Calcey organized the very first Colombo React Native Meetup last week. Premuditha Perera, one of Calcey’s Software Architects, conducted the session (refer his presentation here). As this was the first session the focus was to cover the core principals of React. The goal was to lay the foundation for future sessions, where the focus will be on hands-on coding and feature implementation. For this reason, the first session covered the principals of React. Future sessions will provide deep dives into both React and React Native, enabling our community to develop both web and mobile using React-based technologies.
We had an excellent turnout at the meetup, with a full house of over 250 participants. Experienced developers working in the industry and many university students were among the audience. We hope to see the same level of enthusiasm and attendance at our next meetup!
If you haven’t done so already join our meetup.com community to ensure that you are notified of our next meetup.
Open Banking For Dummies
February 11, 2020
Everything you need to know about the newest buzzword everyone in the banking industry is talking about.
Banks by nature, are extremely protective of the information they hold within their ageing filing cabinets, for obvious reasons. Money is a touchy subject, and people prefer to keep details about their finances private. However, with the rise of the data economy, everyone from banks to central banks are realising that given how practically every bank has the exact same business model, there is a huge duplication of data which unwittingly takes place. If banks simply commenced sharing such data with each other, wouldn’t that make banking services much less cumbersome? With easier banking, wouldn’t life be much better?
What Is Open Banking?
In layman’s terms, open banking is all about enabling the sharing of information securely, in a standardised format, so that it makes it easier for companies to deliver services more efficiently. Under current banking practices, customers or merchants maintain separate relationships with different financial institutions in order to achieve their financial goals. This is often done by employing the practice of screen scraping, where a third party company creates a mirrored login page, which looks and feels similar to a bank’s or credit card issuer’s online login page. The customer enters their login details, passwords and additional security details such as their pet’s name, which the third party can use to log in as the customer. Once logged into the account as the customer, screen scraping tools copy available data to an external database and can be used outside of the financial institution. This is obviously dangerous, and renders the system extremely vulnerable to man-in-the-middle attacks. Instead, Open banking introduces a more consolidated experience to the customer by allowing banks to expose their functionality via APIs, but subject to the customer’s explicit consent and in compliance with strict information security requirements imposed by the Financial Conduct Authority of the UK.
The concept of Open Banking has its roots in the United Kingdom. In 2016, the Competition and Markets Authority ordered the nine biggest UK banks to allow licensed startups direct access to their data, right down to the level of current account transactions. Again, account holders must approve any exchange.
When talking about Open Banking, you will often hear ‘PSD2’ being referred to. PSD2 is the European version of Open Banking, and refers to the second Payments Services Directive which modernises European payment regulations, thereby enabling consumers and small businesses to have greater control over their data. There is just one small difference between Open Banking and PSD2. Whilst PSD2 requires banks to open up their data to third parties, Open Banking dictates that they do so in a standard format.
How Will Open Banking benefit customers?
The various ways in which open banking will be used to create new services is anyone’s guess, but there are three distinct areas in which Open Banking is starting to make waves.
At the moment, customers who maintain accounts with two different banks, have no choice but to look at them separately, because the banks’ systems are resolutely incompatible. Open Banking will allow customers to manage their money from within a single app, which should make things much easier.
Banks and startups are already sensing an opportunity in this space. Dutch bank ING has an app called Yolt, while third party app Money Dashboard provides a similar service in the UK.
When a customer takes out a loan, they are sometimes required to provide details of their finances to ensure that they are ‘credit-worthy’. Open Banking will allow customers to provide such information online – for instance, by giving an investor one-off access to 12 months income and spending history.
There are services which already do this, but in order to use them, it becomes necessary to hand over your login details – which is not as secure or seamless. It will also be more accurate, which should help people with what are known as “thin files”. (For instance, if the customer hasn’t worked or been in the country long.)
The current banking payment infrastructure used around the globe is very much a multi-layered one. For instance, when a purchase is made on Amazon, the retailer contacts an “acquirer”’, such as WorldPay or Global Payments, which gets in touch with Visa or MasterCard to deduct the payment from the customer’s account. Cue much fumbling around with cards and passwords.
By opening up banks’ data, Open Banking makes it possible to pay directly from a bank account – which should be both quicker and (since the various middlemen each charge for their service) cheaper. The bank authenticates the purchase without involving other organisations.
Is it safe?
From a technical point of view, Open Banking is at least as safe as online banking. APIs – the technology used to move the data – are trusted and the law requires account providers to use strong customer authentication, a procedure which allows the payment service provider to verify the identity of both the user and the service.
The key thing to remember is that anyone using an Open Banking service will not need to share their banking login or password with anyone but the bank. This is actually an improvement on existing services, which sometimes require this as a workaround for existing incompatibility.
All in all, Open Banking has the potential to upend the way we bank, disrupting the sector in the same way as media or retail. It could, for instance, enable digital-only banks that manage money automatically via intelligent software. Banking-as-a-Service (BaaS) too, will go mainstream, bringing to life a whole ecosystem of services running on top of an Open Banking layer. Personal finance, now an arcane subject, will become transparent and easy for everyone. Whether this is a dystopian or utopian future depends on one’s perspective – either way, it just appears to be more likely now.
