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How Blockchain Technology will change the financial sector

blockchain-technology

Blockchain technology has been the guideline of many debates and evaluations about the future of the financial sector. It is clear that it is a concept with the potential to change the logic of the market and create new business opportunities.

Blockchain can be defined as a digital system of nodes that act in parallel and allow self-certification and exchange of information. Technically it is a process of adding cryptographically signed data blocks to form perpetual and immutable records.

blockchain-technology

That is to say, it is a chain system of blocks, used mainly in cryptocurrencies such as the famous Bitcoin or Ethereum, which allows online transactions without the need of an intermediary thanks to “smart contracts” guaranteeing an agreement between two parts. This system based on parallel and simultaneous processing of information is extremely safe.

The data of the transactions after registered cannot be falsified or deleted, and are stored in a history that contains all operations since its creation: a kind of digital account book that records transactions and information in a verifiable and permanent way.

The concept of blockchain arose to support the Bitcoin protocol, but is no longer limited to the monetary sector. The blockchain goes beyond the application to currencies, because it allows registering any type of financial transaction, which can be bonds, shares, transfer of property and any type of right or obligation.

Since the Blockchain technology was created primarily to support virtual currency transactions such as Bitcoin, its use was initially for the financial sector. However, over the years, the new technology has been developed and is now incorporated in most industries.

A 2018 study by Tactrica indicated that the 5 main sectors of the industry for the adoption of blockchain would be: finance, manufacturing, governments, health care and insurance. In 2019, those predictions are happening.

blockchain-transformation

It is expected that the top 10 business use cases for business blockchain will be:

  1. Trade finance
  2. International currency transfer
  3. Syndicated loans
  4. Post trade: compensation and settlement
  5. Automated compliance
  6. M2M IoT asset management
  7. Payments
  8. Crowdfunding + VC
  9. Supply chain management
  10. Patient registration management

For researchers Sander Duivestein and Patrick Savalle, bitcoin and blockchain technology are the third technological democratization of our era.

“The first came thanks to the internet, and enabled the democratization of information. The second democratization began with 3D printing, it is the democratization of manufacturing in which factories became obsolete. They are no longer needed to build a product Now we are about to meet the third democratizing force, the democratization of money and finance, there will be no more monopolies controlling our money or our business. “

That impacts the financial sector, generating new business opportunities. The big challenge of the companies is to adapt to this new scenario, with agility, but with a lot of security that is the key point of the sector.

Some relevant numbers of what the blockchain achieved and will achieve in the upcoming years:

blockchain-benefits

  • The financial sector has spent a total of USD 552M on blockchain in 2018 and the distribution and services sectors invested almost USD 379M.
  • 90% of North American banks and European banks are investing in blockchain to make their services more secure and transparent. According to Accenture, banks could save around USD 8-12 billion annually with this technology.

According to some Wintergreen studies, the global blockchain market was valued at USD 708M in 2017 and is expected to reach USD 60 billion by 2024.

In this image you can have an idea of the ecosystem that is around the blockchain and its main actors:

blockchain-ecosystem

The blockchain technology can and should be seen as a strategic ally and not as a competitor of financial companies. “This technology is not going to make banks disappear, but it will allow them to explore new niches and market areas,” says Antonio García-Lozano, consulting leader of Grant Thornton, in an interview with the newspaper.

The blockchain will remain during 2019 as one of the first ten strategic trends to consider in the industrial and government spheres globally.

A BBVA report from the end of 2019 indicates that the next steps and challenges for the blockchain in 2019 are summarized in 3 words: privacy, scalability and sustainability.

The third wave of Blockchain will have to solve the slowness of transactions, generating the capacity to increase transactions per second, maintaining security, and achieving scalability.

It is necessary on the other hand, the establishment of private channels between the different actors that make use of technology, granting privacy.

Sustainability will be centered on moving from the current financing model, based on ICOs in the past and exhausted years, towards a model in which companies receive a constant flow of money over time for the different services and operations, and thus be more sustainable.

Capital Markets Digitalization: Trends and Transformations

Given the significant changes that have occurred in recent years, financial markets are facing important transformations and new trends are emerging in the world’s financial system. The main cause: capital markets digitalization. It takes different forms around the globe.

More and more in Europe, stock exchanges get together and merge to ensure better cost efficiency and asset distribution. Even though those benefits have a huge impact on the acquisition decision, the main reason of the fusion is to compete with a new trend raised by new technological innovations. The increase of multilateral trading facilities (MTF), as an alternative to the traditional stock exchanges generated an important competition with the existing Stock Exchanges on the financial market.

Nowadays, with some exceptions such as BME and some peripheric markets, all European stock exchanges are concentrated in one of the 4 most important stocks groups: London Stock Exchange (LSE), Euronext, NASDAQ-OMX and Deutsche Börse.

Euronext is a good example of those fusions between stock exchanges, since it’s composed of the main stock exchanges of Europe such as Paris, Amsterdam, Brussels, Dublin and Lisbon, forming together the largest European stock exchange operator. Another important fusion that happened in 2007 is the London Stock Exchange formed by London and Milan’s stock exchanges.

However, this fusion trend started a few years ago, in 1998, when the Stockholm stock exchange was acquired by futures exchange OM and then merged with Helsinki stock exchange to form the OMX in 2003. The Swedish structure bought in 2008 Nordic stock exchanges and is now part of the NASDAQ operating under the name Nasdaq OMX Stockholm AB. Recently, NASDAQ and Euronext are battling to acquire Oslo Børs stock exchange. Even though Euronext’s offer is higher than NASDAQ’s, shareholders are still discussing both options since neither of the two buyers has a significant derivatives market capable to compete with other European stock exchange operators.

However, although those fusions are an increasing trend in the majority of Europe, the German stock exchange Deutsche Börse remains an exception. When the fusion trend emerged, Deutsche Börse preferred to offer their electronic trading platform, Xetra, to other stock exchanges in order to have certain control instead of acquiring them. Even if the group intended a fusion with LSE back in 2017, the European Commission blocked the bid and imposed certain conditions on LSE in order to avoid having a monopoly in Europe created by the fusion of the 2 main European market operators. However, the German group is in charge of the operations of Frankfort Stock Exchange as well as Xetra and Eurex.

