Weekly Briefing #10: Will Blockchain Be The New China?

Welcome to our 10th addition of The FR. This week, we ask if the blockchain is the new China and if banks will press forward on fintech if their stock prices continue to take a beating. “Painless” savings apps, Blackrock’s robo-deal, PayPal’s new board member and fintech personnel additions are among the other topics we cover.

 Will the blockchain be the new China? A recent warning by a Royal Bank of Scotland (RBS) analyst advised clients to “sell everything.” (See here). A big part of his rationale is that China no longer can do the heavy lifting necessary to propel global growth. What’s more, there’s no replacement for China standing in the wings.  Maybe there’s no country, but there is blockchain technology; it could become the new, new thing that spurs economic growth and opportunity on a massive scale. This week, a troika of analysts at PwC basically said as much (See here). Their article is worth a full read, but the key takeaway is that the blockchain is a “game-changing force in any venue where trading occurs, where trust is at a premium, and where people need protection from identity theft — including the public sector (managing public records and elections), healthcare (keeping records anonymous but easily available), retail (handling large-ticket purchases such as auto leasing and real estate), and, of course, all forms of financial services.” Just because there’s a lot of hype around the blockchain doesn’t mean that PwC isn’t right. Perhaps this fintech innovation really could transform, well, everything.

Battered and bloodied banks: Good or bad for fintech? For banks, 2016 wasn’t supposed to start out this way. Fresh off the Fed’s well telegraphed interest hike, the giants were supposed to start benefitting from rising rates. That’s because when rates rise, lenders try to increase what they charge for loans faster than what they pay on deposits. Instead, the yield curve is flattening, markets are panicking and shares of some of the biggest names in banking (e.g. Bank of America, Citigroup, Goldman Sachs) are trading at valuations worthy of whale oil producers. MetLife and Ally Financial already have been put under the gun, but so far the big banks have been spared the Full Icahn treatment (See more here). Still, as noted banking analyst Mike Mayo says, “shareholders have every right to push (the banks) for a credible plan.” If some big banks continue to fall even faster than the broader market, our central question will be whether bank managements continue to press forward with new fintech initiatives.  We suspect that while some firms may pull back, others are likely to embrace innovation even more thoroughly to wring costs and headcounts out of their businesses as soon as possible.  

Blackrock sees the light and inks a robo-client. Calling the world’s largest money manager nimble may be a stretch, but we are impressed that BlackRock not only bought a roboadvisor (FutureAdvisor) but also managed to offer its technology-powered advice services to another institution within six months of the deal’s closing. The customer, BBVA — a fintech-forward financial institution in its own right — is likely to be the first of many. The BlackRock-BBVA deal comes on the heels of Charles Schwab’s announcement that its proprietary roboadvisor pulled in more than $5 billion in its first year and grew 29% in Q4. That huge start indicates that Blackrock will have another scale player to contend with as it seeks to slap down robo-upstarts Wealthfront and Betterment. To read more, see here.

The flaw in ‘painless’ savings apps. Since apps like Acorns and Digit have generated impressive early traction by helping young customers save money automatically, it’s not surprising to find growing interest in apps that capture the loose change generated each time a Millennial buys a Kombucha. This week, UK-based Moneybox joined the fray when it announced that it had closed a $3mm round with the help of Samos Investments (See here). Enabling younger people to turn spare change into long-term investments is a great idea, but there’s a possible glitch: Millennials — squeezed by student loan debt, soaring living and health expenses and a dearth of well-paying jobs — may not have sufficient spare change to make the idea pay. For gory details on the economic state of Millennials, see here.

Will Anglosphere go continental at the check-out? Yanks and Brits rarely look to Continental Europe for financial innovation ideas. But U.S./U.K. credit providers might want to examine a “European” payment model that could pose a threat, says Anthemis partner Yann Rachere in this article.  He notes that European marketplace lenders Prosper, Lending Club and others, as well as point-of-sale lending specialists Affirm and Bread are basically providing term loans at checkout. If consumers can borrow at a lower fixed rate than what a credit card charges, increasing numbers may be willing to forgo the flexibility and rewards of “American” style credit cards in favor of lower costs.

Paypal’s newest board member is a Bitcoin guy. Bitcoin naysayers come in many forms: folks who still view it as the currency of choice for drug smugglers; those who think digital currencies will catch on, but not the one created by the mystical Australian guy with the Japanese pseudonym; and, finally, the backers of competing digital currencies who swear by their alternative. All the haters will have an even harder time justifying their positions now that payments giant PayPal has announced that Bitcoin entrepreneur and Xapo CEO Wences Ceasares has joined its board. Read the announcement here.

Good news on the fintech job front. As we have stated multiple times in multiple ways, the fintechization of financial services spells trouble for employees long on industry knowledge but short on tech knowhow. Fortunately, since some fintech companies are too long on “tech” and too short on “fin,” we’re happy to share this Business Insider article detailing some successful transitions from large traditional firms to fintech start-ups.

Arrivals and Departures: Hao Zou.

Speaking of fintech comings and goings, the youngest member of PIMCO’s Americas Portfolio Committee has left to launch a company that will use artificial intelligence to enhance financial analysis. For rising star Hao Zou, who was co-managing about $20 billion before the age of 30, the siren call of fintech was too seductive to ignore. Read more here.

Company of Note: Bitwalking.

This fascinating start-up has created an app enabling users to earn Bitwalking dollars simply by walking. These BW$ units can, in turn, be used at participating stores.  One notable early adopter is Japanese convenience store chain, Lawson, which uses the app to incentivize workers to keep fit. Bitwalking also has significant potential in developing nations where many people don’t have access to cars. Recently, pilot projects of the app have been launched in Malawi and Kenya. To learn more, check out the company’s web site here.

This week’s little known facts about…David Bowie, visionary technologist.

In 1999, Bowie told befuddled BBC interviewer and Internet naysayer Jeremy Paxman: “I think the potential of what the Internet is going to do to society — both good and bad — is unimaginable. We are actually on the cusp of something exhilarating and terrifying.”

Bowie released the single “Telling Lies” exclusively on his website, which was the first-ever downloadable single by a major artist. The song generated over 300,000 downloads.

Bowie used some of the $55mm proceeds from his famed Bowie Bond offering to fund his own Internet Service Provider, BowieNet, in 1998. The company offered “high-speed” Internet service and a personal email address (yourname@davidbowie.com), among other things.