 Think Tech Away. Civil engagement lives here. Good afternoon. Welcome to the Global Report. I'm your host, Lily Ong. Today we'll be talking about cryptocurrency and the various mobile payment methods. We have with us today Mr. Danny Francis. He's the co-founder at the Vault Security Blockchain Company. Welcome to the show, Mr. Francis. Thank you. Welcome. Mr. Francis, before we have you explain to us how blockchain technology works, could you give us a little background on cryptocurrency, how it started and how it came about? Well, I mean the cryptocurrency phenomenon actually started quite a while ago with the creation of the blockchain technology, which is basically a way of managing transactions, whether they're financial or other kinds of transactions. And when those transactions happen, they happen on a peer-to-peer network in a distributed environment. What it means is each transaction forms a ledger and that ledger can never be changed. It's unlike the kind of way that computing is done now. Think of it as if you're writing a journal and you're recording or making a record in that journal and you've got 100,000 people watching you at the same time make that record. It can never be changed. Everyone's witnessed it. But of course in the technology, it's not 100,000 people, but it's miners that come and verify that the transactions have been made. And once they're done, they're immutable. They can't be changed. It creates a trustless peer-to-peer network. When I say trustless, I mean the kind of centralized system that we have today is banking. That requires trust in third parties. That's what ties us into banks and payment gateways like Visa or Mastercard. And governments. And governments. Whereas this, it doesn't. The people that come and verify the transaction, the verify that you have what you say you have and the person that is buying what you have, that they have the currency that makes the transactions. So it all happens without the trusted third party, the government, the banks needing to do anything at all. Of course the governments and banks can participate, but at the moment they're well behind companies such as ours. Now when you say it's immutable, it cannot be changed or deleted. What if a mistake is made? I mean how would I rectify that? Well it can't be made. So let's say we have an agreement and in blockchain technology it's called a smart contract. So I've got something that you want to buy for example. And so the smart contract is made. In blockchain technology the miners come along and verify that I've got what I say I've got. They verify that you've got the money. When those terms are met the exchange happens. So it's as simple as that. If you don't have what you say you have, if you don't have enough money to pay for it, the contract terms can't be met. And so the contract won't happen. And how are the contract firms being verified? So suppose you have a place for rent and I want to rent it from you. Can we do that through a smart contract? Absolutely. And who is going to come in and verify the other contract for terms of being met? Well you don't need to because once the contract's been made and you've paid for the rent then it's protected. If somehow there's a dispute then there's dispute resolution systems to manage that. But the initial payment, that's taken care of from the initial smart contract. So when you have multiple contracts and ongoing then of course you need additional oversight to govern that. Now I was going to ask about that because since there's no third party like the banks, credit company and government, who's going to come in to I guess referee a dispute? There are ways to do that but of course you can always fall back on the law to come in and play the role that it does. Because there's a record of what's happened. Then they've got something that can't be changed that they can go back and refer to. So it actually does away with a lot of disputes because there's no way to say oh look I didn't make that transaction or I paid too much or I didn't pay enough or because the terms have been out. Because everything is recorded and then there's witness all along the way. Now as far as a regulation because you briefly mentioned that if there's any dispute, what are the government regulations surrounding blockchain or cryptocurrency? There are regulations so it's been in the past six, eight months that the government has started regulating what's going on to do with cryptocurrencies, to do with initial coin offerings which are a recent phenomenon. So tell us more about initial coin offering, what is it? Initial coin offering, so you've probably heard of companies doing an IPO, an initial public offering and for that then there's banks are involved, there's stock exchanges involved, there's large sums of money that are paid up front. So the bankers can guarantee that these things are going to go along and then there's a lot of due diligence in order etc. It takes a long time to execute. You need to be an established company, have significant business transactions already underway before you can do something like that. And then there's other ways of fundraising venture capital. So young companies that may have only just started or not even started a business could go to a venture capital and raise funds for a venture capital. So for example I've got a great idea, I'm going to create a new line that's going to fly between Hawaii and Singapore and that's the only route it's going to do because I've got a dedicated audience in each market and I know I can fill my planes up on that route. So I take that great idea and I go to a VC and maybe a venture capital person can invest in it and I can raise money that way. It takes usually a lot of time, maybe I've got to go and see 20 VCs before I find someone that's interested in investing in me. And initial coin offering is quite different. Initial coin offering usually involves a company, it could be a brand new startup, it could be going for a few years, it could be a more established company as well. But the company creates a token and then makes those tokens available for sale. And there's a couple of different types of token, I won't go into that just yet. But so the ICO, the initial coin offering is about individuals or companies, institutional investors coming in and buying those tokens because they see that in the future those tokens will appreciate the value and so therefore they can make money through that. So because there's a lot of interest in cryptocurrency at the moment, there's a lot of people interested in buying tokens from new startup companies where they think the token might be worth