Behind the startup: ​Interview with Alexander Busarov on Fighting Counterfeiting in China

In this interview we speak with Alex Busarov the co-founder of Taelpay about Taelpay ecosystem a blockchain application developed by the team while operating in China. Tael consists of over 50,000 users in 500 cities, hundreds of products protected with NFC chips and blockchain, all in cooperation with a long list of participating companies like Rakuten, Nestlé, New Zealand Cherry Corp,and many more. The Tael ecosystem is anchored by the Tael token which acts as a reward, loyalty, and marketing incentive for participants in the ecosystem. Now lets delve straight into the interview!

Sure. I studied Philosophy and Economics at the London School of Economics, together with my co-founder Yaz Belinsky. After I graduated, I worked at McKinsey and Co. as a management consultant. I spent 4 years with McKinsey, after which I spent some time in the FMCG (Fast-moving consumer goods) industry working as a sales director at a major infant formula producer.

My journey into the blockchain industry started with a problem to solve: counterfeit products. Blockchain is a great tool and is a vital part of our solution to this problem.

Whilst living in China, Yaz and I had a bad experience with fake whiskey. After only a few sips, we became very ill and subsequently realized that the alcohol we had purchased was fake. It was a quality brand, it was bought from a reputable store, but it was very clearly fake.

When we began to look into this problem, we discovered a few things: Firstly, there existed no effective anti-counterfeit solution: holograms are close to useless and QR code ‘solutions’ is not secure. On top of that, attempts to solve the counterfeiting problem tend to be inconvenient for consumers and this leads to low adoption rates. Even if QR codes are put onto a blockchain they’re not secure, as it’s trivial to clone or reuse QR codes. I’m constantly surprised that quite a few blockchain companies are still trying to use QR codes as part of their anti-counterfeiting technology.

Secondly, we realized that the extent of the problem goes well beyond the loss of revenue for brands – the problem is really about the safety of consumers. Our personal experience with fake whiskey was terrible and what is worse is that even baby-related products were being counterfeited. To solve the problem, we first built the authentication tech to securely connect physical objects (FMCG products) with their digital representations on the blockchain, using NFC (near-field communication) chips. We then tried selling the tech to large corporations, in the same way, many of our competitors are doing.

We quickly realized that we needed to build the ecosystem around the consumers instead to help those most affected by the problem. That’s why it is now the Tael Ecosystem and everything is built around our users: securely protected products on the Techrock platform, with the right partners, the Tael loyalty program and much more. We work with brands to protect their products so that we can protect consumers from harm.

Our vision is to build a safe-product ecosystem with authentic products and authentic interactions between participants. Blockchain is of great help in enabling this trust. 

China’s economy is incredibly fast-moving and consumers here are quick to adopt new technology. This makes it much easier to grow: 90% of our users are women for whom we’ve made it seamless to engage with blockchain technology. Thanks to high user interest and low adoption barriers we’ve been able to grow by hundreds and sometimes thousands of new consumers every day.

This ‘hyper-growth' environment does come with its own costs: whatever we build has to be tested on very high volumes: e.g. we had to make sure our WeChat mini-app could handle thousands of orders placed in parallel. However, we have a great team that are proactive in thinking about how to deal with our growth and the future of the ecosystem. These tests are already coming in handy and we’re continuing to build, test and expand.

To clarify: we are focused on protecting real products and stopping tampering with these products, not identifying counterfeit products. If our label is on a product, the consumer will know that it has come directly from the supplier and they can scan the label to check that it hasn’t been opened during its journey through the supply chain. Our tech enables consumers to check if their product has been opened or altered in some way, and see the supply chain information.

Blockchain technology allows us to create an indisputable, immutable ledger of all products with Tael labels on them and record all the information about their supply chain journey through to consumers. The labels are encoded at the factory or warehouse by the supplier and then, at each stage of their journey, more data is added to the record by further scans. Ultimately, blockchain helps us to build trust here, as even we cannot alter the product’s supply chain records.

We currently focus on 3 revenue streams: sales of products protected with our tech, sales of technology services and marketing services. Each plays its own important role.

Sales of products protected with our tech, such as food and cosmetics, allows us not only to have a steady stream of revenue but to also build an initial user-base which is now getting close to 50,000 mainstream users (can check adoption.taelpay.com for up-to-date stats). It’s been growing very well through targeted marketing activity and our referral system so that users can share with their friends and family. While it’s a business in and of itself, it serves mainly as a foundation for other revenue streams.

Sale of technology services covers selling our protective labels and related services to corporate clients. Margins on such services are normally not high but this gets compensated by high volumes and, more importantly, the ability to quickly grow the Tael Ecosystem. Consumers using our corporate partners’ products become members of Tael Ecosystem (and Tael points holders), meaning we are effectively able to leverage the size of our partners to add tens of thousands, to millions, of users almost overnight. We’ve been working on these relationships for some time and we are looking forward to them launching this year!

