Enterprise Blockchain Consortiums – Part 2

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https://goo.gl/EewTRW

 

This is the second part of our article about Blockchain consortiums focusing on the enterprise market. Part I of this article can be found here.

In Part I, we covered Linux Foundation’s HyperLedger Project which acts as an umbrella for Fabric, Intel Sawtooth Lake, and Iroha. We also that R3’s Corda and Digital Asset Holding’s offerings.  In this part we will cover the following three players:

  1. Chain
  2. Ripple
  3. Enterprise Ethereum

Chain

Chain is a Silicon Valley startup that provides Enterprise Blockchain solutions. Chain offers an enterprise-grade platform called Chain Core that allows companies to build and launch their own permissioned blockchains. Chain Core is built based on the Chain Protocol which defines how assets are issued, transferred, and controlled on a blockchain network. It allows a single entity or a group of organizations to operate a network, supports the coexistence of multiple types of assets, and is interoperable with other independent networks.

Chain Core SDK is available in three languages (Java, Ruby, and Node.js) and provides a robust set of functionality to create enterprise applications that require a permissioned Blockchain. Chain has put a significant amount of effort in building and documenting the APIs. By abstracting the technical details that may impose a steep learning curve when it comes to learning DLT, Chain has done a great job with providing simplified libraries which will have an enterprise developer up and running in a minimal amount of time.

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Image Credit: Chain.com

Chain could have stopped at just releasing the developer documentation – but they went an extra step and open sourced their Chain protocol as well. This allows third party developers to inspect and view the protocol specifications and build additional adapters and bridges to other popular blockchain networks and solutions in the market.

Chain has managed to demonstrate their success by building a fully permissioned Blockchain-based solution for Visa called B2B Connect, that gives financial institutions a simple, fast and secure way to process business-to-business payments globally. Chain has also managed to gather investments from NASDAQ, Fiserv, Capital One, Citi, Fidelity, First Data, Orange etc. With its developer and enterprise-friendly platform, Chain provides an easy entry to DLT technologies for enterprises that are looking to experiment with Blockchains.

The foundation of Chain platform includes the Chain Virtual Machine(CVM) that executes the smart contract programs written in Java, Ruby or Node. These high-level language smart contracts/programs allow business logic to be executed on chain using the  CVM instruction set. These programs are Turing Complete; to guarantee that the contract does not get stuck in an infinite loop, the chain virtual machine terminates contract code that executes more than a run limit time. (Similar to the ‘gas’ that powers ethereum smart contracts).

Chain and Interledger.JPG

Image Credit: Construct 2017, Coindesk

Ripple/Interledger:

Ripple is one of the first successful Distributed Ledger technology companies that has managed to successfully integrate with financial institutions around the world to solve the problem of faster cross-border payments.  Sending money from one country to the other can be a frustrating experience even in today’s standards. Almost all of the banks in the world today use SWIFT technology to move money across borders.

An average SWIFT payment takes days and not hours to settle. Bank to Bank transfer is usually 1-2 days (keeping into consideration time differences, if applicable). Depending on the size of the bank and their presence in the receiver country,  a correspondent bank may be involved.

Ripple attempts to eradicate this delay by providing near real-time settlement times for cross-border money movement. By their own statement:

Ripple’s solution is built around an open, neutral protocol (Interledger Protocol or ILP) to power payments across different ledgers and networks globally. It offers a cryptographically secure end-to-end payment flow with transaction immutability and information redundancy. Architected to fit within a bank’s existing infrastructure, Ripple is designed to comply with risk, privacy and compliance requirements.

Interledger Protocol(ILP) – ILP serves as the backbone of Ripple technology. ILP strongly borrows many of the battle-tested ideas from Internet standards (RFC 1122, RFC 1123 and RFC 1009) that exist today. ILP is an open suite of protocols for connecting ledgers of different types of digital wallets to national payment systems and other blockchains. A detailed overview of the ILP protocol can be found in a white paper here.

Ripple Connect – Ripple Connect acts as the glue to connect various Interledgers operated by FI clients around the world. By linking the ledgers of FI’s through ILP for real-time settlement of cross-border payments, it preserves the ledger and transaction privacy of the financial institution. It also provides a way for banks to exchange originator and beneficiary information, fees and the estimated delivery time of the payment before it is initiated thus providing transactional visibility.

Screen Shot 2017-03-16 at 5.40.49 AMImage Credit: ripple.com

Ripple has also built a sample ILP client for developers along with supporting documentation that shows how to use ILP. A good overview of Interledger development documentation can be found here. Complete documentation about developing for Ripple platform can be found here.

Ripple has managed to successfully prove that DLT can be used to solve a real-world problem of cross-border payments. They are one of the few companies who has managed to acquire BitLicense – a virtual currency license from the New York State Department of Financial Services.

Here is a list of Ripple’s Financial Institutions clients who are either using it in production or testing the technology for cross-border money movement:

Ripple clients.png

Image Credit: Ripple.com

Enterprise Ethereum:

Enterprise Ethereum is technically the new kid on the Enterprise Blockchain Consortium Block; however, Ethereum as a platform has a robust base of credentials to bring a fight to the ring. Enterprises have shown significant interest in Ethereum as a platform and many innovation labs have been testing a private deployment of Ethereum to understand the technology as well as the use cases it can solve.

Jeremey Millar from ConsenSys elegantly presents the merits of using Ethereum in an Enterprise setting:

Ethereum is arguably, the most commonly used blockchain technology for enterprise development today. With more than 20,000 developers globally, the benefits of a public chain holding roughly $1bn of value, and an emerging open source ecosystem of development tools, it is little wonder that Accenture observed ‘every self-respecting innovation lab is running and experimenting with Ethereum’. Cloud vendors are also supporting Ethereum as a first class citizen: Alibaba Cloud, Microsoft Azure, RedHat OpenShift, Pivotal CloudFoundry all feature Ethereum as one of their, if not the primary blockchain offering.

Enterprise Ethereum (EE) brings forth a very crucial difference between the technology used by players in this space – Blockchain vs.  Distributed Ledger. While these two technologies have been interchangeably used by many in the field, there is a subtle difference that catches folks off-guard. Antony Lewis of R3 says:

All blockchains are distributed ledgers, but not all distributed ledgers are blockchains!

Enterprise Ethereum attempts to bring the technology behind Ethereum into enterprises while the other players have redesigned the idea behind Blockchains to fit the enterprise needs. It is still early in the game to see how Enterprise Ethereum will evolve as not much details have been published except the launch day webcast (7 hours). Around the first hour, Vitalik Buterin talks about the Ethereum roadmap.

