Uphold, Inc. – Disrupting Global Banking

COMPANY PROFILE

Uphold, Inc. is a leader in the rapidly emerging FinTech sector. Uphold’s online platform has a global reach, allowing verified members speed and flexibility in managing their money. Funds can be deposited using standard bank transfers, credit cards, and even bitcoin. Uphold account holders, which include individuals and businesses, can instantly send and receive funds amongst each other, and convert between twenty-three major currencies, four precious metals, and two cryptocurrencies. New commodities and currencies are being added regularly to expand the choices available to Uphold’s members.

 

VALUATION

In January 2015, Uphold closed a Series B round, raising $9.6 million via crowdfunding from institutional and individual investors located in the US and UK. Equity was sold on the Venovate crowdfunding site to US accredited investors and offered on Crowdcube to UK investors. Cumulative funding to date for Uphold is $20 million. Revenues for 2016 are projected to be $15.3 million. Uphold currently has offices in San Francisco, London, Shanghai, and Braga, Portugal.

 

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INDUSTRY COMPARISON

The table above is a comparison of Uphold with other prominent FinTech startups that compete in the same space [1]. Clearly, in terms of capital efficiency ratio, Uphold is the leader, implying a conservative current valuation compared to the competition, and therefore a highly attractive investment for future funding rounds.

 

THE COMPETITION

TransferWise

FinTech is bringing transparency to banking. The public will come to expect full disclosure, and fees will no longer be opaque. TransferWise focuses exclusively on foreign exchange, eliminating hidden bank fees by using the mid-market rate, and charging a clearly disclosed 0.5% exchange fee. Uphold also uses the mid-market rate but charges no fees for members to convert between currencies. In addition, Uphold has a wider selection of fiat currencies, and offers precious metals and cryptocurrencies as options in contrast to TransferWise. Uphold transacted over $700 million in value its first year, compared to only $20 million for TransferWise.

Coinbase

Coinbase provides digital wallets and merchant services that facilitate bitcoin payments in 32 countries. Coinbase makes money by charging 1% to exchange between currency and bitcoin. In contrast, Uphold’s conversion between bitcoin and fiat currency are free to members. The other downside of Coinbase is the emphasis on bitcoin per se. Uphold accommodates the use of bitcoin but is not staking its entire business on the broader acceptance and recognition of bitcoin. Instead, Uphold promotes the concept of cloud money that is easy to transfer and convert between recognizable forms of digital value.

BitPay

Like Coinbase, BitPay is focused on payments and serves merchants worldwide by allowing them to seamlessly accept bitcoin payments. Over 60,000 merchants on six continents are BitPay customers, while Coinbase serves closer to 40,000 merchants. The emphasis on bitcoin may limit market growth for both Coinbase and BitPay in the near future. Uphold, in contrast, de-emphasizes bitcoin in its marketing message, realizing that the concept of cloud money in local currency is more palatable to most people.

Circle

Currently, Circle allows account holders to send and transfer funds denominated in US dollars and bitcoin. They have plans to add the Euro and other currencies in the future. Transactions within the Circle network of members are free and instant, similar to the service offered by Uphold. However, Uphold, despite being the younger company, already has a global reach, including the US, UK, Europe, and China, and ten-fold the transaction volume compared to Circle.

Align Commerce

As with all reputable FinTech ventures, Align Commerce recognizes the importance of transparency. They strategically targeted the international business-to-business payment market, realizing the friction and inefficiencies of transacting overseas. Using bitcoin as a back-end payment rail, Align offers a faster, lower cost proposition to its customers compared to legacy international payments transacted via correspondent banks. Align is focused on a target market which is ripe for disruption. Uphold’s innovative platform can be easily leveraged to facilitate international B2B payments, and may pose significant competition to Align in the near future.

itBit

Although itBit is a FinTech startup listed in the table above, it is not really a direct competitor with Uphold. ItBit offers a clearing and settlement service called Bankchain, as well as an institutional-grade bitcoin exchange.

ABRA

Like TransferWise, ABRA aims to be a global peer-to-peer remittance network. However, at this point in time, ABRA is not a serious competitor to Uphold or others in this sector and has yet to release a viable product.