What Is Spooking Casper?
February 6, 2020
Casper, the Direct-to-Consumer (DTC) mattress company which bills itself as ‘The Sleep Company’, has filed to go public. Founded in 2014, Casper sells mattresses of a relatively good quality online. Thanks to savvy marketing and a 100-day risk free return policy, Casper thrived in its market, going on to become the most well known DTC mattress company in the US. At first glance, this is good. And it is on the back of this success that Casper is trying to raise funds from the public markets.
So What’s The Problem?
While things may look rosy on the surface, underneath Casper’s hood is a can of worms. This has prompted a slew of commentators, including Forbes magazine, to publish scathing criticisms of Casper’s business model. What are these criticisms, and most importantly, what can other startups learn from Casper’s mistakes? These are the questions we will try to find answers to in this blog post.
Casper has a poor competitive advantage
One of the most often repeated truths in business circles is that a business needs a competitive advantage. In simple terms, a competitive advantage is what allows a firm to perform at a higher level compared to its competitors in the same industry or market. That is why maintaining a competitive advantage becomes important if a firm intends to become profitable and reward its investors.
But for a firm operating in the DTC sector, it becomes very hard to own a competitive advantage. Your competitors can copy your marketing advantage, your physical product distribution is mostly outsourced, and for existing categories like mattresses, price comparison is easy.
Casper’s initial success spawned hundreds of competitors (literally), who swiftly started copying Casper without much trouble. Fast Company estimates that there are nearly 178 bed-in-a-box companies, who have followed Casper’s path.
“The products that you’re buying — there are many similarities and only some minor differences,” said Seth Basham, an analyst at Wedbush Securities who covers the mattress industry. Profit is hard to come by because the ease of forming an online mattress company makes the market competitive, according to Basham. “Barriers to entry are low, but barriers to profitability are high,” he said. “It doesn’t take that much to design a mattress, a marketing campaign, put up a website, and have one of these big companies like Carpenter do the fulfillment for you,” he said, referring to one of the key mattress manufacturing companies.
Casper has bad unit economics
If someone were to pore through Casper’s S-1 which was filed with the SEC, there is one thing that becomes absolutely clear–Casper has dominated marketing. It has spent a significant amount of capital on promotions such as ‘napmobiles’, a cruise around Manhattan, and a hotline that helped people fall asleep.
All this spending would be okay…if it made sense.
Prof. Scott Galloway of NYU writes about how for every mattress Casper sells, it spends USD 480 on marketing, going on to make a loss of USD 349 per mattress, according to his calculations. And if Casper chooses to grow bigger (which it will have to, in order to satisfy investors), it will have to continue to lose money on every mattress. Basically, Casper’s unit economics don’t look great. Worse yet, it’s hard to imagine they will get better.
Selling a durable product tied to housing makes you vulnerable to the economic cycle, and the long replacement cycle of mattresses makes it hard to build brand loyalty. Since mattress replacement cycles stretch into years, Casper has to bombard each customer with marketing for 5 or 10 years till the customer decides to buy a new mattress. This is expensive, and it is not sensible to assume that one can just blast consumers with marketing emails and hope they click “buy” before they click “unsubscribe.”
This is not just a hypothesis. Casper mentions this in its S-1, but a sharp eye is needed to decode this hidden message. Something which Byrne Smith of MAKER clearly has.
From Casper’s S-1: “From Casper’s beginning through September 30, 2019, we have seen more than 16% of customers who have purchased at least once through our direct-to-consumer channel return to purchase another product. Importantly, 14% of our customers returned within a year of their original purchase.”
Byrne opines that a 16% repurchase rate and a 14% first-year repurchase rate imply that only about 2% of customers buy something new after a year. What this means is that since mattresses have about a 10-year replacement cycle, Casper loses the vast majority of its ongoing customer relationships before the next mattress purchase.
Economics, one. Casper, zero.
Growth Hacks can become poison too (if you are not careful)
When it launched, Casper’s claim to fame was that it offered a 100-day risk-free return option. But returning mattresses is not like returning shoes and dresses. Casper provides information about its return rates in its S-1, but the trend is far from inspiring. Returns were 15.4% of gross sales in 2017, 18.4% in 2018, and 20.4% in the first three quarters of 2019. When you’re shipping a 90-pound package to the customer, and they’re shipping it back, the costs add up quickly.
Also, under U.S. law, companies aren’t allowed to sell used mattresses as new. But Casper donates these mattresses to charities instead of shipping them halfway across the country to be refurbished. Again, this might look like a smart business decision at the outset. But think about this. Casper’s free return policy has been replicated by everyone. If all 178 bed-in-a-box companies resort to donating mattresses, the capacity to absorb donated mattresses is going to dry up pretty quickly. While a donation may get you a small tax benefit under the U.S. tax code, the costs associated with manufacturing it will still continue to eat into profits. And therein lies the fault in Casper’s key growth hack– the very thing which got Casper noticed, has now become a ticking financial time bomb.
To reiterate, Casper is not a bad company. It’s just a good company stuck in a bad business, as a result of which it’s entire business model is standing on shaky ground. While it remains to be seen how Casper will claw itself out of this predicament, startup founders everywhere will do well to learn from Casper’s missteps.