Even though fusions are an increasing trend in Europe’s financial markets, the North American markets are going the opposite way. Lots of actors want to revolutionize financial markets, which is why we observe more and more the creation of “low-cost” stock exchanges such as MEMX (member exchange), Small Exchange and MIAX (Miami Equities Exchange). Their common objectives are to avoid the high fees charged by NASDAQ, CBOE Global Markets and NYSE for data feeds, transactions, listing, among other things, to create competition and to simplify the execution of equity trading in the United States.

We will review the different factors for capital markets digitalization. What are the factors that led to those trends in Europe and the United States? What are the effects of the technological upgrade on the debt/bond markets? What are the new technologies leading to new forms of capital markets digitalization?

 

 

Impact of regulation in Europe

Within the last few years, we observed a lot of movement in the area of European Stock Exchanges. They obliged markets and operators to innovate and implement new technologies to cope with the changing regulatory environment. Hence, it has been one of the main factors for capital markets digitalization.

The European directive, MIFID 1, that regulates the provision of investment services and aim to protect the client, had an important objective, which was to increase the competition among financial entities. As a result of the implementation of MIFID I in 2007, we observed an important increase in Europe of Multilateral Trading Facilities (MTF), technological structures with similar trading services as stock exchanges.

The removal of concentration rule allowed other trading platforms to compete with regulated markets. These regulated Markets and MTF were allowed to “bring together multiple third-party buying and selling interests in financial instruments” according to the directive proposed by the European Commission in 2004.

However, the implementation of MIFID I led to some issues that needed to be addressed, mainly regarding the regulation of those new markets. In the second version of MIFID (MIFID II) implemented in 2018, the law had to be stricter in order to ensure investor’s protection.  MIFID II reviewed the policy regarding the best execution, and specified that firms must take “sufficient steps” to ensure a favorable execution of client orders, as opposed to “reasonable steps” in MIFID I. As a consequence, the new policy regarding the best execution has had a noticeable impact on small and medium companies since it limits the access to stock market financing as well as the competition, and reduces the liquidity available for those companies. Therefore, small and medium firms will have to rely on electronic trading through main operators in order to survive. This major consequence leads directly to the capital markets digitalization.

Also, another important change related to MIFID II is that the information provided by the brokers to their client needs to be sold and not given in exchange of the order execution within the broker. Indeed, with MIFID II, asset managers are no longer allowed to attract an order flow by providing investment research, which benefits the investors and increases the capital market digitalization.  

Finally, in MIDIF II, the watchword is transparency. In order to stop the dark trading of shares and other equity instruments, strict rules have been implemented and limit over-the-counter trades. In MIFID II, the establishment of a new trading venue, the OTF (Organized trading facilities), will “replace” OTC trade in order to increase transparency in pre and post-trade.

Reduced costs of technology impulse new markets in the US

As mentioned above, North American markets are developing different strategies than the European ones, in order to create a competitive environment and reduce the monopoly of the main stock exchanges such as NASDAQ, CBOE Global Market and NYSE. Even though most of those trading platforms are not launched yet, shares of NASDAQ have significantly fallen (more than 2.5%) right after MEMX’s launch announcement, which predicts it will have an important impact on the current stock exchanges in the United States.

Furthermore, the emergence of these trading platforms reinforces capital markets digitalization. Since all those trading platforms provide or will provide trading support to investors through online support, the exploitation of the new trading form has a huge impact on the capital market.

The most important “low-cost stock exchange” that uses new technologies to compete with current Stock Exchanges on the US financial market is the MIAX, created by Miami International Holdings Inc. The MIAX offers three fully electronic options trading exchange: MIAX Pearl, MIAX Emerald and MIAX Options. The launch of trading operations took place on March 1st, 2019 and is now regrouping more than “80 % of the overall U.S. options market volume, representing a daily combined average volume of approximately 20 million contracts” according to the Senior Vice President, Head of Sales for MIAX.

Another emerging “low-cost” stock exchange arriving on the market is called Member Exchange (MEMX). The exchange will be composed of 9 banks, brokerages and other firms including Morgan Stanley and Fidelity plan. It has been planned to be launched in early 2019. As announced by the group during the official announcement, “MEMX will seek to offer a simple trading model with basic order types, the latest technology, and a simple, low-cost fee structure”. Furthermore, they commented that “participants in today’s equity markets deserve an innovative alternative that is aligned with their interests, which is why we are pleased to support the launch of this new trading platform”.

Moreover, during 2019 Q3, US financial market is expecting the arrival of Small Exchange between the “low-cost” stock exchanges in emergence. According to the Small Exchange official website, the online platform wants to deliver a wide array of offering focusing on self-directed investor in order to be accessible and simple. The products offered will have standard size and expiration date to facilitate trading and increase the transparency.

Furthermore, Turquoise intended to reproduce the US trends on the other side of the Atlantic. The multilateral trading facility, now owned by one of the European giants in stock exchange, London Stock Exchange, was at first created by European and International banks such as PNB Paribas, Citi Group, Morgan Stanley… It aimed to persuade exchange operators to reduce data fees by trading cross-border shares. However, the MTF did not succeed completely before it’s acquisition by LSE.

Corporate bonds Electronification

Only a few years ago, trading was mainly made over the phone and through emails. Prices were written on paper, information was stored in spreadsheets, and the interaction between parties was direct.

However, a technological trend is currently taking place in the corporate bonds asset class. This part of the capital markets digitalization is taking the name of Electronification in the current financial jargon. It covers the creation of new platforms to enable the exchange of information among actors in private placements and follow up (see article on PREF-X) and  trading solutions. With the emergence of new technologies on the global markets and the drive for cost efficiency, we observe an acceleration of the electronification.

Technologies are present at every stage of the trade lifecycle. During the first stage, collection of “raw” data from global stock exchanges and redirecting them to a broker’s order management system needs to be quick and cost-efficient in order to have the best order possible to propose to the investors. Technologies allow this process to be as efficient as possible and accessible to everyone around the globe.   

Furthermore, technologies are nowadays indispensable to establish the link between real time data or to follow the evolution of the data so that the decisions are based on complete data, reducing risks.

During the execution stage, dealer benefit of the opportunity to trade anonymously, which would be impossible without technologies. Even though some parties tend to benefit more than others, one of the advantages of anonymous trading is the reduction of the executing costs which makes technologies the cornerstone of capital markets digitalization. Another interesting new feature used during the execution stage is the automated intelligence execution, which allows the dealer to set pre-programmed executions rules to automatically execute trades meeting its parameters, which would be impossible without technology.