Uphold

How does Uphold plan on becoming profitable? They do charge small and reasonable fees for holding value in precious metals, as well as fees for withdrawing funds too quickly above certain amounts. The long-term plan is to keep costs to members as low as possible, i.e., free accounts, free foreign exchange, and free transfers between members. These auspicious terms should grow the global membership rapidly. As the deposit base at Uphold grows, the most substantial revenue source will be from interest earned on “risk-free” short-term government securities, e.g., US Treasury bills.

 

MANAGEMENT AND GOVERNANCE

Uphold is a young, promising, pre-IPO company with an innovative business model in the FinTech industry. Founded in 2013 by Halsey Minor as Bitreserve, the business was rebranded as Uphold in October 2014 to de-emphasize its use of bitcoin and appeal to a wider global audience. Halsey Minor has a stellar record as a visionary leader and successful serial entrepreneur, founder of both CNET and Salesforce, and a key player in other prominent tech enterprises. (Minor’s high-profile personal bankruptcy in 2013 is another story.) Leadership at Uphold meets the gold standard. CEO, Anthony Watson, was an outstanding CIO at both Nike and Barclays before taking the helm at Uphold in April 2015.

 

BUSINESS DESCRIPTION

Global Reach

Uphold is a financial services company with an aim to disrupt the legacy banking sector. Uphold is designed with its membership in mind, first and foremost, forgoing traditional bank-centric models, with the intention of being an easy-to-use inclusive platform, even for those traditionally excluded from financial access. Most services are free for validated members, including foreign exchange and transfers between members. The online interface is simple and intuitive, displaying account holdings as virtual cards denominated in their respective fiat currency, commodity, or cryptocurrency. A few simple mouse clicks allows a member to add or withdraw funds, exchange value between currencies and commodities, or transfer money to another member. Uphold has a global reach with active members in 174 countries. Total membership is in the tens of thousands.

New Money Paradigm

Uphold is not a bank in the traditional sense, yet performs and provides many banking services at little or no cost to its members. Uphold is being diligent in complying with local AML and KYC regulations before accepting members from a particular geographical region. Unlike banks, Uphold does not use a fractional reserve model to leverage up its balance sheet. In contrast, Uphold maintains 100% reserves of members’ deposits, and posts an online account of its real-time obligations to members, broken down by each fiat currency, commodity, and cryptocurrency. Uphold is making money Internet-friendly, and in doing so, is creating a new paradigm for fast, flexible transfer and exchange of value. How does it accomplish this? Fundamentally, Uphold is an innovative Internet software business—focused on becoming to money, what Google is to search, Amazon is to retail, and Facebook is to social media.

Uphold ’s Open API

As further evidence that Uphold is really a software company disguised as a financial business, they provide a fully documented open application program interface (API) to developers for creating new services that interface with Uphold’s cloud money platform. The API encourages developers to build apps utilizing Uphold’s cloud money platform. Examples of current products include: international payroll service, multi-currency gift cards, an Android app, and wallet address app. Dozens of applications are in the pipeline—all being created to interact with the Uphold platform and increase its utility.

Voxel and Other Digital Value

When Uphold first started as Bitreserve, and while working to gain regulatory compliance, bitcoin was the only means for members to make deposits. Since then, bank transfers, credit cards, and debit cards have been added as account funding options. Bitcoin is still one of two cryptocurrencies available on the Uphold platform. Voxel (VOX) has been added recently as the second cryptocurrency, others may be available in the future. Although 210 million Voxels were pre-mined, they otherwise use open source software similar to Litecoin for security. 31.5 million VOX tokens are being sold in a crowdsale that ends before this April. The balance of the VOX tokens will be released gradually over the next couple of decades. Early token buyers were incentivized by receiving larger quantities of VOX per bitcoin. The current exchange rate is about $0.65 per VOX. In April, VOX will be freely tradable and subject to open market forces. If the exchange rate holds, the market cap of VOX will be about $20 million, placing it in the top 10 of all cryptocurrencies.

What’s unique about VOX is the purpose of the tokens. They are the exclusive currency used on the Voxelus virtual reality platform. Halsey Minor is also a co-founder of Voxelus. Virtual reality (VR) is one of the hottest upcoming sectors with many experts acknowledging its time has come. The website declares: “Voxelus is a platform that allows anyone, anywhere to create, share and play virtual reality games and experience without writing a single line of code.” Voxelus can be used on a PC and is also compatible with the highly anticipated VR headset, Oculus Rift, available for pre-order and expected to ship at the end of March. VR will undoubtedly transform the gaming and entertainment industry. If the Voxelus platform succeeds as a major repository of VR content, then this will likely boost membership as players join Uphold to purchase VOX tokens.