We also see the various alliance partners in various panels talking about what Ethereum in Enterprise means to them and the reason why they are part of it. EE has launched with a significant number of important players in the space – most notably JP Morgan, who also have announced the launch of their Ethereum based blockchain called Quorum.

Enterprise Ethereum Alliance members

Image Credit: http://entethalliance.org/

Conclusion:

The Enterprise Blockchain/Distributed Ledger space is starting to become competitive with a good number of offerings. There are are other players like Multichain and Monax, which we have not covered here which deserve a close watch. Like relational databases that changed the way how enterprise applications are built, Blockchains and Distributed ledgers will shape the future of how enterprise applications are designed and built for the next generation of applications.

 

 

 

 

 

 

 

Enterprise Blockchain Consortiums – Part 1

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https://goo.gl/qzVPS5

2016 was a big year for Blockchain. The hype around Blockchain was palpable, and you saw news from all around the world about various initiatives picking up steam. While this entry is not meant to provide a comprehensive state of *all* of the consortiums out there, I am attempting to capture the ones who seem to have the most momentum and news coverage.

If you are serious about following the enterprise Blockchain scene, the following players merit your attention:

  1. HyperLedger
  2. R3CEV
  3. Digital Asset Holdings
  4. Chain
  5. Ripple
  6. Ethereum Enterprise (This was the new entry on the block as this entry was being written).

HyperLedger  – Hyperledger is an open source effort by Linux Foundation to develop a blockchain platform and to support blockchain-based distributed ledgers.The term Hyperledger itself doesn’t specifically point to one project; rather is a collection of various projects committed by different members. The projects themselves range from building blockchain based distributed ledgers to a Blockchain as a Service toolkit to a blockchain explorer.

Hyperledger ecosystem is built on the following tenets:

  • Data/Decisions need to remain with project stakeholders
  • Plug-ability to enable flexibility.
  • Ability to trace transaction history
  • Utilize native SDKs as much as possible
  • Support for HSM (Hardware Security Module)
  • Support for ACL
  • Eliminate Single point of Failure
  • Collaborate with projects within the Hyperledger ecosystem to pick the best design/architecture

HyperLedger.JPG

Image Credit: Coin Desk Construct 2017

HyperLedger projects:

HyperLedger Fabric – An implementation of blockchain technology that is intended as a foundation for developing blockchain applications or solutions. Fabric offers modular design allowing plug-and-play components like consensus and membership services. It leverages container technology to host smart contracts called chaincode that comprise the application logic.  Fabric was incubated with the contributions from IBM and Digital Assets Holding Group (DAH)  based on the successful experiment implemented at the F2F hackathon hosted by JPMC in NYC week of March 21, 2016. 

The fastest way to take Fabric for a test drive is to use IBM’s Bluemix Free Developer edition that can be found here. On the other hand, if you are a glutton for shell scripts and terminal, you can build your own Node.Js/Vagrant based Fabric client SDK development environment setup by following instructions here.  A Java SDK version is apparently in the works.

Iroha – Iroha has an interesting background it comes from the land of rising sun – It is a distributed ledger project that was designed to support infrastructural projects that require the use of distributed ledger technology in a simple and easy way. Iroha was developed in C++ and emphasizes its use in mobile environments and application development.

Iroha specifies its goal to provide the following c++ components that can be used across all Hyperledger projects:

  • Sumeragi consensus library
  • Ed25519 digital signature library
  • SHA-3 hashing library
  • Iroha transaction serialization library
  • P2P broadcast library
  • API server library
  • iOS library
  • Android library
  • JavaScript library
  • Blockchain explorer/data visualization suite

Iroha was added to the Hyperledger family with contributions from Soramitsu, Hitachi, NTT Data and Colu. A full white paper explaining the design of Iroha can be found here. The client code can be found on Github here.

Sawtooth Lake – Sawtooth Lake is a blockchain ledger project from Intel. Its designed to be a modular platform for building and running distributed ledgers. By using a pluggable architecture for consensus, Sawtooth Lake provides the ability to run both permissioned and permissionless Blockchains. Sawtooth Lake comes out of the box with a consensus Algorithm called PoET (Proof of Elapsed Time), which is intended to run in a Trusted Execution Environment (TEE), such as Intel® Software Guard Extensions (SGX).  PoET is a lottery protocol that follows the Nakamoto Consensus model to elect a leader in the voting process. However, unlike Bitcoin consensus that uses extensive Proof of Work based validation which wastes compute cycles and electricity, PoET uses a Trusted Execution Environment(TEE) to provide a guaranteed wait time for each validator(node).

Each validator in the network requests a wait time from a trust function within the TEE. The validator with the shortest wait time for a particular transaction block is elected the leader. The TEE’s provide trust services like CreateTimer() and CheckTimer() to ensure that a particular validator created a timer within a TEE and waited the specified amount of time to win the lottery. By utilizing Intel’s SGX enabled processors that can provide a TEE environment, PoET can scale by adding more validators without having to resort to extensive Proof of Work based mining.

Cello – Is a toolkit for deploying a Blockchain-as-a-Service, that reduces the effort required for creating, managing, and terminating Blockchains. Getting Hyperledger Fabric up and running requires on different nodes required configuring Docker scripts to get the environment up and running on various machines that can be time-consuming and error-prone.

Cello avoids these problems by providing pre-configured environments to get a Blockchain running similar to IBM Blumix or Microsoft Azure BaaS.

In summary, Hyperledger seems to have a vibrant ecosystem of various participants contributing to developing a vibrant open source Distributed Ledger technologies. The Hyperledger Technical Steering Committee ensures that the various efforts stay in sync with the core philosophies of open source contributions. You can find more information about Hyperledger at their wiki or in their slack channel.

R3CEV

R3CEV is a financial services/distributed ledger technology company responsible for creating R3, the most famous blockchain consortium that has managed to garner the attention of the financial industry. It has an impressive roster of 70+ members who are working with some of the sharpest minds in the DLT space like Richard Gendal Brown(CTO of R3) and Mike Hearn(former Bitcoin Core Developer) to create a new world of financial services infrastructure and applications using the ideas derived from Blockchain technology.

According to Clemens Wan, Associate Director of R3, they see their technology as one that requires broader buy-in from enterprises and corporates to achieve a strong network effect and important applications.  According to Wan, R3’s open sourced DLT platform Corda is similar to XBox Live, in a sense it builds the ecosystem and the connectivity. By focusing on providing the platform and services, R3 will enable its members to innovate using DLT technologies to solve their business problems by building a variety of use cases.

The use cases that are being worked on my R3 members is quite comprehensive:

R3 believes that 2017 will be the year of Pilot and 2018 will be the year when DLT applications will hit mainstream production.

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Image credit: R3 blog.

