Africa Fintech Summit: The Rise of Fintech

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Fintech is disrupting banking, finance, and even money as we know it. It’s a global phenomenon, but in Africa more than anywhere, the impact has the potential to be both socially and economically transformative (source: africafintechsummit.com)

Read our “Fintech in Africa” article here.

Africa – The Rise of Fintech

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There is something mysterious going on in Africa, the cradle of mankind.

For decades, Africa has been growing at an extraordinary rate and in fact the unweighted annual average GDP growth overtook Asia’s average in early 2000 and has not only maintained this, but the growth gap is holding its own and potentially increasing.

Much has been said about BRIC nations, but in that group only China has been in the top 10 along with 6 from the continent of the lion. Overall though within Africa, taking growth and stability into account, the top cheetah of the pack is Botswana.



And guess what, fintech in Africa is booming! In the last years a good third of venture capital funding raised by African startups was directed at the fintech sector. This might seem surprising since most adults in Africa do not have a bank account, they are “unbanked”. Around 80% of adults did not have access to banking services, in a traditional sense.

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PSD2 – Open Banking

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This is not just another compliance decree. PSD2 could change or even revolutionize the payments industry, in fact it actually mandates the idea of open banking!
In the past, the words ‘open’ and ‘banking’ seldom mixed. So, what is open banking?
Provocatively speaking, open banking suggests that “anyone” can have access to your bank account! Anyone, being a trusted 3rd party. With that, banks no longer have the monopoly on your account information!



But let’s start from the beginning! Back in October 2015, the European Parliament decided to promote innovative Fintech service providers e.g. for online and mobile payments. This means allowing access to bank data by third parties, by non-banks.
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Predicting Bankruptcy

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Yes, believe it or not, it is possible to reliably estimate the probability of a company going bankrupt! The z score was published in 1968 by renowned professor of the NYU Stern School of Business Edward I. Altman.

The z score has since been used to measure the financial distress of a company i.e. its financial health. The z score is linear combination of various ratios and weighted coefficients of firms that declared bankruptcy and matching them to a set that survived bankruptcy in the same industry.



The predictive accuracy of Altman’s z score is remarkable, attaining up to 90% accuracy for a one year time horizon and 72% for a two year horizon!
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Float: Bitcoin’s little Problem

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A cashless society, a true alternative money, an asset backed currency as opposed to fiat money. That and other hopes filled the jackpot expectations of many. But what is the true value of a crypto currency from a fundamental point of view. Yes, blockchain technology is useful, an elegant solution to securely verify a transaction on decentralized ledgers.
So, using Bitcoin as an example, does it really matter if Bitcoin is traded at $0.1 or $1000’000? Does that momentary perception of market capitalization bear any real meaning? Let’s ask the question differently; what was Bitcoin made for? One might argue it was created to be a currency, indeed to purchase goods and services, to sell goods and services. Is that really taking place? Fact is that it’s real free trading ‘float’, the actual amount of bitcoin that is truly performing it’s function as a currency, is almost insignificant. Most of Bitcoin is locked and bolted in investor wallets. So even the amount available to investors, the amount that is actively traded is formidably thin. This very limited supply in circulation, the limited active float is the basis for this dramatic volatility over the last months.



Going back to the initial statement, does it really matter what Bitcoin is traded at? Not really, what really matters is if Bitcoin is fulfilling it’s true function, namely that of a currency. So far, that part is negligible.
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Crypto Jargon – HODL, ALTCOIN, WHALE

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In 2013 a message was posted on the Bitcoin Forum. It was meant to express a buy and hold strategy, a strategy that many see as superior to constant flipping as in daytrading.
The HOLD misspelt (allegedly after one too many drinks) and the typo resulting into HODL, now a doctrine of Bitcoin holders and one of the most famous crypto slang memes in coin investment culture.

jargonALTCOIN

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All coins other than BITCOIN are referred to as ALTCOIN. These can include Lightcoin, Ethereum, Ripple and many more. Standing for an alternative to bitcoin, most based on blockchain technology and generally have less market cap than Bitcoin. Altcoins are often forks of Bitcoin and have suffered after the sell off the current ‘Airdrop’ (another jargon describing the distribution of tokens to addresses).

 

jargonWHALE

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This meme is often used to describe the big money Bitcoin investors. Small traders are always on the lookout for whale buying or selling. Wrong judgment by ‘small fish’ could lead to heavy losses, so now whale detector algos are on the watch for whales. Bearwhales can be dangerous since they can cause a significant sell-off.



MiFID II, no joking!

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Wow, a GRAND start into the new year 2018! MiFID II just took off! The “Market in Financial Instruments Directive”, what an awkward name, even according to Bloomberg! Not many I know can memorise this easily. Maybe it looks better like this:
– Markets
– in
– Financial
– Instruments
– Directive
Not really! Nevertheless, MiFID II just took effect on January 3rd 2018. This European legislation had grand intensions, since it’s first implementation back in 2007 as MiFID I. Increase consumer protection and increase competition! Great, sounds good!



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BLOCKBUSTING YEAR 2O18

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As I woke up this morning, enjoying my favorite first coffee, Brooke chanted out my usual financial summary I have now become accustomed to. Nothing special nowadays. She beamed up the key figures right in front of me over the kitchen table, all my accounts, my two portfolios, all non-financial assets with derived appraisals on my real estate, my home and holiday appartment, the latest  estimates on my stamp collection, even one on my old books collectables. Nothing had moved significantly lately so Brooke was fairly calm.


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All I want for Christmas is a Bitcoin

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They say you know there’s a bubble when the man on the street gives you a stock tip. It’s one of those moments when your friends ask, your relatives ask, even your mother asks “How can I double my money”.

It becomes such a repugnant question to answer that the easy way out, even for an investment professional, is to just follow the bandwagon. At these moments in time, the market appears to soar to the highest heights of irrational exuberance. There is no way out, especially if your job is to invest for a living.



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