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What really happened at Equifax

Your five-minute guide to what's happening in tech this Tuesday, from the future of digital banking to a report card for the web.

Good morning! This Tuesday, the DOJ blames China for Equifax, Uber and Postmates fail to temporarily block AB 5, and the Vision Fund takes its first official loss.

People Are Talking

The FTC needs an overhaul to take on big tech, Senator Josh Hawley said:

  • "Google and Facebook have acquired hundreds of companies in the last two decades, yet the FTC never once intervened to try to block any of these acquisitions."

Amazon wants Trump to testify in its JEDI case, along with other White House officials:

  • "The question is whether the President of the United States should be allowed to use the budget of the DoD to pursue his own personal and political ends."

Also, Amazon is already the company politicians want it to be, according to … its global affairs head Jay Carney:

  • "When it comes to creating jobs, raising wages, providing benefits and training employees for higher-paying jobs, Amazon is doing many good things — for the economy, and for American workers."
  • Carney also had A Big Day on Twitter dealing with criticism of his comments, which Matt Stoller summed up thusly: "That's interesting now pay your taxes."

The case against Theranos' Elizabeth Holmes should be dismissed, her attorney said:

  • "The indictment is full of ambiguity and fudging language, the government is inserting these phrases so they can shift their theory as they go along in the trial."

The Big Story

The international conspiracy behind the Equifax hack

It was the hack everyone heard about, leading to the settlement that caused us all to naively try to claim our $125. Equifax remains one of the biggest data breaches ever — and now we know what allegedly happened.

  • Attorney General William Barr said at a press conference Monday that the DOJ has identified and indicted four members of China's People's Liberation Army in connection with the hack.
  • Barr made clear how extraordinary this was: "We normally don't bring criminal charges against members of another country's military or intelligence services outside the United States … the deliberate indiscriminate theft of the vast amounts of sensitive personal data of civilians as occurred here cannot be countenanced."

Our friends at POLITICO have a good rundown of exactly how the hack worked, if you want more details.

I asked Protocol's security reporter, Adam Janofsky, what he thought of it. Here's what he said:

  • The indictment might look like a win for U.S. prosecutors and Equifax — and in some ways it is — but it's important to remember that a lot of the damage done won't be reversed.
  • The Chinese military likely has a trove of sensitive information on about half of all Americans, which it can use to spy on government officials or blackmail people who are financially stressed.
  • Perhaps even worse, the data could be fed into Chinese artificial intelligence tools to target Americans, Barr said.

Equifax might naturally want everyone to move on: One Equifax employee described the day to me as "drinking from a firehose," but also said that it's "like one of those traumatic experiences we can put behind us."

  • But the pressure might not be finished just yet. Senator Mark Warner said in a statement that, "the indictment does not detract from the myriad of vulnerabilities and process deficiencies that we saw in Equifax's systems and response to the hack."

How much time is your business spending thinking about China, or hackers at all? Or, actually, here's my real question: Did anyone reading this email ever get their $125? If so, please send me an email: david@protocol.com. I want to learn your ways.

Fintech

A finance app gets its banking wings

Varo Money took a big step to becoming a national, digital-only bank, announcing Monday that it's set to receive the first-ever "de novo national bank charter" for a banking startup. It means the company will soon be able to operate as a full-fledged bank, instead of relying on a partner to handle some services.

This is a key moment for Varo, and for the fintech industry as a whole, Varo CEO Colin Walsh told me.

  • He recalled a Bloomberg Law story from late last year saying Varo was "an important bellwether for the fate of fintech banking." If Varo couldn't get approved, there was little hope for anyone else. That's how it felt to him, too.
  • Walsh also said he doesn't expect the process to be easier for the long list of other tech companies hoping for a charter — he said that the Federal Deposit Insurance Corporation is likely to make everyone jump through the same hoops as Varo did, and many companies simply won't have the expertise or resources.

Varo's been working with regulators since the company's early days in 2016. Walsh says the process hasn't been easy: Varo filed 5,000 pages in applications, had FDIC employees prowling its offices for weeks, and had to build new teams and new systems to satisfy regulatory requirements.

But now Varo, which focuses on lower- and middle-income customers, can offer more to users. "We're not going to open branches, we're not going to open cash vaults, we're not planning to buy an ATM network anytime soon," Walsh said. But it does plan to have a pretty complete product line soon after it becomes an official national bank in the second quarter of this year.