Finally, during the post-trade level, “electronification” continues. Technologies enable brokers and investors to confirm trades. Technologies perform an important role since they guarantee the efficiency of the operations.

 

 

New technologies such as smart contracts and blockchain

The blockchain technology and smart contracts are both new technologies that are part of the main factors of capital markets digitalization.

First of all, smart contracts have been designed to save time and money by reducing the parties involved in the transactions and decrease the length of the process. Indeed, it provides an automated contractual relation between parties without the presence of a third-party in charge of the legal paperwork. The smart contracts ensure trust between parties and guarantee that both receive the same information since it’s a direct communication. It also decreases the risk of document falsification since everything is made through the platform.

The use of DLT (digital ledger technology) and blockchain ensures a better transparency and decrease hacking risks. As well as the DTL technology, the blockchain consists in a decentralized database (log of records) that is managed by various participants. In the area of financial markets, the blockchain technology its greatly welcomed. However, people tend to be skeptical when it comes to valuable information stored in this new technology so few of them decide to trust it.

For the moment, in the US financial market, NASDAQ seems to be the one of the first to dive into this new world and proves us that capital market digitalization is an expanding phenomenon that is reaching global stock exchanges. NASDAQ partnered with blockchain services such as CitiConnect and Azure to provide end-to-end transactional process and improve it in order to offer secure and efficient services to its clients.

However, on the other side of the globe, Australia is already considered as a leader in distributed ledger technology. The Australian Stock Exchange (ASX) is planning to increment the first blockchain platform for equity settlement globally. Even though some people are skeptical regarding this new platform mainly because of the removal of a central reconciliation authority, others find that using blockchain technology within stock exchange could be a brilliant step in order to increase its efficiency. This innovation will put ASX on the forefront of innovation in the world financial area.  

Slowly but surely, capital markets digitalization is set to take off thanks to technological breakthroughs and is becoming a global phenomenon.

New forms of capital raising: ICOs, STOs, ITOs, etc.

Capital markets digitalization is also led by the crypto assets industry and the rising of Security Token. The Security Token Offering provides financial securities that are, contrarily to the ICO Token, regulated and backed by assets, profits or revenue of the company. In the case of the ICO (Initial coin offerings), they compare to the STO since they basically have the same uses. However, the lack of security and regulation in the area of ICO increases the investors risks at the time of the acquisition and restrain the rise of it.

By using the blockchain technology as well as the smart contract, the security tokens are becoming more and more popular. Even though there are a lot of regulations and limitation restraining the use of security tokens, they have lots of advantages which arouse people’s interest and eventually increase capital markets digitalization.

First of all, security token offering is cost-effective. Since they don’t require any administrative cost for buying or selling the tokens and eliminates third-parties that might be involved in the acquisition process with the smart contracts, security tokens offering is cheaper than traditional methods such as Initial public offering (IPO).

Furthermore, the fact that they can be traded 24/7 and all around the globe makes them more accessible and desirable than traditional models. Their accessibility is also highlighted by the fact that everything, from the acquisition to the trading and the selling, can be made from everywhere in the world as they are eligible for global trading.

Finally, with the high level of liquidity generated by these Security Token Offering, the capital markets digitalization has been boosted. People are more and more interested in the trading of those Security Tokens knowing that it generates important returns on investment.  

Recently, a French start-up called Kriptown designed a new form of investment, the ITO (Initial Token Offering). Based on the IPO, the traditional method mentioned above, the ITO was specially created to create liquidity when investing in a Start-up. Their method is an interesting innovation since it enables fundraising in a simple and fast way with reliability, transparency and ethics.

Innovation does not stop in capital markets digitalization.

Marine Bougeard

PREF-X, the digital platform for private debt placement markets

PREF-X, THE DIGITAL PLATFORM FOR PRIVATE DEBT PLACEMENT MARKETS: TECHNICAL SUPPORT FOR THE ISSUANCE OF A 130 MILLION EURO EURO PRIVATE PLACEMENT

After last month’s announcement of a successful capital increase in record time, the fintech PREF-X announced today that they have been the digital support for the implementation of a two-phased Euro PP issuance for a total of 130 million euros in debt instruments on behalf of GL Events.

The French FinTech has secured the sharing of confidential information and its processing as part of standardized debt origination processes, placed with several investors for the management of information flows in the private placement markets.

 

Arranged by two banks, Crédit Agricole CIB and CM-CIC, the private placement linked PREF-X, the borrower and its advisors, the advice of arrangers and dozens of potential investors.

 

Erick ROSTAGNAT, General Finance and Administration Manager for GL Events said: “GL Events is a regular issuer of Euro PP. Thanks to this issuance, we were able to appreciate the efficiency and ergonomics of PREF-X which made it possible to secure and simplify the exchange of information prior to fund raising. This is a highly welcomed innovation.”

 

Vivien LEVY-GARBOUA, Chairman of PREF-X Supervisory Board states that: “The first origination to which PREF-X has lent its technological support is large and has brought together many stakeholders. It demonstrates that we are an effective, accessible, safe, neutral and value-creating solution for all.

 

Marie-Hélène CRETU, PREF-X Executive Chairman, concluded: “For several months, PREF-X has been consistently providing digitalization of information exchanges between issuers of private placements and investors. The use of PREF-X as a support for the origination process of the GL Events private placement confirms the significant added value that the platform offers to market’s participants. PREF-X is clearly positioned as the infrastructure of choice for this market that expects to grow. We will help it, in France and abroad. This is the mission we are assigning ourselves.”

 

About PREF-X:

PREF-X is a French FinTech created in May 2017 by:

 

CoDiese, SAS, a company that assists financial entities in their adaptation to regulatory constraints and advises them in the operational development of innovative solutions.

 

DIIS GROUP, SAS, a company that supports all issuers of obligations, as well as investors, when new issuances of obligations are configured under the EMTN program, Standalones or in Euro Private Placement format. It acts as collateral agent, bondholder and organizer of bondholders’ meetings.

 

Finexpertis Partners, a Spanish corporate investment company that participates in fintech projects linked with its group. The PREF-X platform was developed by MedySIF, one of Finexpertis’ sister companies.