Corda platform has been open sourced as part of the Linux Foundation’s HyperLedger project. Corda attempts to not replicate the Bitcoin blockchain; rather it takes an enterprise point of view of creating a shared ledger that allows managing financial agreements. Corda was designed to address the pain points which stops enterprises from embracing DLT technologies fully. To facilitate this, Corda is designed with these goals in mind according to Richard Gendal Brown, CTO of R3CEV:

  • Corda has no unnecessary global sharing of data: only those parties with a legitimate need to know can see the data within an agreement
  • Corda choreographs workflow between firms without a central controller
  • Corda achieves consensus between firms at the level of individual deals, not the level of the system
  • Corda’s design directly enables regulatory and supervisory observer nodes
  • Corda transactions are validated by parties to the transaction rather than a broader pool of unrelated validators
  • Corda supports a variety of consensus mechanisms
  • Corda records an explicit link between human language legal prose documents and smart contract code
  • Corda is built on industry-standard tools (Kotlin, a JVM compatible language).
  • Corda has no native cryptocurrency (it rather uses real world currencies).

By addressing these design goals, Corda is able to address the blockchain benefits like validity, uniqueness, immutability and authentication within the context of applications for financial services.

Recently R3 and Corda were in the news when they announced that their solution is “blockchain inspired” rather than a blockchain. An interesting analysis by Chris Skinner about this can topic can be found here.

Digital Asset Holdings(DAH):

DAH is a Distributed Ledger Technology startup founded by Blythe Masters and other industry veterans. DAH aims to use distributed ledger technologies to disrupt the legacy processes which slow down the financial industry. In their own words:

In theory, a shared, immutable ledger enables transparent, peer-to-peer, real-time settlement without the need for financial intermediaries. In reality, markets require known, reliable counterparties, rights of reversal and error correction, high levels of privacy and the operational benefits of net settlement in a system in which legal entities are responsible for the perfection of title to and legal standing of financial assets. Consequently, markets will continue to benefit from and require third party service providers to perform a variety of functions as they do today: from ensuring clean title, to enabling operational and balance sheet netting.

Assets are not currently issued solely into these distributed networks, and may never be. This necessitates careful on- and off-ramping procedures for keeping the two systems in sync as new technology is adopted. These needs can be met at the transaction layer, where Digital Asset software maps business logic and legal processes to cryptographic signature flows. As an example, our software constructs transactions that enjoy privacy and, when required, permit the ability for net settlement.

Digital Asset claims they select the right kind of distributed ledger for the problem at hand; they can work both on permissionless ledgers (like Bitcoin and Ethereum) as well as permissioned ledgers (Hyperledger) that provides better control. To enforce the right type of smart contract execution logic, DAH has modeled a new language called Digital Asset Modeling Language (DAML).  DAML is similar to a smart contract language in many ways but it is designed with the needs of financial institutions in mind. According to DAH, it is optimized for usage in a private execution environment rather than in an open execution environment(in which it would be processed by all of the nodes in a network). DAML is designed to achieve many of the same benefits of Smart Contracts.

DAML does not support Turing Completeness. This allows it to specifically focus on financial services use cases where the potential outcomes are predictable (and hence avoid the halting problem).  DAML focuses on verifiability – only by the stakeholders of that agreement rather than by everyone, and on certainty – being able to accurately predict all possible outcomes of the agreement rather than introducing doubt with unnecessary complexity.

Consensus in DAML: DAML ensures that all stakeholders can reach consensus by utilizing the shared log containing the complete provenance of the rights and obligations along with an off-chain execution environment for processing the workflows and the behaviors that are being modeled.  DAML also ensures that not all nodes in the network need to know and process the contents of a contract; only the parties specified/relevant in the contract are involved in the execution. Contract data is revealed on a need to know basis and even the distributed ledger, which only contains references to the agreement, is encrypted so other entities cannot detect even its existence on the ledger, let alone the terms.

DAML Agreements and Hyperledger: The name Hyperledger used below can be easily mistaken for the Linux Foundation’s Hyperledger project. Tim Swanson from R3 explains the naming confusion between these two in his blog post here. Take a few minutes to read that before you proceed below. If you did not have the time, here is a brief blurb:

So when someone asks “what is Hyperledger technology?” the short answer is: it is currently the name of a collective set of different codebases managed by the Linux Foundation and is not related to the original distributed ledger product called Hyperledger created by a company called Hyper that was acquired by DAH. The only tenuous connection is the name.

The combination of the Digital Asset Modeling Language and Hyperledger allows for scale and privacy while maintaining a fully reconciled system across multiple parties. DAML serves as a logic and validation layer sitting above the ledger, providing an auditable way to prove the updates that occurred to the distributed ledger. An agreement modeled in DAML is only active if Hyperledger confirms it is valid and not referenced by any other transaction, creating an independently verifiable logical mapping between the original business intent all the way through to the relevant Hyperledger transactions.

DAH and HyperLedger.JPG

Image Credit: Coin Desk Construct 2017

Nodes in the Hyperledger network that are not party to the agreement are still able to agree upon its outcome because they can independently verify that all of the required authorizations have been made without ever actually seeing the contents of the agreement itself. However, the contents of agreements can be provably revealed to authorized third parties such as regulators.

We will cover the last three (Chain, Ripple and Enterprise Ethereum in Part 2 of this series).

Blockchain – What is Permissioned vs Permissionless?

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If you have been following distributed ledger technologies (Blockchain), you would see the term permissioned blockchain being thrown around. What is the core difference between a permissioned vs. a permissionless blockchain?

A permissioned blockchain restricts the actors who can contribute to the consensus of the system state. In a permissioned blockchain, only a restricted set of users have the rights to validate the block transactions. A permissioned blockchain may also restrict access to approved actors who can create smart contracts.

Permissionless blockchain is contrary to what you read above – Here anyone can join the network, participate in the process of block verification to create consensus and also create smart contracts. A good example of permissionless blockchain is the Bitcoin and Ethereum blockchains, where any user can join the network and start mining.

Now you may wonder what the benefits and disadvantages of each approach are? In a permissionless world, you do not have to prove your identity to the ledger. As long as you are willing to commit processing power to be part of the network and extending the blockchain, you are allowed to play. Any miner who is playing the game by the rule may be able to solve the hash puzzle and verify the block of transactions to win the mining reward (Higher the mining power, better the chances of winning the mining reward).

In the permissioned blockchain world, you need to be an approved actor in the system to participate in growing the chain as well as building consensus. Many of the blockchain consortiums that build private blockchains for financial institutions and other enterprises follow this model.