one cent today but if it's worth a dollar somewhere in the future, I've made a hundred times more money. So it's a very attractive prospect to do small level bidding in companies that are doing blockchain based businesses. Now are these tokens structured in the form of securities? Because I'm thinking about regulations. For example, Singapore, the Monetary Authority of Singapore does not have any regulations over virtual currencies per se but they do have regulations over activities surrounding those virtual currencies and if they are structured in the form of securities, I imagine the government will come in and... That's right. I need to say there's two types of tokens. One is a security and the other is a utility. So a security is quite simple to define for our terms now. So let's say I'm selling you a share in my company. So it's a part of my company that I'm selling to you. I'm giving you equity in the company and that's a security. I'm going to give you a share form and you're going to hope that share form is worth something more in the future. A utility token is quite different. So for the way that a lot of companies do it is let's say my company is going to enable transactions in a new kind of blockchain exchange and to power those transactions we're going to use tokens. So the people that use our technology to make the transaction will buy tokens to do it. So those tokens that I'm selling are actually a utility think of how you pay for electricity or you're paying for this service. So that's what we're selling where we're not selling equity into our company where we're selling tokens that have a value. And so those tokens will hopefully increase in value the more people that want to use our network to make more transactions. So what might be worth one cent today could be worth $100 tomorrow. Now being that everything is digital and done online what about as far as security goes I mean have you seen malicious attacks, hackings what are the safeguards against? The most famous one I guess is the $570 million hack that was done against CoinCheck in Japan back in January. Because the blockchain exchanges that have been established so far some of them have good security, some of them don't have good security obviously in the case of CoinCheck then someone was able to hack into their network and then divert NEO tokens to an address elsewhere which has been tracked down actually. So hacking in the blockchain world is maybe a good idea but getting your money and actually stealing it is a whole other thing that needs to be coordinated. So it's not like if we hacked into a bank and were able to divert money to a Swiss account and then we'd just go and empty the Swiss account and take it over somewhere else that's how we think of hacking in the old world in blockchain you're taking it from an address and sending it to an address that can be identified. So kind of trace where it is. So it is different. But there's issues over security people are concerned because the technology is not pervasive enough to have a lot of understanding. There's not enough regulation around who does what. So that's kind of what my company is doing to come in and make sure that there's kind of an escrow between when the payment starts and before it's delivered over there we first have to verify that these two addresses are real and that it can be done. So in a sense we're managing the transaction we're making sure that these two people are not money launderers making sure they're not terrorists making sure that it's not a fraudulent activity we know who they are and we can manage it. So security is a big concern and we've partnered with a great company to provide that service to get around people's concerns about security. Now given that everything can be traced to a source why then is the government, you know, why did they raise the issues of money laundering and funding terrorists? Because when the technology first came out it's a peer-to-peer trustless technology. So originally and in the early days and still for many of the companies now they don't have KYC or Know Your Customer rules so whoever can get in there and deal with it. So the governments are concerned about terrorists and they're concerned about money laundering. They're also concerned about the loss of tax revenues that they can receive if everything went through channels that they could more properly audit and track. But that's happening as you can see Singapore, America, Australia, Korea, China they're all putting in place regulations so they can put an end to the complete privacy of what's happening there. And so there's Know Your Customer, there's anti-money laundering, there's fraud detection services in place. And to enable them to collect taxes too? I'm sure, yes. Well, thank you so much. We're going to take a little break here and we'll come back. We'd love to have you tell us more about the various mobile payment platforms. Thank you so much. Thank you. Welcome back to the Global Report. Today we're talking about cryptocurrency and the various mobile payment platforms. We have with us today Mr. Danny Francis who is the co-founder of the Vault of Blockchain Security, we'll come back to the show Mr Francis. Now Mr Francis, could you share with us some of the different types of mobile payment platforms that are out there? Right, I guess there's a number of mobile emerging payment platforms that are quite common in around... How much do they call it? There's a number of emerging payment I guess we call them so, there's Mastercard, has MasterPass, there's Stripe, there's Braintree, PayPal all of those are vehicles or payment gateways that mobile vendors embedding in phone devices so that you can purchase things from retail stores, you can buy a cup of coffee in the morning, they can be married with loyalty programs and it's usually the tokenisation of a credit card or a debit card. Once that tokenisation happens security layers are put in place to protect it and then it's put on your phone so you can use your phone to, you may have seen in places like Australia where people tap their phone using NFC technology or it could be done on a location basis using Bluetooth or just using pairing a phone with a point of sale terminal but there's several ways that you can enable that. Now when I tap my phone to that, what kind of information is being transferred? Just payments as if you're handing over your credit card and they're swiping at the terminal so they get no other information at all about the user except that they check with the bank that you have enough money in the bank to cover the transaction and while I say that some companies