Do you use an app like Varo, Robinhood, or Chime? What would entice you to switch? Let me know: david@protocol.com.

A MESSAGE FROM NASDAQ

Reimagining Markets Everywhere

Nasdaq Technology is reshaping the future of global markets by redefining what a marketplace can be.

Learn more here.

State of the Web

Twitter's up, Yahoo's down, and Google basically owns the web

SimilarWeb published its annual report on the state of the web on Monday, and it's full of interesting tidbits.

First, the not-so-surprising stuff:

  • Desktop web browsing is down slightly from last year (and has been decreasing for a while) while mobile traffic continues to climb.
  • Google still absolutely dominates the web. Twitter's traffic climbed last year, while Yahoo and Facebook's dropped — though Instagram and WhatsApp both grew significantly.

Then there's the somewhat-surprising stuff:

  • Amazon Prime Day has become a top-notch shopping holiday, up there with Black Friday.
  • The most mobile-friendly category on the web? Porn. Number two? Gambling. Turns out anything people want to do privately, they do on their phones. Though they pretty much do everything on their phones — the only category still dominated by the desktop is "Arts & Entertainment," which is mostly streaming media.

The report hits on everything from President Trump's continuing reign as the most popular search term on the planet to the remarkable rise of Google Flights and what it means for the online travel business. Flip through this and Benedict Evans' 2020 tech trends, and you'll have 2020 pretty much in focus.

Making Moves

Facebook is hiring a communications manager for its new Oversight Board. Key requirements: lots of experience, good relationships, and (I'm guessing) a remarkable tolerance for chaos.

Eileen Naughton, Google's head of HR, is leaving the company later this year. She's been involved in many of the company's high-profile internal clashes over the last few years.

Amazon's video efforts have a new leader: Mike Hopkins. Previously the chairman of Sony Pictures Television and before that the CEO of Hulu, Hopkins will oversee Prime Video and Amazon Studios.

In Other News

  • The White House officially announced its budget proposal for 2021 with a huge increase in AI and quantum spending. Keep in mind that the details will change — a lot — before anything actually passes.
  • Amazon is still winning the smart speaker war. A new report found about 70% of people playing music and setting timers and irritatedly shouting "no, I said the LIVING ROOM lights," are doing it with Alexa.
  • From Protocol: Uber and Postmates lost their bid for a temporary injunction against AB 5. That means California can enforce the gig-economy law while the fight continues in court.
  • The court challenge of the T-Mobile / Sprint merger is coming to a close. The NYT reports that a judge in Manhattan is planning to rule in favor of the deal.
  • A Business Insider story caused confusion about Slack. The story implied that IBM had decided to sign up 350,000 employees; Slack's stock spiked on the news, and even paused trading at one point. But in an SEC filing Slack said that IBM has actually been its largest customer for several years — it didn't sign up all 350,000 employees overnight.
  • The Bloomberg campaign made a plea to Silicon Valley: send us your best people, and help us win the election.
  • From POLITICO: Google is appealing a 2017 antitrust ruling against the company, giving Europe's big-tech fighters their first major public test.
  • Bill Gates may not be buying that superyacht after all, the BBC reports. But honestly, he should be. If he's not, get on it. And send me pictures.
  • From Protocol: Brandless became the first Vision Fund-backed company to shut down. Biz Carson reports that the company is stopping all orders and laying off nearly 90% of its staff.

One More Thing

When your car-share is a getaway car

One time, I rented a car only to find the windshield had been shattered. Turns out that was nothing: NBC News reports that users of car-sharing services like Getaround and Turo are increasingly finding their cars have been broken into — and even used to commit crimes. Why? Because as NBC puts it, "the app gives precise locations of cars, even for people just browsing without a reservation — and the keys are always left inside." Getaround responded to the story, explaining all the new and existing safety measures it's taking for people's cars.

A MESSAGE FROM NASDAQ

Reimagining Markets Everywhere

Nasdaq Technology is daring to think differently.

Learn more here.

Thoughts, questions, tips? Send them to me, david@protocol.com, or our tips line, tips@protocol.com. Enjoy your Tuesday, see you tomorrow.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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