One other critical difference between these two is the underlying mining model – permissionless blockchains use Proof of Work(PoW) mining where hashing power is offered to build trust. As long as 51% of the nodes are honest players, network consensus is reached. (Read about 51% attack here).  While Bitcoin uses PoW mining, Ethereum is proposing to use a Proof of Stake model (PoS) for reaching consensus.  Proof of stake mining asks users to prove ownership of a certain amount of currency (their “stake” in the currency). Instead of buying computers and electricity for mining in a PoW system, a PoS systems uses the capital to acquire the coins/tokens that allow you to validate transactions.

Permissioned blockchains do not have to use the computing power based mining to reach a consensus since all of the actors are known; They end up using consensus algorithms like RAFT or Paxos. There are also other PBFT algorithms that can be used to reach consensus without PoW mining.

Let us look at the topic of enterprise blockchains. Almost all of these piloted blockchains these days are permissioned. There are many reasons why this is the case:

  1. Privacy – using a permissioned blockchain allows only actors who have rights to view the transactions. A permissionless blockchain is ideal as a shared database where everyone can read everything, but no single user controls who can write. Imagine you are a large bank who uses a shared ledger with a list of other banking partners within a consortium – you do not want the volume of your transactions to be visible to your competitors.
  2. Scalability – A Permissioned blockchain can build a simplified Proof of Stake model to establish consensus; this prevents the proof of work by burning computational cycles. The ultimate result is scalability compared to a public blockchain network like Bitcoin. (See BigChainDB).
  3. Fine Grained Access Control – A Permissioned blockchain allows restricted access to the data within the ledger (See the design model underlying R3CEV’s Corda)

I want to highlight one of the most famous interviews by Bitcoin guru Andreas Antonopoulos – Sewer Rat and the Bubble Boy. When asked about “How are enterprise/private blockchains different from bitcoin’s blockchain?”, Andreas responded:

“The banks and the corporations say, “Oh, bitcoin’s awesome. We want that. Only without the open, decentralized, peer-to-peer, borderless, permissionless part. Could we instead have a closed, controlled, tame, identity-laden permission version of that please?”

It is an interesting argument where Andreas compares Bitcoin network to the Internet and the private blockchains as the secure intranet within enterprises. He compares them to the Sewer Rat and the Bubble Boy:

Bitcoin is a hardened platform because its security is tested on an everyday basis.

“Bitcoin is a sewer rat. It’s missing a leg. Its snout was badly mangled in an accident in last year. It’s not allergic to anything. In fact, it’s probably got a couple of strains of bubonic plague on it which it treats like a common cold. You have a system that is antifragile and dynamic and robust.”

Does this mean that the enterprise blockchains are the bubble boy?

 “let’s take bitcoin, cut off its beard, take away its piercings, put it in a suit, call it blockchain, and present it to the board.” It’s safe. It’s got borders. We can apply the same regulations. We can put barriers to entry and create an anti-competitive environment to control who has access. It will be more efficient than our existing banking system.

Eventually, successful, vibrant, innovative companies are the ones that turn their IT infrastructure inside out. In the future of finance, successful, vibrant, and innovative banks are the ones that turn their infrastructure inside out and make it part of an open, borderless financial system that serves the other 6 billion, that serves all the people who have been excluded from finance.”

I for one cannot wait to see how this whole debate will shape up the future of finance. The advent of bitcoin and blockchain and DLT technologies is a pivotal moment in the history of computing and technology. It will change the way of how we build systems of the future.

You can watch the full-text interview with Andreas here and the video of his talk here.

And the Fintech Country of the year award goes to…

If you are not following what is happening in India in the last few months, you will need to wake up and take a look. The demonetization effort launched by the Indian government has shaken this cash based economy to the core.

While everyday folks suffered a lot with trouble in exchanging the 500 and 1000 Rupee notes for the newer 2000 or older denominations, the mobile wallet scene in India saw a sudden interest and growth which was a fortunate side effect.

Companies like PayTM and MobiKwik have seen their user and transaction volumes skyrocket in the past few months. Here is a link to the Paytm growth numbers for their year ending 2016 which is crazy!

As a payments industry observer I find this growth fascinating. I can’t wait for the time when Apple would release its ApplePay numbers in open like this!

The folks in Daily Fintech have done a fantastic job in presenting the case of why India is the Fintech country to watch here in this article. Go check it out!

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Digital Delight – How are you moved?

index-mobile2007 was a watershed moment in technology. The iPhone redefined the concept of personal computing and the world as we knew it was never the same. In just a decade, we have seen the proliferation of smart devices in every aspects of our life. We take for granted the various conveniences  offered by our smart phones.

However too much of a good thing can also create fatigue. Our smartphones are cluttered with apps which we download and use once or twice and never revisit again. Like a kid in a candy store, we hoard on apps and eventually get tired of it and settle on a few which truly make your everyday life easy. If you start filtering apps with this lens, I bet most folks don’t use any more than 10 to 15 apps in a repeating basis.

Apple and Google haven’t really done much to help solve this hoarding issue of the users. I have always thought a neat feature in an operating system level would be is to notify the user of an app dormancy – if I haven’t touched a thing in 3+ months, is there any possibility I would ever use it again?  Recommend a list of these apps which I can get rid of and keep my sanity!

At the end of the the day, the few of the 10 to 15 apps we use may not be the best of the best but they may serve a utility which we cannot live without. A good example would be apps published by your banking and credit card providers. I counted a total of 10 apps in my phone representing my banking, credit card and investment/retirement account providers.

A fellow Fintech Mafia member Alex Jimenez mentioned the other day that most of the mobile banking apps are online banking shoved into a small screen. I tend to agree with his assessment. In a race to keep the mobile apps in feature parity, most financial institutions are in a rush to port the kitchen sink into their mobile apps. While I appreciate the swiss army knife of a mobile banking app, we really don’t need 48 features in a form factor meant to engage you for less than a few minutes to take care of quick and important banking transactions.

A mobile banking product manager’s wish is to figure out what makes the customer tick. Everyone wants to build the next Uber of the banking service. However, to get the formula right to digitally delight a customer is not an easy task.

What is Digital Delight you ask?

Digital Delight – if an online or a mobile product/service creates a pleasurable moment that makes an experience just a little more fun.

How can we can introduce this digital delight as a product designer? Not all of the apps can be digitally delightful as Monument Valley the game (which btw still blows my mind!). Sometimes the opportunity lies in taking the most mundane process workflow and integrating that into an informative notification that can make a huge difference.

Case in point – Delta launched a new redesigned app with a feature to track the status of your checked in bag.

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(Image Credit – Delta)

From the moment the baggage gets tagged into the system, the Fly Delta app starts tracking the baggage in transit.  You get notifications that your luggage has been loaded into your plane. It allows you to see where your bags are at any point in time even using a satellite map!

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(Image Credit – Delta)

I want to send kudos to the Delta team for making an useful feature like this part of their app update. This is certainly one of those things where I was delighted to see in action. A nice video of this feature is available here.