will offer payment technology on a device in exchange for gathering things about your behaviour, what you buy, when you buy, how much you spend in a week. Is this the customer aware of that? Oh yes in those sort of things that the customer need to be aware, in Singapore we have privacy laws in Australia there's privacy laws to protect consumers from anyone trying to gather that information without their awareness. Now you mentioned that it can be paired with customer loyalty programs, could you give us an example of how that works? See I go to a cafe and buy a cup of coffee. Right so quite common are things like Starbucks store, stored value card. With Starbucks it's a bit conky. You have to go and buy a physical card and then you scan the card to tokenise it in your device and then when you make a payment and then you add funds to that card and then when you come into the store you can make an order and use the funds that are in your card to pay with. When you are paying are you tapping your phone or tapping a card? With Starbucks in Asia it's scanning at a terminal. With the phone or the card? With the QR code on the phone because the card has been embedded in the phone. But then there's companies like Loke and Loke do away with all that clunkiness. They embed the card, your card into the application so it could be Starbucks. In this case you wouldn't have to get a card, download it, you just do your own credit card and then when you make a purchase you get points. As those points build up you can use those points to make a purchase. And the company is of course collecting information on what type of purchase you need. So places like Starbucks, Coffee Bean, Yaqum Cafe can gather information and improve services to customers. So customers are made aware that this behaviour information is known before they sign on. But they get discounts and they get value for being part of that process. What is the capital cost? What does it look like for a merchant to say okay I want to implement this in my channel store? Is there a very high capital cost involved? It does vary from vendor to vendor. There's probably five or six vendors in Singapore that do it. Some will do it very cheaply in terms of setup but they don't do native mobile application development. They do web development which is lower cost less secure. And so you find with those kind of vendors they're not so liked by the banks because of lack of security. But then the credit card companies will not have endorsed them because they might have passed the rules required for credit card tokenisation. So it could be as low as $50 a month per outlet. There's companies like Loak do $1,000 to set up the outlet and then $100 a month on small outlets. It's very reasonable. It's a reasonable cost considering the benefits to the merchant which are an uplift in revenues of more than 8% increase in margin of more than 5%. Significant if you're turning over $100,000 a month and it's more than a staff's wage increase in your margin. And if capital cost is not exactly a barrier, what are some of the barriers that you have seen in your industry? The barriers are probably the integration with the point of sale. So there's point of sale vendors who some are very open and some are very closed but they're usually relationships that have been married with the merchant for some time and to change rules like in any marriage could be a difficult thing. And what about educating the customers to consumers? I imagine that the older generation might be more technophobic. You'd be surprised. Women between the age of 50 and 65 are among the most mobile savvy, much more mobile savvy than their equivalent aged males. Male males of that era are more likely to not be a mobile savvy. Women have been smartphone adopters and game players, surprisingly. So it comes from that. The older generation actually don't have too many issues and the smarter that the applications get, the easier it is for them to manage and find their way. Mobile apps are very intuitive. So there used to be tutorials required when you downloaded an app that used the app and do this, do that, step one, step two, step three. With the company that I was with before we found that no one was using those things anymore. So you don't have to include them anymore because people are knowledgeable enough about mobile apps that they can navigate fairly easily. And looking at just Asia alone, what do you think is the percentage of penetration, market penetration for such technology? How many merchants, what's the percentage of merchants that have already picked it up? It's happening fast now. I think it's kind of growing with some pace. So there's a bank in Singapore called DBS and DBS is really pioneering what's happened in the earth and DBS already has one-half to 2,000 outlets. Doing it, they're targeting over 20,000 outlets in the next 12 to 18 months. In Australia, there's probably loyalty and payment. I can just think of three companies that would have more than 10,000 outlets between them. In Korea, I know of a company called Dodo Point and has over a million merchants using it. Wow. And do you operate mostly within the Asian region or do you have clients outside of the Asian region as well? Asia Pacific. Right. We're a global company, but the technology that we've developed has been focused in Australia, spread to Asia Pacific. Now we're setting up US and UK. Do you encounter different types of difficulty as you bring them to different regions? Surprisingly, no. Asia's been a market that's more mobile savvy than the West, but the West has caught up in the last couple of years. America was very slow in coming to the market. Why do you think that is so? Why are they slowly adopting it? They're slowly adopting all kinds of payment technologies. Americans were still writing out checks when the rest of the world was saved by buy. And even the kind of technology they used in their credit cards was generation behind what was happening in Asia. And Australia's quite fortunate because it followed the Asian technology and the Asian way of doing it. So the adoption in Australia is very good. And the adoption in the UK, France, Germany. Why do you think it's slow in America? Do you think government regulations have a role to play in that? Well, I don't think so anymore. They were up until two years ago, and now that's changed. America's got great designers, great UI experts. It was just a matter of time until I embraced the technology and they'll succeed as well as anyone. Well, thank you so much, Mr Francis. We really appreciate you spending time with us today. Thank you so much. Thank you. Thank you. Cheers.