile, online buying has cooled, but ecommerce spending in September remained at double their year-ago figures in some key verticals, according to Signifyd Ecommerce Pulse data.

Ed Whitehead

That shift was unforeseen before the pandemic hit. But another disruption was long-anticipated and human-made. By the end of the year in most of Europe, merchants and banks will be required to adhere to the payment regulation known as PSD2 and it’s requirement for Strong Customer Authentication.

And while the UK has pushed enforcement of the regulations into 2021, the earlier enforcement deadline will apply to UK merchants who want to sell into the rest of Europe.

Interestingly enough, most of the worry over SCA has focused on whether merchants were ready for the change. But financial institutions also have work to do to prepare for SCA, both to serve their consumer account holders and to process transactions from their commercial customers, such as retailers. And while conventional wisdom has dictated that financial institutions are in a better position to offer SCA than are many retailers, a recent survey by Signifyd indicates that assessment might be overly sanguine.

 

Survey shows financial institutions need to reach out to customers

The September survey of 1,500 UK consumers found that 41% of respondents had encountered extra steps and complications while accessing their banking accounts in the past year. More than 37% said they had been unable to complete a financial transaction in the past year due to new security factors and 46.5% said they were very or somewhat likely to give up on a transaction that requires two-factor authentication.

Not very heartening results for institutions facing a requirement that customers be authenticated by two of three factors:

  • Something the customer has (such as device ID).
  • Something the customer knows (such as a one-time password).
  • Something the customer is (such as a fingerprint or other biometric trait).

Part of the problem could be customer education and communication — or the lack of it. According to the September survey, 74.3% of consumers said they were either not entirely sure how SCA will affect them (34.3%) or that they were not at all aware of SCA and how it will change transactions (39.1%).

These worrisome findings actually point to an opportunity for financial institutions and retailers. JP Morgan notes that with ecommerce sales rising so dramatically, an increasing number of consumers are becoming familiar with two-factor authentication.

Signifyd’s own data shows a sharp increase in the number of online shoppers who had never or rarely shopped online before. The number of new customers buying from merchants on Signifyd’s Commerce Network, for instance, more than doubled in May, compared to pre-pandemic figures. (Signifyd defines a new online shopper as a customer who has not made a purchase from the more than 10,000 merchants on its global network for at least a year.)

The increase in the number of new shoppers arriving online has slowed, but it is still well above a-year-ago figures. And about half the new users trying online shopping return for multiple purchases within 30 days, indicating they are developing new digital habits.

That means banks and merchants have an opportunity to help these new consumers become accustomed to security safeguards like SCA even as they are getting used to shopping online in general. When done right, this early consumer education will ensure that these new shoppers and bank customers will be comfortable with SCA, given that it’s the way they’ve shopped and banked online since the beginning.

 

New online customers create new opportunities for merchants and financial institutions

So, online transactions are exploding. Consumers who eschewed ecommerce shopping before are becoming regular online shoppers. All good news. But what should retailers and financial institutions be doing to take advantage of the good news — and to make sure that those new online users become loyal customers.

Getting customers comfortable with transacting in the SCA era, of course, is just the beginning. Retailers and bankers want customers to be delighted with their online experience, a standard that is a few notches above “comfort.”

SCA requirements present an opportunity for retailers to fortify their fraud protection with state-of-the-art, machine-learning systems that will provide a better customer experience today and position them to accommodate future changes to payments regulations.

The trick will be to offer a friction-free customer experience while still protecting the enterprise — a feat that will require merchants and financial institutions to look at state-of-the-art technology to power their SCA systems. Consultancy CMSPI predicted that merchants could lose £108.1 billion in annual sales because of new SCA rules.

CMSPI says the new 3D-Secure version 2.0 that provides the infrastructure for SCA transactions will kill 35% of transactions because of technical problems, declined orders and delays that frustrate customers.

But that assumes retailers don’t turn to innovative solutions that improve the performance of 3D-Secure-powered payments systems. The tools are out there as technology companies have been developing solutions to streamline SCA and make the process far more efficient.

 

Long-term steps for building loyalty among existing and new customers alike

The pandemic and its disruption feel like they will never end. But they will. Retailers will want to be in a position to build on the relationships they’ve initiated with customers before and during the lockdowns and social distancing.

Some of that will be redoubling efforts they’ve made all along. They’ll want to build flawless online experiences. They’ll want to provide intuitive navigation and enhance the customer experience with engaging content, precise personalisation, invaluable customer support, seamless checkout and instant order confirmation.