What other apps surprise/delight you in this fashion? Share them in the feedback section below. As I see digital delights in the wild I will make sure I share them as well.

Happy New Year 2017!

Paypal needs to leave 1998 and move on to 2015.

I rarely use PayPal. The only times I use PayPal is to buy from Internet merchants who I have never dealt with before. I never use their money movement feature. That being said, a couple of months ago I decided to add a new bank account to PayPal.

A typical way to setup a new bank account for ACH is utilizing the trial deposit method of account verification. With this method, the entity which likes to make the ACH linked setup, sends two micro trial deposits usually less than a dollar to the bank account and asks you to verify this amount. This process takes typically a day or two due to the underlying limitation of the ACH technology which uses batch files in this day and age to settle transactions.

Recently a newer way to verify bank information has been floating around – this is called Instant Verification where the entity (like Paypal) utilizes the online banking login information to confirm if you really are the owner of the account you are trying to link. I have used this method in a few places and 99% of the time, unless you are trying to link to one of the big banks, this never works. (In which case I fallback to the trial deposit method).

So when I set up a new funding bank account with PayPal using this new Instant Verification method, I was surprised to see it was able to connect to a small local credit union account. However I realized a few months later, instead of linking the checking account, PayPal ended up linking the savings account. (Disclaimer: I am not sure who screwed up here, PayPal or the aggregator they use or my credit union’s core system).

During holiday shopping season I used Paypal a little more than normal. This ended up deducting  from my savings account (which didn’t have much balance on the first place since this bank account is purely used for everyday spend).

At one point, the savings account over drafted and PayPal hit me with a $20 fee for the failed ACH transaction (even though I have a backup credit card setup within Paypal to fallback in the event of ACH failure.

Transaction from my bank on 12/23:

Screen Shot 2014-12-30 at 8.09.45 AM

Not wanting to deal with PayPal’s customer service, I decided to remove this bank account from PayPal and just leave it only with a credit card as funding source. When I try removing the bank account, I get an error message that “You have a pending transaction – you cannot remove this bank account”.

Screen Shot 2014-12-30 at 8.10.40 AM

I give PayPal a full 5 day window and try removing this account and I got the same error message again. To add insult to injury, I can’t seem to locate the $20 fee or the Pending transaction within PayPal Account Activity Section.

Here is PayPal’s account history where you can’t see the $20 fee or a Pending transaction:

Screen Shot 2014-12-30 at 8.16.16 AM

I even tried the Ugly Sister version (Classic Site) of PayPal to see if this Pending Transaction and hidden fee are visible – no luck.

Screen Shot 2014-12-30 at 8.18.32 AM

I can’t believe PayPal, a massive platform with so many customers would suck so bad on User Experience. I wrote to PayPal Customer Service, lets see what that response would look like 🙂

Update 1 on Jan 1, 2015.

PayPal sent me a generic email about how to add and remove bank accounts when I specifically asked them to remove a bank account. Auto Responders are not cool – especially when you deal with customer’s money.

I tried moving some money from the PayPal account to my bank account. It seems like the transaction went through but this is the confirmation screen I got after the transaction. I got an error message to check my card details followed by a big green check mark possibly indicating that the money transfer was initiated. What does this even mean?

Screenshot:

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To facilitate this move, I had to increase my monthly transfer limit. PayPal cleverly suggests that we add another credit or debit card to do this. I added a new card to increase my limit. PayPal charged me an amount of $1.95 to validate if the card really belongs to me. In the transaction memo they embed a 4 digit code which needs to be used to validate that the credit card belongs to me.

Once I finished adding the card, I got a realtime mobile SMS alert from my FI and I added the 4 digit code to confirm that the card was mine. After that I was able to move the money from PayPal to the bank account. However, when I viewed the account register again, instead of seeing a credit and a debit for the $1.95 which PayPal posted, I see two credits to my account. SMH.

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Does this company even do any Quality Assurance Testing on the code they push to production?!?!

Mobile Payments – Are we there yet?

Mobile Payments is the hottest topic in the market now. If you are following the payments industry you would be pleasantly surprised to see the amount of interest in this area from various players which include Financial Institutions like Banks, Card Networks, Processors, Telecom providers, Silicon Valley Giants,  small payment startups, retailers and pretty much everyone you can think of.

It’s all Steve Job’s fault:

The iPhone for all we know started a mobile revolution where upgrading the latest OS firmware is something you see customers discussing at coffee shops in the morning. (Did you upgrade to iOS7? I hate the color themes. I am still at iOS6 and love it!). Not to digress too much, but the iPhone opened up a cottage industry of all the things you could do with the device and Google couldn’t sit there and let Apple have all the fun. Thus Android was born (which opened up its own industry of phone makers). The latest browser stats show Chrome and Android browser leading the pack in usage while Firefox, IE and opera losing market share.

Facebook was fun with mobile, so was Instagram, Twitter and all the lifestyle apps which “made” you more productive. It was quite natural  that mobile devices evolved to add payments as the next killer app – except the existing payment initiatives in mobile have quite underestimated one fact.  The customer didn’t find the idea of paying with a plastic card too hard on the first place. What is the mobile wallet value proposition? Just replacing the leather wallet with a mobile wallet app which can store payment and other credentials does it for customers?

The mobile payments landscape is quite fragmented with a lot of confusion of what really constitutes the ecosystem. Here are the major categorizations:

Mobile at the Point of Sale (Pay using your phone)

–Consumer payment method utilizing NFC, QR Code etc.

–Google Wallet, ISIS, Square Wallet, PayPal Wallet

Mobile as the Point of Sale (Accept payment with your phone)

–Merchant utilizes mobile device to process transaction(POS)

–Paypal, Square, Intuit, ProPay

The Mobile Payment Platform

–Broader mobile payment  platform, typically a mobile wallet

–Utilizes NFC, Cloud, QR Code, GeoLocation,  GeoFencing and Proximity

–Google Wallet, PayPal, FIS Paydiant, Level Up, Dwolla, Square

Direct Carrier Billing

–Purchases made via mobile phone – charged through wireless carrier

–Zong, Boku, Mopay, Any Telco issued payment app.

Closed Loop Mobile Payments

–In-store only transactions

–Utilize QR codes, Proximity payments

–Starbucks, Level Up, Square Wallet, PayPal (Closed Loop Offers)

What does this mean to the average consumer on the street who wants to pay with their mobile? A lot of confusion.  Most of this arises from the fact that there is no standard way to make a payment from the phone.  If the GPS technology we use on the phone was similar to what we have in mobile payments today, we probably won’t have most of the location aware apps which make our lives easy(Maps, Yelp, Offers, FB, the list goes on). A good Fintech friend (Matt West) once said he will validate the success of any consumer technology if his mom finds it easy enough to use. Do the Mobile payments solutions today pass the Matt West’s mom test?