Eventually, Uphold plans to even include reward program points, like frequent flyer miles to their cloud money platform. This initiative has the potential to create more liquid markets for digital value of all kinds.

 

INVESTMENT RISKS

The primary risks facing Uphold come from opposite ends of the legal spectrum: hackers and regulators. Money is always a confidence game, and Uphold, like deposit institutions in general, is acting as a trusted third- party for its members. If there were a severe security breach that resulted in depositors losing funds, Uphold’s reputation could be severely damaged. Fortunately, Uphold’s CEO, Anthony Watson, has experience as CIO for Barclays. His background is ideal for an upstart such as Uphold that must meet or exceed the security standards of the incumbent banking industry.

If Uphold and other startups become too much of a threat to existing financial institutions, there could be significant lobbying by the powerful and influential banking industry to curtail the rise of FinTech. One can imagine a scenario where onerous regulations or laws are passed that thwart the use of cryptocurrencies altogether. Fortunately, Uphold appears to be extremely diligent in complying with anti-money laundering (AML) and know-your-customer (KYC) regulations, and has custom membership agreements tailored to the US, Europe, China, and other regions of the world.

 

THE BOTTOM LINE

Uphold has quickly leapt in front of some of the most promising startups in the FinTech sector. Uphold has a stellar management team and visionary leader with an indisputable track record for founding successful businesses that break old paradigms and usher in new ways of doing business. Uphold has already corralled a global membership from arguably the three most important geographic regions: the United States, Europe, and China.

The distrust of conventional banks is high and likely to continue to rise in the coming years. Uphold’s fully transparent platform and 100% reserve model should grant depositors solace. The flexibility to easily convert between the world’s dominant fiat currencies, precious metals, and cryptocurrencies is a unique offering, and one that is likely to attract great interest in times of economic turmoil. To date more than three quarters of a billion dollars in transactions have occurred on the Uphold platform, and approximately six million dollars in value are being held in reserve. One can easily foresee a future scenario where millions of members discover and join Uphold, making it the Amazon warehouse of collective digital value. Global remittance, foreign exchange, online payments, deposits, and more could become virtually trivial and costless to execute. Uphold members have an alternative to depositing money into insolvent banks, which can legally confiscate or freeze account holder funds in the event of a financial crisis.

Over the last couple of decades, the “Internet of Information” has transformed the world and how people interact. The next step is the “Internet of Money” that allows not only digital information, but digital value to be freely and easily transacted—as simple as email or sending a tweet. As the leading enterprise in the new paradigm of cloud money, Uphold is strategically positioned at the heart of the FinTech revolution that will certainly disrupt global banking, opening access and reducing fees for all. Uphold is very young, but we think it could grow to into the 800-pound gorilla of the Internet of Money.

 

NOTE: CryptoIQ does not offer investment advice. This report was compiled as a research exercise only.

 

RESOURCES

  1. Uphold CEO Letter – 2H15. (2016, January 16). Retrieved from https://uphold.com/documents/uphold-2h15-ceo-letter-to-shareholders.pdf
  2. Williams-Grut, O. (2016, February 18). Business Insider UK. This fintech startup’s biggest business is looking after $116 million in a speculative, non-tradable, virtual cryptocurrency. Retrieved from http:// uk.businessinsider.com/uphold-reddit-voxelus-voxels-2016-2? r=US&IR=T&utm_content=buffer213de&utm_medium=social&utm_sour ce=twitter.com&utm_campaign=buffer
  3. Lee, A. (2015, July 18). TechCrunch. Welcome To The Unicorn Club, 2015: Learning From Billion-Dollar Companies. Retrieved from http:// techcrunch.com/2015/07/18/welcome-to-the-unicorn-club-2015- learning-from-billion-dollar-companies/
  4. About Uphold. (n.d.) Wikipedia. Retrieved from https://en.wikipedia.org/ wiki/Uphold
  5. Uphold website. (n.d.) Uphold named as a Red Hot FinTech Top 20 Company by IDG. Retrieved from https://uphold.com/en/blog/posts/ uphold/uphold-s-rapid-growth-and-strong-outlook-has-been-recognized- by-idg-connect-as-a-top-20-red-hot-pre-ipo-company-to-watch-in-2016 Uphold named as a Red Hot FinTech Top 20 Company by IDG

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