Marketing services surround the services we offer our partners when they spend Tael tokens to market products to consumers. Because we know our users quite well, we can help brands make their trade marketing (e.g. sales or rebates) much more effective compared to traditional retail. Rebate value is passed to consumers in Tael points and consumers become “hodlers” until their next purchase when they again receive some Tael points. So they naturally become lifetime holders.

In addition to these, we plan to develop services around payments that will turn into their own revenue streams, later on, helping us to grow the Tael ecosystem further. But we’re focused on getting to a million users first!

Rakuten is the biggest e-commerce company in Japan and one of the biggest globally, and we are very excited to have them as a partner. It was a great sign of approval for us when Rakuten chose Techrock (the e-commerce part of the Tael Ecosystem) as one of only three platforms to sell products in China; the other two being giants JD.com and Kaola. Since launching in the first half of 2019, we’ve grown our Rakuten partnership to over 150 products (which is +250% vs. when we started) and have further developments (in multiple directions) on the near horizon.

While our main consumer base is in China, we are already doing a lot of work in Japan, Australia, New Zealand, and Europe. It’s not just planning anymore.

We discussed a good example of this in our recent blog posts: here where we talk about expanding into some of the largest Department stores in Asia.

Department stores in and around Asia (and the world) get a lot of foot traffic from Chinese tourists. One of the coolest things about this expansion is that through the Tael ‘safe channel’ we extend the department store’s sales beyond just their physical locations, making products available to the more than 500 cities in China where our consumers are. Moreover, we are working on making Tael loyalty tokens accepted as a form of payment in the department stores themselves.

There are also multiple brand partnerships like the one with New Zealand Cherry Corp., where we help to protect the finest New Zealand cherries on their journey to customers and our labels will protect them in both on- and offline sales channels.

We’ve managed to navigate the legal environment in China by establishing a dual token structure. We actually run two blockchains with two different tokens which are linked 1:1. There is an ERC-20 token (Tael/Wabi) which is tradable outside of China, while within China there is the Tael loyalty point (called Shijifen in Chinese) based on Hyperledger blockchain. The Shijifen can not be traded on exchanges by consumers and has some additional restrictions similar to many loyalty programs: it cannot be sent between users and cannot be exchanged for fiat by users. Our users don’t buy the Shijifen,, they get rewarded with them for actions they take in the ecosystem, (e.g. purchasing safe products, referring friends/family, etc.). Users then spend these Shijifen on purchases of safe products. So, Shijifen is not a cryptocurrency but rather a loyalty point token. This system also underpins a very important part of our tokenomics. The 1:1 link I mentioned means that for each Shijifen loyalty point awarded to a consumer, an equal amount of Tael/Wabi supply is taken out of ERC-20 circulation and locked (stats on this are available at taelpay.com). As more consumers join, more supply is naturally locked up. By way of example, 38,000 consumers with registered accounts in China hold an average of 45 tokens per user. This means that 38,000*45 = 1,710,000 tokens are already locked out of supply – over 1.7% of the total Tael token supply.

There’s lots coming up and we like to keep our community up to date with everything that’s going on in the Tael Ecosystem. This means that as soon as we can announce developments, we do; so the best place to keep up to date with what’s going is at our blog or via Twitter.

As the hype tide recedes, we begin to see who has been swimming naked. As many people expected, projects have already begun failing to deliver a product that actually works. This is normal in every industry. The next trend will be for projects that "have a working product" to try to build a user base for that product. This is precisely where most startups fail in general and blockchain startups will not be an exception. But those who fail will clear space for those who have growing usage of their products. The winners will likely be those who spend less time ‘conference hopping’ and more time listening to users.

I think one of the key things that has already started to happen and will accelerate in 2020, is improving transparency in the industry to reduce problems like wash trading and zero growth projects who spend all their money on marketing.

I think we’re also at a point where we are seeing some very compelling blockchain use cases being developed aimed at mainstream adoption. We at Tael will do our best to contribute.

For me, it has to be our user adoption. Since March 1 st 2019, we’ve grown our users’ numbers by over 2,500%. This fantastic growth is a testament to the appetite that Chinese consumers have for verifiable authentic products.

This is already much further than “having a working product”. It’s “having actual users” which, as I mentioned before, all startups should strive for; whether in blockchain or other industries.

The other important achievement is that we’ve built a strong infrastructure to scale up in 2020. And this is on all fronts: technically we’ve been testing our system for throughput of thousands of orders, we’ve engaged suppliers who can handle millions of users and, most importantly, we’ve built strong relationships with corporate partners like Rakuten, New Zealand Cherry Corp., KOLs (key opinion leaders) and others who will help us drive user growth and adoption much further.

Interviewer: Ishan Pandey

Contributor - Hacker Noon, Research - Blockchain.news