What is the primary issue in adoption?

Really the primary issue here is – Do you want one wallet to store all your credit cards and hope that the POS terminal merchant has a way to recognize it? Or do you want to have individual closed loop solutions like Starbucks Mobile app? (Rated as the #1 mobile payments app).  An average customer would probably have certain shopping preferences of where they would shop. Existing usage trends have shown that customers download and use Starbucks app and Target RedCard app  more due to their  richer closed loop experience.   A generic mobile wallet can still be a attractive value proposition in locations where they shop infrequently (A gas pump for example).

In a twitter conversation I had with Guillaume Lebleu and Brad Leimer about payments Guillaume mentioned the idea that The mobile wallet is your “transaction browser”, something you’ll use for transactions you don’t have a dedicated app for.  I agree with his idea of having dedicated apps for most frequent use and have a generic payment wallet for merchants who do have a native app combined with a wallet.  Brad mentioned the fact that there should be a unified backend to make payments simpler.

Integrating Mobile Payments at the Mobile OS Layer:

A truly well thought out mobile wallet would arise only if the major mobile OS players decide to build that as part of a new payments API.  Currently these providers (Apple, Google, Amazon, Microsoft) have provided ways to do in-app billing(mostly used for games and digital subscriptions) but to my knowledge they do not have a way for a closed loop wallet application to securely process a payment. All of these successful closed loop systems have their own cloud based payment/auth mechanism which are custom built.

Unified Payments API hooks:

If the mobile OS can provide a payment API hook that an app can utilize, retailers can build their version of a closed loop rich app similar to Target or Starbucks that can be customized with their specific offers and loyalty programs. To make something like this to work, the mobile OS has to provide a payments API infrastructure which is present in the cloud (and not on the device). This may use the Secure Element or shouldn’t have to. It can store most of your wallet information in the cloud and let you manage the cards in the cloud (Similar to Google Wallet or PayPal). This card on file information can be represented as a secure payment token within the mobile device (not the actual card details themselves, but a reference to the card in the cloud store). In case of Apple, this could be iCloud, Wallet for Google, Xbox Live for Microsoft.

When a retailer built closed loop custom app wants to utilize payment information,  it requests access to this wallet from the underlying OS. (Similar to how they now request permission to use your GPS, Microphone etc).  The OS provides a list of payment methods to the app which can be selected by the app’s payment handler (either set that card as a default mechanism or allow to change payment as required). If the workflow is built with the right hooks for extension, providers like Wallaby can inject value by recommending the the most optimal payment card which maximizing the user’s loyalty options. (Eg. Use the Discover card at electronics store to get 5% cash back type schemes).

An app built in this manner can enrich the in-store shopping experience  by providing a view of the full inventory. What if an item you are looking for is not in that store? The mobile version of the retailers app may allow you to order and pay for it from the app and have it shipped to your home directory. The primary difference between what we have now in the likes of Amazon and iTunes app is, the customer gets to store more than one primary card on file, as well as have the liberty to choose where their wallet will reside and the OS will secure the storage and provide a uniform way to access payment apps within its platform.

Generic Wallet: 

Many consumers may still find the generic mobile wallets like Google Wallet, ISIS, PayPal and Square quite attractive for their usage patterns. Any merchant who may not have a closed loop scheme can decide to be part of one of these generic wallets to accept mobile payments. Even these generic wallets can start utilizing the underlying OS Payment API hooks in a similar fashion explained above. Google Wallet already has a great way to inject Offers and Loyalty programs for merchants who decide to go through this route using their Wallet Objects API.  Other players are offering their own way of launching these value add-ons to the generic wallet.  (Level Up  has launched its white label, PayPal  with its Beacon, Dwolla with its POS payment option).

So who gets to manage this cloud wallet?

This is an interesting question. The payments landscape is big enough to accommodate more than few players.  Some people are comfortable with their Banks storing this wallet information. Some are comfortable with Apple, Google, Paypal, Amazon handling this cloud store. Some may trust Visa/MC/Amex/Discover with this function. This will once again be a turf war where once you get locked into an ecosystem of Apple or Amazon or Google, you may decide to stay with them due to the convenience factor.

The next generation Payment API/Wallet?

Add the ability to store Bitcoin and other alternative digital currencies in this infrastructure and we maybe truly looking at a next generation wallet which can be the payment wallet of the future.  A lot of innovation is happening at the payments space and its a gold rush. The OS providers wield a considerable amount of power by acting as the gatekeepers of mobile commerce which are facilitated through the mobile devices used by consumers. As long as they can keep the payments functionality simple and pass the Matt West’s Mom Test, we should see mobile wallets playing an integral role in the future of payments.

The latest Android edition (KitKat) has released with new Host Card Emulation (HCE) feature which is a great first step in providing OS level integration for Payment apps. Read more about it here.

Update 2:

Cherian Abraham has done it again with an excellent analysis of Android/Google’s strategy on HCE. You can find it here.

 

 

PFM – A mystical rainbow-colored magic Unicorn?

Personal Financial Management (PFM) is probably the most misunderstood acronym in Fintech (next to NFC).  A fun exercise is to ask what PFM means to a banker, an analyst or a Fintech consultant. You will be surprised at the variety of answers you get from them. After following PFM for the last three years, my opinion is this – PFM is a mystical rainbow-colored magic Unicorn which is out there – but no one has seen it yet. 🙂

Now lets flip the question and ask the same to Joe or Jane,  a consumer on the street. There is a good chance that you would get a blank stare at the mention of the acronym.  Since we are not totally clear what PFM means, let us ask some questions to clarify this:

  1. Do you budget your finances? If yes, do you use tools like Quicken?
  2. Do you use an online aggregation services like Mint.com to see all your finances in one place?
  3. Do you monitor your income and categorize your expenses to track spend?
  4. Do you set financial goals and follow through it with a help of a tool?
  5. Do you have any tool/service which helps you in planning to make the right financial decision when it comes to life events? (Lets not consider your CPA here).

If the answer from Joe or Jane is yes, then they have been exposed to a Personal Financial Management(PFM) tool or service is some shape or form. The real question now is how valuable do they find this?  Is there one tool or solution which manages to answer all of the above questions without making any compromises?

Problems with existing PFM solutions:

PFM industry today comes in two flavors – direct to consumer and white labeled solutions offered by Financial Institutions.  Some  players in the direct to consumer market are the likes of Quicken, Mint.com, Personal Capital etc.  The white labeled solutions players include Yodlee, Intuit (parent company of Quicken), MoneyDesktop, Meniga and Strands to name a few.  To my knowledge I have seen consumers more exposed to likes of Quicken and Mint since it gives them direct control of managing their financial lives .  The white label solutions do have a stigma that you are locking yourself with the FI which provides them. Some consumers question that approach and prefer not to go that route (What if I have to switch my bank? Do I have to set up all of my accounts again with a new bank?)