 

Spread Research, SAS, registered as a financial assessment agency within the European Securities and Markets Authority (ESMA) since July 2013, and as ECAI (External Credit Assessment Institution) with the EBA (European Banking Authority) and the European Insurance and Occupational Pensions Authority (EIOPA).

The 5 main reasons why you should introduce a Market Data Management

The 5 main reasons why you should introduce a market data management

  • Cost savings
  • Market Data cost transparency: who uses what and how.
  • Being compliant in market and vendor audits
  • Updated information on costs by: person, department, area, entity, vendor, product, location, etc.
  • Increased bargaining power with vendors and markets

Market Data Management

In the past, the stock markets did not have competitors – if a financial entity wanted to offer the possibility to buy instruments from Euronext, the only available option was to buy them from Euronext’s traditional market, thanks to their local market membership or through other global brokers that were members of said market.

Back then, the biggest source of income of traditional markets was generated by the transaction costs.

However, this panorama has changed. A few years ago, the MTF (Multilateral Trading Facilities) showed up as a consequence of an initiative launched by the EU that regulated operations outside financial markets. The MTF offers investors and investment companies an alternative to traditional financial markets. They allow to operate in a wider variety of markets than most financial markets, even with assets that do not have an official market.

This has caused a decrease in the transaction income of stock markets. In order to compensate for this, stock markets have been making the most out of the data they have. They are creating new segments and new information packages in order to optimize these data.

Market data comes third when analyzing costs in financial entities, the first and second cost centers being staff and infrastructure.

Therefore, it can be assumed that an improvement in cost management, usually called market data management, can have a positive effect on the entity’s annual cost savings.

So far, in most entities there hasn’t been a proactive market data management. Bills are paid when they coincide more or less with the bill from the previous period, since there is no way to verify whether they are correct or not.

In the rest of Europe and the USA, the position of the Market Data Manager and the Market Data Department are a reality and they are of utmost importance within the entity.

In many countries there are Market Data management professionals that meet periodically to discuss techniques, different ways to optimize market data management, and the trends in this field. They also request vendors that, whenever they want to introduce a new service, they do it to all entities at the same time. All of this helps create market transparency and give prominence and power to entity versus vendors.

In Spain, until recently, this was unimaginable since market data management was limited to what was done when a user wanted a new terminal or wanted to add a new market to the terminal they already had.

An improvement in cost management, usually called market data management, can have a positive effect on the entity’s annual cost savings.

The financial risk of not implementing a market data management

However, this tendency is starting to shift directions, not only because of the increasing interest shown by financial entities in controlling and optimizing costs but also because of the audits that stock markets and data vendors are carrying out in entities.  This tendency of carrying out audits has the aim of studying where and how the data is being used and introducing new user licenses from stock markets and vendors, which increase their revenue.

The objective of all markets is to thoroughly control who is receiving their data and how they are using it.

Up until very recently. The lack of total transparency due to the absence of a real market data management didn’t bring about any consequences since once being audited, agreements were reached. Now it seems that different stock markets are increasingly requiring a more clear vision of their data use – posture backed up by the transparency required by European regulations like MiFID.

The consequences of the lack of transparency brings about million-dollar fines, as entities must prove “their innocence” and if they cannot do so, different markets impose backdated fines that can reach up to 5 years back in time.

The best defense against these audits is having a market data management that could show:

  • The contracted data
  • Who can access the data
  • The profiles of data users
  • What they use the data for

In order to perform a market data management, market data inventory control systems are needed, which allow to organize this information and they give the entity the kind of essential transparency required during audits.

What is more, once these systems are implemented, the entity can reduce the time invested in administrative management and focus instead on value added services, such as: analysis of alternative products for users, better attention to demand, etc.

SMEs can benefit from having what is called a “managed service” or outsourced service.

SMEs can benefit from having what is called a “managed service” or outsourced service.

How to achieve real cost savings thanks to market data management

The most important entities, which are following the procedures of North American and European banks, are opting to create or boost their market data management department.

SMEs can benefit from having what is called a “managed service” or outsourced service, which allows them to have the necessary transparency without the need to invest on additional resources for this management.

Some of the services offered by these managed services are:

  • Contracts management
  • Cost allocation
  • Invoice conciliation
  • Permissioning
  • Reporting
  • Quote planning assistance

The entity can access the information at any given moment and be sure that it is up-to-date and corresponds to what was hired and what is being used.

This situation can be seen as a lifeguard when being audited, and these processes turn out to be much smoother whenever information from 5 years back has to be retrieved.

What is more, once they see there is a control system, such as a cost inventory system, auditors can tell that there is better control in that entity than in others that do now own that kind of service, with the positive consequences this entails.

 

Also, this type of transparency and control allows the entity to have information and not just data. Information they have:

  • Total cost per vendor.
  • Market data cost per user, department, division, office, etc.
  • If there are users that have similar or duplicate services by two different vendors.
  • If there are users that have a much more elevated cost that the average cost of their department.

 

Besides, the entity has information to carry out a proactive market data management:

  • Set notifications to alert contracts cancellation or renewal dates
  • See the reasons why there may be differences between the incoming invoices and what was stipulated in the contract

 

Thanks to all of this, the financial entity gains control over their data management, it can negotiate contracts with better conditions and have control and profitability out of their assets (the market data generated within the entity).

 

Once the entity gets this recurrent control, it will be able to make other types of analysis such as:

  • Demand analysis
  • Alternative product analysis
  • Etc.

How to increase the profitability of your online broker

The online brokers were the first fintech product – even before the word ‘fintech’ acquired the current sense – to cause a disruptive effect on the brokerage service sector during the beginning of the ‘.com’ boom. Traditional brokers suffered an abrupt acceleration in the reduction of their commissions due to the arrival of these new agents, apart from the fact that traditional banks found in this kind of tool a way to prove they were keeping up with the technological revolution without compromising their main activity.

How to increase the profitability of your online broker

With minimum investments in add-on tools, it is possible to complement an already existing online broker and increase client activity significantly, achieving, in this way, the desired profitability for the online broker.

The rise in competition and the apparently easy access to the online broker technology changed the market conditions for brokerage services completely. This new panorama turned online brokers unprofitable for most financial intermediaries and this tendency has lasted for 20 years. Therefore, stock market transactions have almost become a commodity, but they incur high technological costs, and let us not forget that the platforms are quickly becoming old-fashioned. The outcome has been that many banks have conceived of the online broker as a necessary cost or, in the best-case scenario, as an eye-catching product. What is more, given the high technological and compliance costs, the main costs of an online broker are fixed ones while its variable costs are relatively low. With this situation we find ourselves at a crossroads when it comes to getting more profitability out of the online broker.

