Ready, Set, Hash

By Sim Shuzhen | Over the past week, you’ve probably done at least one of the following: made a purchase with a quick tap of a credit card, topped up your transport card at an automated machine, transferred money to a friend, paid your monthly bills online, received your salary via direct deposit, or applied for a loan.

These actions have one thing in common—they all rely on services provided by banks and other financial institutions. But while most people in Singapore and other affluent countries take such services for granted, a staggering two billion people around the world do not have access to a bank account, and are thus cut off from the convenience, security, savings and credit offered by banks.

Now, however, a growing number of entrepreneurs are using blockchain technology to provide financial services to unbanked segments of the population, stoking considerable investor interest in the sector as well.

“Blockchain technology focuses on the grassroots—it’s a bottom-up technology as opposed to top-down, so it has great potential to improve financial inclusion for many people on the ground,” said Mr Roy Lai, CEO of blockchain marketplace Sentinel Chain.

He was speaking at a panel discussion at SGInnovate’s blockchain-focused Investors Night. Moderated by SGInnovate Founding CEO, Mr Steve Leonard, the panel also comprised Mr Takashi Sano, Venture Partner at Global Brain; Professor David Lee, Co-founder of BlockAsset Ventures; Ms Daphne Ng, Secretary-General of ACCESS Singapore; and Mr Alistair Duff, Co-founder and Head of APAC at DrumG Financial Technologies.

Building An Inclusive Ecosystem

The goal of financial inclusion is also attractive from the point of view of investors who back such ventures, said Professor Lee. “One way for companies to grow is by inclusion—getting more customers whom you’ve never been able to serve before, who have never been able to enjoy your services before. That is a sustainable way to grow your business.”

Take for example, a fintech startup in the Philippines that Mr Sano’s firm Global Brain invested in. Launched in 2014, the company now has half a million customers using its mobile wallet to send money and make payments without the need for a bank account. “They are really developing great technology, but people who are using it don’t need to know what blockchain is—they just use it because it’s convenient,” said Mr Sano.

Venture capital firms (VCs) now have an expanded role to play in the blockchain space, Mr Sano added, noting that in addition to investing in blockchain companies, his firm now also runs a co-working space for blockchain in Tokyo, and funds grants for blockchain research. “We are acting in many different roles now, not just investment, to build this entire ecosystem,” he said. “From the VC’s perspective, it’s not just about investing, but how you contribute to this ecosystem.”

The Right Kind Of Regulation

In addition to its use in consumer-facing financial inclusion applications, blockchain technology also has great potential to transform enterprises, said the panel. “While many financial institutions are already using blockchain to reduce compliance and processing costs, it can in fact do much more,” said Professor Lee. Because of the use of tokens as an economic incentive for people to participate in a blockchain system, the technology can even spawn entirely new business models.

Just like autonomous vehicles or any other disruptive technology, the proliferation of blockchain-based business models and initial coin offerings (ICOs) has sparked discussion about how best to regulate the sector—a particularly difficult task given the decentralized nature of blockchain.

As a blockchain entrepreneur who himself has raised money through an ICO, Mr Lai said that he welcomed the idea of regulation, as it would provide clear guidelines much needed by the industry. “Otherwise, we don’t know whether to move forward or backwards. It’s not good for our industry as ICOs can be drivers for innovation,” he said.

ACCESS Singapore, for its part, holds regular dialogues with central banks like the Monetary Authority of Singapore to discuss regulatory frameworks. “We recognise that the technology is still in its early stages. We are advocating self-regulatory frameworks because we don’t want to hamper any innovations from blockchain companies that are forward-looking and have a mission of helping microeconomies,” said Ms Ng.

Completing, Not Competing

Although ICOs have become an increasingly popular way for companies to raise money, traditional VCs are still relevant in the startup ecosystem, said the panel.

“It depends on what you’re trying to do and what your business is,” said DrumG’s Mr Duff. Investors like asset managers and banks, he added, tend to view VC funding more favourably. “For them, there is actually some negative signal around ICOs. The feedback I’ve heard from banks is that being backed by a strong VC is actually a good brand.”

Mr Lai gave his views on why startups choose ICOs over VCs

According to Professor Lee, the two funding models target very different sets of entrepreneurs and investors. While VCs tend to place the most focus on a company’s business model, token investors have a range of additional concerns. “How does your project complete the ecosystem? Do you contribute to the community? Do you have the compassion and creativity? If you’re the best programmer but you don’t have any of this, then it’s going to be very difficult,” he said.  

“In the token world, it is not about competing against each other. It’s about completing each other,” concluded Professor Lee.  

Professor Lee shared about the relevance of VCs to startups

At the inaugural Deep Tech Summit presented by SGInnovate, global speakers will be discussing the impact of distributed ledger technology, how they are changing businesses globally, and how countries are embracing the wave of blockchain innovation.

The Summit will connect leading deep tech startups, entrepreneurs, investors, government and corporate innovators, academics and researchers from innovation hubs around the world. Registration is now open.

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