FIs would love to have their customers use the white labeled solution as this gives them a nice 360 degree view of the customers finances and what their wallet share is. Some of the FIs also use this to promote their products to these customers based on this aggregated view.

However, the big challenge in this approach is PFM has always been relegated to the role of a second class citizen within the online banking experience (A tab within online banking instead of being the primary landing page). In my opinion, this severely hurts adoption. Due to the nature of the way these white label solutions work , there is definitely some lag (at least a day) in getting the most current information populated within the PFM tab. I have always argued that this is a bad idea and PFM should “be” the online banking experience. Moven has taken this approach and integrated this from the get go on their banking user experience.

Apart from the fact that PFM gets a secondary tab, many FIs come short at providing good PFM integration into their mobile apps.  Jim Bruene from Net Banker writes that Mint is the only Pure PFM Player which provides basic PFM functionality addressing the questions I listed above.  Here some issues with the Pure PFM categorization:

1. Mobile Apps are a great way to have users start using PFM. If you hedge your bets that apps are the holy grail for PFM adoption, then I implore you to look at budgeting and other financial applications of the past (Microsoft Money anyone?).  Apps are just a modality to consume insights about your financial behavior. Like any other technology, they will find their natural demise.  PFM should be focused on data of consumer’s financial behavior and the insights you can derive from it agnostic to the delivery mechanism.

2. Even a Pure Player like Mint does a less than impressive job when it comes to basic functionality like expense categorization.  I have a hard time understanding with all the machine learning, neural networks and intelligent computing available out there, we are still faced with tools struggling to categorize our spending the right way. If Siri and Google Now can interpret our voice and translate them to text (accounting for various languages and accents), isn’t about time that we expect an expense categorization system which works and improves over time?

3. Analyzing overall financial health – Ron Shevlin calls this out his blog where the basics like budgeting, expense categorization and goals will only get you to a certain extent.  The real value of PFM comes in understanding your spending behavior over the long-term and be able to predict your financial future.  Allow me to illustrate – an ideal PFM should have the capability to not just look at your sliding window of income and expense over a limited time period – It should be able to look at this from the point when you started a real job over multiple years. A persons financial health is not just determined by their credit score or current  balance but a holistic view of their savings, earnings, future earning potential and other assets in the mix.

4. Imagine if a PFM can look at your income since you started working and the actual spend and savings you did over the period of time, it should be able to make a pretty good guess about what kind of financial personality you have and provide insights based on that knowledge. Projecting this further, the PFM should be able to tell when you can retire based on your retirement goals. There are PFMs out there which try to do this, but fall short in delivering it. A wealth of information is now available out there – this include the performance of your investment and retirement accounts, your savings, your asset values (depreciating vs appreciating) and the overall earning potential.

5. Here is where we start to move towards the grey area of  financial modeling which can go boom or bust depending upon your assumptions.  A well designed and thought out PFM should be able to interact with the user and make course corrections to reflect any changes to your financial behavior due to unforeseen events (like losing your job, divorce etc).  I tried using the goals feature in Mint. Even with a master’s degree, I cannot figure out how this works. Call me dumb but if I am kept in the dark of how Mint figured out how much  I should save for emergency fund or for retirement without an explanation, I am reluctant to trust that recommendation.

PFM re-imagined:

What would it take to capture consumer financial history over the lifetime? I am looking at the most unlikely place here for inspiration – Healthcare. A person’s health record over time is a trackable collection of data. Microsoft HealthVault tries to solve this problem by allowing an individual or a family to store their health records. Why can’t a PFM solution try to do the same? If a person’s financial interactions can be shared and stored in a vault like system, that would be a treasure trove for PFM analysis. Credit bureaus have a credit file which shows your credit cards/lines and loans but don’t have any information about your other assets or deposits/savings. As newer tools, technologies and players come into the market, dealing with a consumers financial DNA is a big data problem which is begging to be solved.

Will OFX be a standard way to solve this issue?

Maybe. Looking at OFX specs, it seems to me that it is purely conceived from the notion of opening up and solving data interchange issues between FIs. It doesn’t seem to address the issue from an individual’s perspective. Maybe its time the Yodlees, MoneyDesktops, Geezeos and Intuits of the world come up with an open PFXML format to store this unified customer financial data. Ideally a customer should have an option to port their financial history from the vault of one PFM provider to the other similar to transferring our health records. A HIPAA level standard to exchange this information in a secure fashion should also be in place.

Closing thoughts

Most of the PFM solutions today provide some help in managing financial lives of their users. They are very good at solving some of the issues and not generic enough to be adopted for all our needs. What is the point in having Mint  to look at bank accounts/credit cards/loans, use Credit Karma to track credit scores and Sig Fig to monitor my investments? The more tools I need to keep track of various aspects of my financial behavior, the lesser I am inclined and disciplined to stick to the financial resolutions I make.

An ideal PFM should be able to provide the following advice automagically:

1. Based on balances on the asset mix, provide advice on how to rebalance portfolio based on age. Many people think they have a balanced portfolio but end up buying mutual funds and stocks in the same category which skews diversification.

2. Provide advice on optimal number of credit products to own. Display the ratio of credit balance to overall credit limit for the individual to show what a healthy borrowing limit is and when the user is breaching this limit. (Stop nagging about how much they spent on coffee, instead provide more actionable insights).

3. If the user ends up carrying over balance in a card  and has enough money in savings to pay if off, notify them.  (Like Suze Orman advice in real-time).

4. If a user has a mortgage with a higher interest rate, advise them of available  lower rates and refinancing options based on current market conditions.

5. If a customer has a loan and enough savings and disposable income, display the interest they can save by prepaying the loan.

6. Provide financial projections and advise of how to save for college education and how small savings over a period of time will grow when junior is old enough to get into ivy league.

7. Analyze cash flow of user income and expenses and advise how much they can afford to save.

8. Provide ways to promote healthy savings behavior where parts of direct deposits are funneled into named target accounts like “Down payment for Next Home”, “Pay off Mortgage”, “Wedding at Mexico”, “College Fund” etc. Saved Plus allows you to impulsively save when you spend which I think is a neat way to promote healthy savings behavior.

9. When a user wants to spend money on binge purchases, show how that would affect their other savings goals in the long run. (MoneyDesktop has implemented this feature called “Guide Me” in a fantastic way – Video here).