How to increase the profitability of your online broker

Fortunately, there is a win-win solution for brokers and their clients. Brokers can offer high quality value-added services that allow clients to have a greater understanding of their market activity and to clearly visualise their actual profitability, automate the protection of their invested capital or calculate, at any given time, the estimated capital gains that their investments should bring. The aim of these services that improve the global service for the client/investment is to ultimately boost transactions. Given the cost structure, the best way to achieve profitability is to help clients to intelligently invest in the stock markets, boosting their activity. What is more, these additional services can attract new clients, since what they offer is a component that will make it stand out from the competition.

The aim of these services that improve the global service for the client/investment is to ultimately boost transactions.

With minimum investments in add-on tools, it is possible to complement an already existing online broker and increase client activity significantly, achieving, in this way, the desired profitability for the online broker.

What a Blowuper is?

Surely you have seen a similar image to this in Linkedin, where a businessman is compared to an entrepreneur. Basically what the businessman does is to sell the same product more expensive, thanks to his commercial skills and / or to his Know-how of the product. The entrepreneur, on the other hand, transforms the product providing an added value detectable at first sight in order to sell it much more expensive.

Remaining in the superficial side, the image is shocking and the entrepreneur comes out very well. It doesn’t happen the same to the businessman, who, if we simply guide ourselves through the image, can almost be considered as a scammer.

In both cases, it does not refer to the costs incurred by acting one way or the other. In case of the businessman we do not know whether he has sold the product elsewhere or whether he sold it in a different moment from when he got it or even to whom he sold it. Of the entrepreneur we don’t know either what he needed to transform the product, if he needs other materials to produce it, how long took the production or if he needed any expert or f maybe he needed some extra knowledge.

The other day, having dinner with some friends, we discussed this issue due to the more classic economic activity of one of them and due to my sector. He trust more in traditional businesses and I defend that we live an exceptional time where every day a new business that is going to change the world comes up. The debate went on a long way and among other things, I thought, that there is another kind of entrepreneur who is presented as a model of success and who we should imitate. I baptized him as: Blowuper. It is, in essence, an entrepreneur who creates a “blow up” company, bloat by a lot Marketing and having as unique KPI the growth of the customer database. Customers who do not necessarily have to pay for the product or, at best, pay a price not higher than the cost (as in the picture below).

We live in an atypical age where the excess of liquidity is lowering the rigor in investment criteria. This situation gives wings to the Blowupers, who can bloat their bogged down businesses through this excess. These businesses, without this blockage and due to their business model, where the operating margin is negative (any financiers get their hair stand on end with this term), are doomed to fail.

In June it closed (less in Brazil) the Hispanic portal par excellence (Terra) and, before Google, the web browser par excellence was Altavista. Probably, when the expected correction in the system will be done, we will say phrases like: do you remember when they brought everything home? Or when a premium services car cheaper than a taxi was waiting for you? Do you remember the Snapchat? What happened to it all? Anything, the tide just went down. And it will be then when we would realize who was an Entrepreneur and who a Blowuper.

Signed by Guillem Comí

Consulting Companies: needs and opportunities

Consulting firms are increasingly seeking tools to manage corporate information for their clients, as they often do it in a non-optimal manner and often manually. Not only does this create increased costs and lost time, but it also limits communication and organization within a company. This leads to very few opportunities to innovate in the services offered and brings difficulties in facilitating the transparency of clients with stakeholders in a safe and controlled manner.

In this light, Private Investments Network presents a solution:

The Private Investments Network platform facilitates the use of a tool for managing the corporate information of clients and adds value to corporate clients by allowing consulting firms to:

  • Consolidate relationships with corporate customers as, using the platform, they gain control over a position in between the communication amongst the company and its shareholders and investors
  • Save time and costs when acting as the manager of information for different client profiles, such as startups, Private Equity firms, and family businesses
  • Differentiate themselves from the competition with a low cost tool, helping one to significantly increase revenue
  • Integrate the look and feel of the platform with that of the website of the consulting company
  • Benefit from an ERP at no cost
  • Encounter the opportunity to monetize off of additional services
  • Be perceived as innovative by offering existing and potential clients a digital solution managing the relation with their shareholders and investors, complementing the traditional services an accountant or auditor provides

If you want to know more, access our web: www.privateinvestmentsnetwork.com.

Are you in charge of managing corporate information in a Consultancy Firm? Tell us your experience by leaving a comment here.

 

 

The best crowdfunding platforms in Europe

This article will list and discuss the best Crowdfunding platforms in Europe. Perhaps the most famous case of Crowdfunding and Crowdsourcing to date is Barack Obama’s $750 million presidential campaign, completely raised through small donors in 2008. Following a recent boom in Crowdfunding platforms available online, a few platforms have now risen to the forefront of the industry, evolving the types and ways in which we can experience Crowdfunding; whilst other platforms failed to exist in light of heightened competition. Europe now being a regional hub for growing start-ups, this article will discuss the best Crowdfunding platforms available within Europe. These are naturally considered through the objective lenses of activity, total money raised, and the percentage of successful initiatives that these platforms have produced.

Access to traditional credit has been lacking, and thus Crowdfunding represents a new hope towards financing start-ups and innovative projects, by allowing one to fund projects and companies through smaller donations from the wider public.

Being the “lifeline” of SMEs and entrepreneurs of Europe, Crowdfunding platforms stand as the way to gain credit for ideas and projects by encouraging the participation and interaction of various actors in the professional and business environment. When the World Bank announced that Crowdfunding would value up to $90 billion between 2020 and 2025, and Forbes announced that Crowdfunding would value $90 billion by 2017, surpassing the trend of Venture Capital all together; the world (investors, start-ups, and regulators alike) realized it was time to join the trend.

The types of interaction one can experience between participants in these platforms vary immensely, allowing start-ups and investors to find which solutions fit their needs and desires the best: reward based Crowdfunding, credit based Crowdfunding, Crowdfunding through capital and Crowdfunding through donations.

