"When you get into this technology, you can let your imagination run wild with it. But as an entrepreneur, you have to focus. You can use a new technology to help those that can pay the most for it, or those who will benefit the most from it. It is our view that distributed ledger technology opens up opportunities to empower individuals in ways that have never been possible until now."
This is Robert Kay, the mathematician, former financier, and entrepreneur who is now chief executive of Govcoin. The firm, which launched its heavily covered pilot in May and is co-founded with serial fintech and social entrepreneur John Edge, is trialling a blockchain solution for welfare payments, in partnership with the Department for Work and Pensions (DWP).
The technology looks simple enough: claimants can – voluntarily – download an app, which enables them to create virtual jam jars and apportion money to them. Whether that’s “rent”, “gas & electric” – it’s entirely up to them. “People who are on the fringes of financial inclusion, or who are financially excluded, need a special service which can give them instant access to their benefits – three days going through the banking system may mean using a payday lender, or being thrown out of your house.”
To look at and use, “there’s nothing particularly special about the app – except that it’s designed for welfare beneficiaries and not millennial Hoxton hipsters,” explains Kay.
Underlying the app is a series of private permission nodes, including Govcoin and Npower (the former is in partnership with Npower parent company RWE, which is also an investor). Crucially, the DWP has no access to the application or the data it has, nor is the government funding any of Govcoin’s work.
Kay is keen for these points to be impressed: the DWP gets nothing out of the technology except for the tangential benefit of being able to make more accurate welfare payments, and it will, at scale, ease that distribution (every year, it pays out around £166bn of taxpayers’ money in welfare, and about £3.5bn of that is overpaid through fraud, claimant error and official error).
Govcoin’s salient purpose is to help claimants, improving ownership of identity and personal security. Its technology “is based precisely around giving power over information to the individual whose information it is, so they can determine how it is used, and by whom – as well as helping them use it directly for themselves.”
Block by block
This is why Kay chose to use blockchain technology. “Do you need blockchain to do what we’re currently doing? No, you don’t. Indeed, at a small scale, you don’t need anything sophisticated at all. But when you embark on this kind of thing, you have to have a longer-term vision in mind.”
Blockchain is very good at dealing with small transactions, and the point about having an immutable log of transactions, which exists independent of a single controlling entity, is the power it offers the individual user. Imagine, in a world of smart meters, if you could make regular energy payments – not waiting for the energy bill to arrive three months later and having to take out a loan because you’ve misjudged spend (this is where Npower comes in). Imagine if you had £50 saved one week and had the visibility to see that someone else was short and to then lend to them. What if you could monetise your own data?
It’s not helpful to know that Kay and I are sitting in a bar in the City, but what if we could club together with others to show where we all were at a given point in time, and why we were there. Would certain firms and marketers be interested? And what if these capabilities were available to society’s most marginalised?
This is what Kay thinks about every day – and he is no stranger to disruption. He got his “first appetite” for it back in the 1990s. Hired by Morgan Stanley to build a capability that would enable clients (passive fund managers) to create international index products, he turned a $20m initial investment made by the bank into a business that was subsequently sold for around $300m.
“There are some entrepreneurs who are inventors, but most create viable alternatives to existing infrastructures. I think it appeals to my mathsy side: how do you change something in a way that delivers maximum benefit?”
Having transitioned from financial services to running his own companies (Govcoin is the latest), Kay says he’s realised that, while a lot of people think they’ll be good at entrepreneurship, that’s simply not often the case.
“That’s not a criticism, but you have to deal with a level of uncertainty about everything that most people just aren’t used to. Most people can’t deal with uncertainty well. It’s the same with responsibility. If there’s no-one to say that’s good enough, to provide approbation... it’s like being a trader. You have to be prepared to make a call in the morning, and by the afternoon, or the next week, to know that you were wrong.”
Change all round
Next month, Govcoin will roll out its second trial – “it’s like the pharmaceuticals industry: phase one is ‘will people take the medicine?’, two is finding out how much benefit they get, and three is a far bigger roll out. In May, Govcoin started with just eight welfare recipients in the North West, with almost 30 ending up coming on board for the first trial. Next month will see 1,000 plus volunteers using the app for around six months. And “phase three is not necessarily full-scale – but it’s a big roll-out and we’ll be doing that in the fourth quarter of next year.”
Another group that will increasingly benefit from what Govcoin is doing is small businesses. People using the app pay directly through their phone to merchants on the Govcoin network.
“This is also about empowering the small merchant who is in constant competition with bigger players who don’t struggle with merchant acquisition fees. If you try to buy a coffee from your local cafe with a card and it has a £5 minimum spend, you’ll give your custom to Nero. We think enabling direct payments there is a socially interesting thing to do – if only because the current structure is largely responsible for the destruction of the high street.”
A problem for Govcoin is growing its system while maintaining that system’s attractiveness. Because it’s so young, network effects haven’t taken hold, and it doesn’t have hoards of merchants within its system yet. “People are often going outside our walled garden to pay. To enable them to do so, we give them a virtual debit card – and a physical one if they want it. But the challenge is that, if you make it too easy for people to operate outside your environment, you don’t attract people in.”
In a world where “all apps are free”, the firm is looking to monetise through merchants – “we also haven’t looked at advertising opportunities yet, but clearly they exist”. And while financial data is the initial focus, “it is not the only one in the longer term” – Kay is looking at how his technology can “help in other situations where current infrastructure performs less than optimally – though we are not looking at replacement. Most of all, we want to deliver a technology to those who can benefit the most from it.”