FIs have a great opportunity to win over their customer base by providing relevant money management advice as part of their core offering – After all, that is the primary reason why someone decides to bank with them. Recognizing this and using this to win over customers is a must in the long run to stay in business. PFM players have the great opportunity of redefining money management and taking over the role of next generation of Online Banking.

Square Cash – P2P on Steroids?

With much excitement, I welcomed the news that Square had joined the P2P game with other players like PayPal. I am a big fan of the Square Dongle . I admire the simplicity of how it solved the problem for a niche market of small merchants who could not process credit cards.

Once I dove into the announcement and started reading the details of how this worked, I got a little queasy.  With some knowledge of email marketing and how it can get abused, I am a little weary of a P2P scheme that tries to use email as an orchestration mechanism for sending money from one party to the other.

In the meantime, many of my FinTech friends were raving about the simplicity and beauty of the service. I therefore decided to give it a test drive. I downloaded the iOS app, launched it and was greeted with a screen to enter the amount I wanted to send. Square cash, by default launched the mail program and created a mail template where the recipient email and message can be customized.

Without diving too much into the mechanics of how this works, I would like to present my observations below. (If you are interested in reading how it works, you can find it various places like this one).

I tried sending $10 from one of my Gmail account to another using my Bank A Debit card to my Bank B Debit card. Once I opened my mobile mail app, I saw quite a few emails from Square.  Since this was a test, having an unified inbox app that had access to both the email accounts I used for testing was a mistake.

I ended up getting a total of 8 emails from Square, which added some element of confusion. (I do understand this will not be the case in a real world scenario when you try to pay someone else).  After sorting through the emails and completing the required steps from the sender’s perspective, I was able to transfer the money to the other party.  From a receiver’s perspective, I got an email from Square instructing me to either use a debit card or to set up a bank account to receive the funds.

Interestingly Square cash runs the whole transaction on a Visa/MC debit backbone API. This scheme seems to work very similar to how you would pay at a POS terminal using your debit card. (More details of this API can be found in this Quora thread).

I got a purchase alert SMS from Visa that my debit card was used at SQC*”DEVA ANNAMALAI in San Francisco US” for the amount I sent as a Card Not Present Transaction.

I logged into my receiving account and saw something interesting – the $10 showed up as a pending transaction.  Note the description shows up as a “REFUND”. This further confirmed my suspicion that Square processed this transaction as merchant refund into a debit card.

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While the common user on the street would quite not care about the mechanics of how all of this works, this did raise some questions which I wish Square would provide answers to get more transparency/clarity on this service:

1. Square Cash Terms and Conditions dictates that as an end user, you can only create one account. (I am assuming it is a debit card/email combination to create the new account).

2. The T&C  frequently mentions the term Square Cash Account. My interpretation of this is Square creates a Card on File Account for the email address which is being used to send the money along with the Debit card.  The T&C does not clearly state that, but my best guess is Square is using this as a strategy to compete with PayPal and Google Wallet in increasing its consumer user base. (Check Cherian Abraham’s excellent analysis on his blog post about this topic.)

3. Now the big issue I have with this approach is PayPal and Google Wallet allow you to manage the account by allowing you to store various payment cards in the wallets. With Square Cash, the user seems to be stuck with one debit card to their account. I have no idea what it takes to switch this card on the file to a different card (Or) How someone would go about asking Square to remove their stored card/account. (Some folks are not comfortable for merchants to authorize a direct pull from their bank accounts).

4. The legal age to use Square Cash is 18. I wonder how many under age users who have debit cards will be using this service to send money to their friends. I don’t think most folks in this demographic would even bother to read the terms and conditions.

5. I tried sending money to two of my friends at the same time using the  Square Cash app.  The app informed me that cash was sent (allowing me to type in two email addresses at the recipient field). However I got an email from Square Cash informing that they could not understand the request and I need to send money to only one recipient at a time. Gmail interface to send money via email is clear about the fact that you can only send money to one recipient at a time. It also lets you pick your funding source, the list of credit cards you have on Google Wallet as well as the Wallet Balance.

6. I believe email as a medium to communicate with friends and family is losing its popularity.  When was the last time your friends or family members sent you an email? I am sure we use emails to receive statements, notifications and other random marketing emails. Using emails to keep track of P2P transactions seems weird to me. This is my personal opinion and Gen-Y may prove me wrong 🙂

7. I am also worried about the security aspects of trying to send money via email. Square has informed that they take security very seriously and have extensive fraud monitoring in place. However, mail service providers like Gmail and Yahoo by default have users signed in for extended periods of time  in a web browser(Chrome being a good example). What if a malicious user who may have access to your computer sends themselves money and deletes the email thread? Square does mention you can add dual authentication using a mobile phone number but it is not a mandatory step. This probably is the most riskiest aspect of using the service IMHO.

8. Phishing emails – Most users who still open emails click on a phishing scam without thinking twice. Expect to see a lot more Nigerian royals sending money to your account  🙂

9. Gmail also starts categorizing some emails from Square in your Inbox and some in your Promotions tab. Not a deal breaker but something to be aware of.

10. With so many issues plaguing email in general, it leaves room to questions about why Square chose to use email as a protocol to orchestrate money movement. Email has an inherent benefit of being in the address book for all your contacts. Launching the app to build the email template seems redundant. Since they already have an app, they could have taken a secure network route like Dwolla to initiate and complete the funding request. The app could also have access to the address book! (I get it, at that point it becomes Venmo/PayPal/Dowlla 🙂

There are some interesting possibilities like paying a group of friends and adding multiple payments accounts.  For the initial launch, Square has decided to attack the basic use case.  If Square had partnered with a company like Fiserv to provide real time P2P, it would have been a killer proposition.

Square Cash may be successful in demography of techno-savvy crowd in metro cities and college communities. It would be interesting to see how long it would take for something like this to hit mainstream adoption. I am intrigued by Square Cash and would love to see the usage and its evolution. God forbid we all know that the US Payments system needs a reboot to enable more modern user friendly real time ubiquitous P2P options. Innovations like this would help us get there even if this is a first step.

Update 1: Marcelo Cortes was kind enough to share the link where you can update or unlink your debit card from Square Cash Service. When I tried using it, I had to perform a password reset to register myself. I appreciate minimalism, but this needs a little more clarity.

Update 2: Ron Shevlin raised an interesting question about Account to Account (A2A) money movement using Square Cash. This would be a very useful use case, but if we go by the Terms and Conditions, a customer can only create one account which may prohibit it.

Update 3: Another possible interesting use case is Bill Pay. If Square manages to partner with Billers, a statement email sent from the biller can be replied to pay the bill by CCing cash@square.com.  Obviously some details need to be worked out about how to track the payment amount and account number details but I am sure the smart folks at Square will figure it out 🙂 – Now that is something which eliminates friction and opens up a new market!