These are often classed between two more common classifications: Financial Crowdfunding (focused on equity based Crowdfunding and Crowdlending) and Non-Financial Crowdfunding (focused on Crowdfunding through rewards and donations, also known as Crowdgiving).

Aside from our article on insights into the best Crowdfunding platforms available in Spain and in the United Kingdom, this list (organized in alphabetical order) will help understand the advantages and options available of the best platforms in Europe, particularly in light of the plethora of supplementary services and features platforms now offer to maintain a competitive edge.

Equity Based Crowdfunding

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Anaxago: Based in France, this platform holds a large membership community of over 67,000 individuals and promotes entrepreneurship, collective intelligence and transparency. Interestingly, this firm only allows companies to raise funds for 95 days at a time, allowing investors to be in the know about the investment far earlier. Having fully financed 82 firms thus far, Anaxago specializes in finding the funds for high-growth potential businesses. Authorized by the Financial Markets Authority (AMF), Anaxago has already successfully facilitated nearly €47 million worth of investments through their platform.

Bergfürst: Having facilitated over €6.67 million into 9 projects through the website, this German platform allows investors to invest into real estate offerings through fixed interest rates. This allows investors to feel increased security and predictability in their investments, while allowing individuals to bridge the gap between bank (and other) loans and the real estate project through mezzanine capital. Already approved to operate as a bank, Bergfürst has already performed its first IPOs and carries a community of an impressive over 13,500 registered investors.

Companisto: Having invested over €32 million, this German equity based Crowdfunding platform has managed to become a leader within the market, controlling up to 20% of domestic market share. Having successfully funded 64 companies thus far, Companisto differentiates itself by offering various forms of payment, ranging from payments directly through one´s credit card to instant money transfers to bank transfers, allowing investors to be located anywhere in the world.

CONDA: As both an equity based Crowdinvesting platform and a Crowdlending site, this Austrian platform aims to promote local investments alongside regional partners offering expertise. Having successfully funded 58 projects already, through facilitating up to €13.07 millions of investments, CONDA holds a large community of over 6,600 investors. Recognizing not only the financial benefits of investing into start-ups, CONDA promotes direct communication between entrepreneurs and investors, allowing investors to not only feel part of the team, but also contribute to a larger extent.

EOS Venture: This French equity based Crowdfunding operator aims to aid SMEs to develop to help progress the economy. As a FinTech company, EOS Venture has a French Investment Service Provider (PSI) status from the ACPR (French Prudential Supervision and Resolution Authority) of the Bank of France, illustrating their knowledge of financial operations and investment. EOS Venture has special agreements with European banks which allows them to go beyond the €1 million threshold that French regulators place upon them, allowing EOS Venture to have successfully facilitate €6 million worth of investments thus far, with the goal to reach €20 million in 2016.

EquityStartup: This very new Italian equity based Crowdfunding platform offers companies consulting services from legal advice to business plans, and beyond. Furthermore, EquityStartup informs investors of opportunities such as tax benefits that they are eligible for through their investments – they are sure to provide the know-how that many of us may lack.

Happy Capital: This French platform is more than a website to buy shares through – Happy Capital provides one the resources to validate their potential market and offers expert advisory services after the fundraising is complete to make sure the projects truly grow to have a positive impact on the French economy. Their requirement of companies to be registered with the French Trade Registry prior to the fundraising creates an increased sense of security for investors as well, making it unsurprising that Happy Capital has, since 2013, successfully facilitated €4 million worth of investments into successfully funding 20 projects.

Invesdor: This equity and debt based platform from Finland has already €16.32 million invested within its registered start-ups. Having successfully funded 62 projects to date, its success rate stands at 43%. Invesdor´s competitive edge however is seen in its supplementary services, from offering legal advice, to auditing services, to branding development, and much more, highlighting their long-term commitment to helping the companies registered in Invesdor to grow and making it the largest cross-border Nordic equity crowdfunding platform.

Mynbest: As a Spanish equity based Crowdfunding website, Mynbest maintains its competitive edge by providing an auxiliary service in addition to linking investors and companies: Mynbest provides investors with reports so as to remain engaged with their investments and be fully equipped with the information necessary for full security of their investment, which explains why their very first fully invested project reached a value of nearly €100,000.

OpenCircleProject: This platform is developed and managed by Parnasse S.A, a financial and economic advisor accredited by the EN.A alternative market of the Athens Stock Exchange. Focused on funding projects, this Greek equity based Crowdfunding platform provides the tools to value one’s company if they lack the current know-how. Although very new to the industry, OpenCircle Project has already facilitated €300,000 worth of investments into two companies, and are launching a line of larger investments in September this year.

Seedmatch: With almost €29 million successfully invested into start-ups, of which 93 projects had been funded, it remains unsurprising that Seedmatch maintained a 95% success rate. This German company focuses on the potential that young start-ups have to develop the local and global economic environments. With nearly 49,000 members within its network, Seedmatch holds 61% of the German market share alone.

Wiseed: With up to €56 million invested within the company, this French Crowdfunding platform has been able to successfully fund 134 projects thus far by a member base of 72,600. However alternative to the traditional start-ups that one would be funding through other platforms, Wiseed has specialized into real estate, that is, Wiseed allows one to invest into a start-up, a real estate property, or to gain funds through cooperatives. Authorized by the Financial Markets Authority (AMF), Wiseed largely focuses on highly professional projects.

Crowdlending

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FundedByMe: Offering both equity and debt based solutions, FundedByMe is an especially known platform within the arena of Crowdfunding. With over €24 million successfully invested into 453 start-ups, the Swedish company is home to a 69,200 member community from 178 countries and runs a 50% success rate. FundedByMe especially promotes its focus on cross-border investments, allowing collaboration from all over the world to occur.

MyMicroInvest: Based in Belgium, this company has managed to successfully fund 40 projects and carries over 34,000 members within its community. Furthermore, up to €23 million have been successfully invested through this Crowdlending platform towards 64 projects. To attract more investors, MyMicroInvest offers a unique transaction model where all investments made are bundled together and invested into the given company as one single entity. Not only does this bring more security to the investors, knowing that their money is not allocated if the start-up´s target is not reached, but also shows the platform´s commitment to backing all investments that it represents.