Beyond that, it will be important that financial institutions and retailers to clearly communicate with their customers so that they know the rationale for SCA and understand that it protects all parties involved in a transaction.

Automated systems can help with many of the initiatives that lead to improved customer experience. AI-powered content management systems, personalization engines and automated inventory control can advance discovery and fulfillment performance. Fraud and automated order management systems that instantly determine the most efficient way to comply with SCA requirements can speed checkout and reduce the chance of cart abandonment.

No question, the COVID-induced upheaval can make planning for the future seem a little overwhelming at times. But retailers that find the mental space to plot the future step-by-step will find themselves in a strong position today and in the post-pandemic future that we all look forward to.

 

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Business

PROTECTING THE CONNECTED CONSUMER FROM REAL AND PERCEIVED FRAUD RISK

Sam Holding, Head of International, SparkPost

 

Experts have researched and observed that when there is an economic downturn, there is often a marked increase in fraudulent activity. Unfortunately, the global financial situation caused by the spread of COVID-19 has been the perfect storm for this kind of behaviour. A quick web search on the topic brings back tons of tips sheets and articles about how consumers can keep themselves safe during such a turbulent economic crisis. While these resources suggest that consumers take simple steps like ignoring robocalls and watching out for phishing emails, the amount of channels through which scammers can take action can feel overwhelming. Due to the increasingly interconnected nature of technology, an attack on one website or communication channel can lead to what feels like a domino effect – taking down a consumer’s personal “stack” one by one.

 

The nature of this interconnectedness has given rise to the “Connected Consumer”. This consumer persona represents the vast swathe of people who have smartphones and have not only grown accustomed to ultra-personalised digital experiences but, as a result, expect these types of dynamic solutions. It should also be noted that this is not specifically a Millenial or Gen Z phenomenon, but rather a trans-generational disposition for easy-to-use technology. While the Connected Consumer isn’t necessarily at a higher risk for fraudulent attacks because of how they interact with technology, the stakes definitely feel higher. Because they may use their Facebook or Gmail credentials to login to countless websites and apps, a single fraud attack can feel like a chink in the armor that protects their whole digital footprint.

 

Sam Holding

With the rise of the Connected Consumer, it’s likely no surprise that there is an incredibly high app adoption rate amongst financial services customers. While people may be quick to download retail banking apps, due to their broader online experiences, they expect a highly personalised experience – something the financial services industry hasn’t always been able to give. In an industry known for stringent security and privacy controls and conservative decision-making, adoption of the latest and greatest segmentation and personalisation technologies hasn’t always been possible. But anecdotally as users, we know that an outdated app experience is not only frustrating but may also lead to concerns about security. If the front-end looks antiquated, what’s to keep non-technical consumers from assuming what’s under the hood is old and lacking up-to-date security measures?

 

The, perhaps superficial, perceived threat around slightly outdated app experiences and the very real threat of fraud requires a multi-pronged course of action to keep Connected Consumers feeling safe. Fortunately, many of the steps required are actually low hanging fruit that don’t require technologists and security professionals to completely change their normal course of action. The best place for financial services companies to start is with their email programs. Since email is the backbone of customer communications when it comes to financial institutions, no amount of attention to detail and care is too great when considering new strategies.

 

The first updated strategy that can keep Connected Consumers feeling safe is applying a mobile-first attitude when sending email messages. This can be applied to the look and feel of the actual email template, but should also be applied to the links in messages as well. Hyperlinks in the body of emails should “deep link” back to the banking institution’s mobile app rather than their desktop site. For Connected Consumers, these deep links show that their bank’s email strategies are in lock-step with their app. And, rather than having to fumble through a website that may not be mobile friendly, consumers can use their thumb print or even their face to access sensitive financial information instantly. Quick and even topical changes like this can show consumers that their information is safe by using the security measures built into their phone.

 

Another easy change financial institutions can focus on to create a more streamlined and, therefore, more secure-feeling experience is improved customer service. Certainly, it’s important for support agents to be friendly and helpful, but in 2020 they should also be fully aware of all of the personalised email messages the specific customer they are trying to help has received. Keeping support teams abreast of the latest email marketing campaigns can close the loop on security regarding customer communications. If a customer has a question regarding an email offer they received, the support agent can authoritatively reassure the customer that the message is, in fact, valid. This creates an unparalleled sense of security.

 

When it comes to security, especially during a time in which fraud is increasing, retail banks can’t take any chances. Connected Consumers need their banks to provide digital experiences that not only are secure but feel secure, a challenge that may be easier to meet than most think. With a few simple changes, financial services organisations can keep consumers feeling safe and stable even when the world feels completely off-kilter.

 

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