Weekly Briefing #03: The US-Europe fintech thunderdome.

The US-Europe fintech thunderdome. London is making a concerted effort to be known as the global headquarters for Fintech and so we’re not surprised to see article titles like this: Why is the US Killing its Fintech industry? We think it’s possible that when the writer, Berlin-based CEO, Toby Triebel, sat down to scribe this piece, he was channeling his inner Suge Knight.  Still, while we don’t agree with most of this piece, we think it is telling that when it comes to fintech, Europe is by no means settling into follower status behind the U.S. 
 
Square's IPO was a hot mess. The highly anticipated IPO of Square finally happened this week. The deal, which priced $2 below its filling range, quickly led many journalists to write stories suggesting that the fintech heyday is a thing of the past. That is, until the stock soared on its first day of trading, leading journalists to proclaim that the offering gives “hope” to the tech sector. We think trying to characterize the state of the tech IPO market on the back of one deal is a bad idea. But with journalists in need of a story, the drama surrounding this offering gave them plenty of fodder (See here). 
 
Listen to the Kaiser. Data and ethical concerns don't often go together in the same sentence. However, this piece by the very cool-named, Kaiser Fung, makes the point that America's data scientists, and the companies that employ them, aren’t doing enough to respect customer data: “Sometimes, ethical concerns are dismissed in the same broad stroke that many companies dismiss their user-customers: if they don’t like what we are doing, they don’t have to use our service!” The financial services industry, which sits squarely in the center of this issue, could probably use its own version the HIPPA Privacy Rule or at least a set of standards that can serve the same purpose.
 
A new form of redlining?  For some time, we have believed that the easy money has already been made in online consumer lending and that the consumer loan refinance subcategory was well served by the likes of SOFI, CommonBond, Upstart and Pave. The difference with Earnest, which just announced a huge capital raise See here, is that it doesn’t base credit decisions on a prospect’s credit score and instead uses data points such as a borrower’s savings history and Linkedin account information. For younger borrowers who lack substantial credit history, Earnest could receive a warm reception. However, we think that using so-called alternative data sources could pave the way for a new form of redlining that indirectly discriminates against minority communities who may be less active on certain social networks. The Treasury Department’s Anjan Mukherjee said as much at a conference last week. This is an issue to watch closely as the entire online lending sector has subscribed to a “Beyond FICO” mantra for the last few years.
 
Take this regulation-saddled job that stifles excitement and creativity and shove it. For anyone who fantasizes about taking an exit package from their firm and leaving to redeploy their hard-earned skills, you should read Tanmai Sharma’s
 piece
 describing his journey from the trading floor to starting a company (Mesitis) that makes the private banking statements clients receive actually legible and pleasant to read. What makes his journey even more interesting is that he isn’t targeting the area of financial services that was his domain of expertise: “I’d never worked in private banking, which I think helped me take a fresh look at the problem.”
 
Should robo-advisors be held accountable for their recommendations? Financial advisors (FAs), especially those at the beginning or middle of their careers or who have a young clientele, need to figure out a strategy to deal with automated solutions that are coming at them like a freight train. Our view is that there will always be a need for a professional advisor to assist customers in figuring how to best position their investments for long-term financial success. Robo-advisors, though, will continue to represent a growing, competitive threat, particularly for advisors with modest-sized clients or those who have a young client base. In fending off a robo-advisor, FAs may want to point out the nameless, faceless developers behind an algorithmically generated solution.  Should the companies and developers that offer robo-solutions be held to similar standards as FA’s? See here for more.
 
Company of Note: Descartes Labs.

The company, which just completed a $5mm capital raise, measures the levels of photosynthesis coming from agriculture lands by analyzing publicly available satellite imagery. Read more here about this company which is one part, very cool, and one part, Orwellian nightmare.
 
Three Random Data Points: Rene Descartes a French philosopher, mathematician and Dutch cultural enthusiast.

  1. Like supermodels and rich club kids, Rene Descartes never woke-up before 11am.
  2. Descartes attended college when he was eight years old. Even if we adjust for the fact that he attended school in the early 1600s, it’s still an impressive feat.
  3. The father of analytic geometry believed that apes and monkeys could speak, but that they refrained from doing so in front of people.