SmartAngels: This debt based Crowdfunding platform (although also offering equity based Crowdfunding services) was founded in France in 2012 with the aim to help investments flow into the growth of start-ups and SMEs. Having a large community of over 25,000 investors, SmartAngels has successfully financed 50 companies with a total amount of €25 million collected. Alternative to traditional Crowdlending services however, SmartAngels allows retail and professional investors to provide financing both through shares and bonds.

Symbid: Although based in the Netherlands, this platform has been strategically spreading throughout Europe. This Crowdfunding platform continues to differentiate itself by bundling a start-up´s financers into one shareholder cooperative, allowing start-ups to communicate more efficiently with only one entity. Whilst Symbid has successfully facilitated a Crowdfunding volume of €13.2 million into 128 campaigns alone, Symbid has also facilitated alternative funding options to SMEs through The Funding Network valuing over €500 million in 2015 and over €900 million in aggregate funding.

Non-Financial Crowdfunding

Derev: As a reward based Crowdfunding platform, almost 42,000 members actively participate within its platform within which €3 million have been successfully invested. This Italian platform has impressed many from the early stages, having raised over €500,000 within the initial two months of the Crowdfunding platform´s launch in 2013. Furthermore, Derev recorded the highest value of funding for an individual start-up in Italy, reaching over €1.46 million.

Kisskissbankbank: Based in France, this non-financial Crowdfunding platform has successfully facilitated investments totaling almost €55.4 million. In this regard, Kisskissbankbank holds a success rate of 58% of nearly 22,500 funded projects on its platform. Dedicated to fostering start-ups focused on creativity, solidarity and innovation, this platform aims to support companies that go beyond mainstream trends.

Ulule: With over a million members based in 190 countries, this French platform accommodates to international investors. Having successfully invested over €60.7 million into nearly 14,600 projects, it maintains a 68% success rate. However Ulule differentiates itself by offering two different fundraising types: a project manager or start-up may decide to set a fiscal budget target, or they may instead choose to target a specific number of items to pre-sell. Ulule offers even more flexibility by allowing start-ups to raise funds both through donations and through a reward based collaboration.

Wemakeit: Having successfully invested 16.4 million euros already into funding 1,945 projects, this Swiss Crowdfunding platform has held a high success rate of 65%. In order to allow the companies enlisted in their platform to prosper, Wemakeit also offers consulting services throughout the process, thus reaching the monetary target is not the only focus of the platform, but instead a means to reach a more substantial goal.

The several types of platforms allow investors and start-ups (and individuals) to find which strategy works best for them. From equity based Crowdfunding, to Crowdlending, to donations and rewards (granting the non-financial Crowdfunding option); alternative financing and Crowdsourcing strategies continue to develop.

Interestingly, the rise of bonds within Crowdfunding, instead of traditional loans has caught the eye of many. Financial laws and regulations within France have readjusted to this wave, making privately bought bonds (and many more forms of Crowdfunding) more secure and regulated – unlike much of Europe. Within this cross-link between the public and the private markets, one sees that the main difference between a bond in the private market, as supposed to a publicly traded market, is that an investor may not necessarily have the opportunity to gain their money back before the bond matures in several years’ time (as there is no public market to trade these bonds in). Potentially high-risk, these bonds however carry a high interest rate and therefore provide the opportunity for higher returns. One begins to see that choosing a financing scheme may be dependent simply on the convenience of giving and receiving returns; or on the preferences of other actors involved; or on local financial regulations, as well as many more factors. In this light, one should dedicate themselves to finding the optimal balance between each advantage for themselves.

As an investor, one may choose to become involved in a platform where more collaboration and consulting can occur, allowing the financing scheme to feel more inclusive. However for those that are hoping for short-term investments, platforms with short funding rounds allow investors to dip their toes into the world of Crowdfunding a little first. Similarly, a start-up or any individual looking for financing may prefer platforms that either offer supplementary services (to make sure you reach the finish line) or platforms that offer flexible types of financing to accommodate to different funding targets and objectives. Whilst Crowdfunding is not a new innovation, the opportunities these Crowdfunding platforms have brought mark a highly promising new era of collaborative financing.

Having discussed and highlighted the best Crowdfunding platforms available in Europe, one thing remains clear: choosing the best platform for you is really the only obstacle.

Signed by Sara Jokinen

Crowdfunding platforms in the UK

We would like to introduce you to the most interesting, as well as successful, crowdfunding platforms in the UK. We will look together at what distinguishes the following platforms and we will analyse them objectively, according to their activity numbers, total money raised over their existence and successfully completed campaigns and projects on the platform.

The UK currently presents the widest range of alternative funding options at a European level for SMEs and the entrepreneurs who are increasingly turning away from traditional financing institutions, as The European Alternative Finance Benchmarking Report casts light on some interesting numbers and the outstanding average annual growth rates we will see later in the article. The Cambridge Centre for Alternative Finance and EY have teamed up to produce this report that highlights the novelty of the alternative finance sector in terms of innovation at both business models and technological platforms level.

Let’s have a more in-depth look at one of the most noteworthy “branches” of alternative finance, the Crowdfunding platforms. The crowdfunding platforms are based on the different types of interaction amongst participants: Equity Crowdfunding, Debt Crowdfunding, Reward-based crowdfunding, Donation Crowdfunding.

Alternatively, we can look at crowdfunding platforms from two perspectives: Financial Crowdfunding -investors are financially recompensed for contributing to the project- (in this category we would then have Equity and Debt Crowdfunding) and Non-financial Crowdfunding –investors would receive either the product, for example, or they could contribute to donating for a project, in which case they would not be expecting any physical or financial reward- (here we are talking about the Reward-based crowdfunding and the Donation Crowdfunding).

The following list offers you a glimpse into the particularities of each of the platforms we analysed, respond to the questions of what they do and how they work, but also pool some hard data on their performance thus far.

Following we are looking at:

  1. Equity Crowdfunding platforms
  2. Debt Crowdfunding platforms
  3. Non-financial Crowdfunding platforms

Within these three categories, we are presenting the most noticeable crowdfunding platforms in the UK, sorted in alphabetical order.

  1. Equity Crowdfunding – in this case, the investors purchase registered securities from mostly early-stage firms.

The Data for the UK: 111m (transactions in 2014 showed a spectacular 420% average growth compared to 37m in 2013), according to Wardrop et al. (2015).

Crowd2fund is the only FCA regulated platform to offer solutions across 5 models of finance: Donations, Loan, Revenue, Bonds, Equity. Crowd2fund relies on an alternative to traditional finance that offers a fast, fair and flexible solution. One of the latest projects on their platform raised £503,000 offering equity stakes to investors in Rezonence: BBC Worldwide Incubated Advertising Technology.

CrowdCube is definitely one of the most noteworthy equity (and debt) platforms in the UK, especially given that its user-base comprises a very wide range of investors (from professional investors and VCs to individual investors) backing up both early, as well as growth stage businesses. CrowdCube operates internationally and has some impressive global numbers, but they also provide us with an insight into their UK performance: £1,889,580 (average equity investment), 55% success rate in the last year (290 projects funded by selling £101,376,177 worth of equity stakes). What we found most interesting here is that the most popular sectors are Technology, Food & Drink and Consumer Products, which clearly indicates the appetite of individual investors for investing in businesses they believe in from a consumer point of view. One remarkable success story is The Pressery reaching their £150,000 target in less than two hours. Since 2011, more than 285,000 people have registered with Crowdcube, helping to raise over £165 million in 407 raises for businesses.

Growth Deck – This equity crowdfunding platform stands out in terms of customer service offered to investors and two strong teams for sound investment review, as well as sector review, catering to the best needs of their investor user-base, as well as businesses user-base. Growth Deck focuses on mediating funding for growing UK companies with a promise of Transparency, Trust, Expertise and Support. The platform currently counts on 3,751 investors.

Seedrs – Despite its name, Seedrs specializes in equity crowdfunding for companies throughout their lifecycle based in the UK, but it is also open to investors and businesses in Europe. On Seedrs, investments start at as little as £10, but the platform has seen 320 deals being completed since launch and is one of the leading of its kind in the UK. It is the UK equity platform with most users and has raised £150 million in total investments to date from 38,000 investors. The platform is highly comprehensive, with a wide range of articles and case studies, trying to provide the best help and information for their high number of individual investors.

Syndicate Room – Our favourite aspect of the Syndicate Room equity crowdfunding platform is the “investor-led model”, which means individual investors can only invest in projects that already have an angel investor or an early-stage investor on board. Thanks to this approach, we see once again the pursuit of crowdfunding platforms of providing fair investment opportunities to individual investors and reducing the inequality of information and subsequent inequality in terms of opportunities that tend to separate professional investors and individual investors in the case of traditional financing. The equity crowdfunding platform has raised £55,394,577, funding 86 projects successfully.

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  1. Debt Crowdfunding platforms – This kind of platform implies debt-based transactions between an individual or an institutional investor and existing businesses (mostly SMEs). This kind of crowdfunding platform is seeking to provide a fair alternative for investors and businesses alike to obtain returns and financing at better rates and terms than traditional financing methods. The main difference we would like to point out thus far between equity crowdfunding and debt crowdfunding is that, while equity crowdfunding often features seed-stage or very early stage startups, debt crowdfunding usually provides financing to growing businesses, who have a record of their past operations and development processes and can provide investors with a sound proof that guarantees the business will be able to generate future returns and ultimately pay back the debt financing obtained.

The Data for the UK: €998m (2014) 253% average growth rate (2014 compared to 2013), according to Wardrop et al. (2015).

Funding Circle – The platform focuses on providing an alternative financing method exclusively for small businesses. Although its main activity is in the UK market, the platform provides loans to small businesses in the USA, Germany, Spain and the Netherlands too. The platform discloses numbers such as 55,000 investors in the UK who have lent to businesses, £2 billion across these five markets and an estimated 7.1% yearly return. The average loan amount on Funding Circle is £60,000.

Funding Knight –This British-based crowdlending platform offers three choices for entrepreneurs looking for a loan: a business loan, a property bridging loan and a green energy loan. The platform connects investors and businesses at a rate that works for both. Run by a dedicated team, the online crowdlending platform offers a wide range of articles and information on alternative finance and we think their efforts to educate the audience is benefiting both sides. FundingKnight has financed 224 projects, for a total of £30,712,000.

Rebuilding Society – With numbers such as £9.7 million in loans and more than 150 projects finances, Rebuilding Society focuses on the idea of community and strives to “rebuild society” by cutting out waste and employing money in an efficient way that benefits the society and its actors, rather than the intermediary institution as it is often the case in traditional financing methods.

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  1. Non-financial Crowdfunding platforms

The Data for the UK: €34m (176% average growth rate (2014 compared to 2013)), according to Wardrop et al. (2015).

BloomVC Bloom VC is a reward-based crowdfunding platform that caters for any kind of early stage start-up business, community, arts or culture that needs a small amount of cash to get going. The average “promise” of a member is £46 and through the power of getting together like-minded people, BloomVC has seen 43% of the published projects being funded, out of which 85% have exceeded their targets.

BuzzBnk Launched in 2011 as the first crowdfunding platform specifically for social enterprises and charities, BuzzBnk has successfully funded 139 projects with a total of £1,051,229. The crowdfunding platform informs us their projects seek to raise amounts varying from £1,000 to £30,000 in units of £10 to £200. BuzzBnk prides itself on welcoming social enterprise and charity projects indifferent of their size. The crowdfunding platform has had projects as small as £600 and as large as £100,000.

Crowdfunderis the rewards and community shares sibling platform of equity crowdfunding platform, CrowdCube. Crowdfunder defines itself as UK’s fastest growing crowdfunding platform and their numbers verify the statement: 500,000 members of the Crowdfunder community have contributed to turning 40,000 projects into reality and a total of £25 million raised so far. What we have found most interesting is that the Category with the largest number of projects is the Community one (£1,792,751 funds raised so far in this category), which indicates again a strong tendency for like-minded people to gather and initiate, as well as support, projects aimed at improving their lives within the society. The next category in popularity is Business projects, followed by Charities, Sports, Food & Drink and Film & Theatre.

Having seen the types of alternative finance an entrepreneur can rely on at the time of using a crowdfunding platform, we are confident our readers have gained a better grasp of crowdfunding platforms and initiatives and can now align their entrepreneurial interests with searching the right type of funding from like-minded individuals who will be able to support and create a real community around one´s ideas.

We would say crowdfunding platforms (be it equity, debt or non-financial rewards) are as much about the raise of funds as they are about raising awareness and receiving support (not restricted to financial support), issues of great interest to the innovative minds of entrepreneurs and community leaders.

Signed by Vicky Corneanu