Weekly Briefing #17: J.P. Morgan Won't be Out-Finteched by Anyone.

Last Thursday, buyout impresario J.C. Flowers made news by predicting that a majority of fintech start-ups won’t survive long-term. Really? Do a majority of start-ups in any sector work out? If you think so, then we’d like to sell you the bridge we see from our Brooklyn office…. Here’s our weekly round-up on the ambitious souls — at big firms and start-ups — who accept the risks and press forward with efforts to revolutionize financial services (because it needs to happen).  


J.P. Morgan won’t be out-finteched by anyone. It started last April when Jamie Dimon wrote in a shareholder letter that Silicon Valley was coming. Following that, in an outsourcing deal that would have been unthinkable two years earlier, the bank announced a major collaboration with OnDeck Capital to expedite the process of providing small business loans. Fast forward to this past week. First, a Wall Street Journal article described a so-called “secretive” blockchain test involving 2,200 of the bank’s customers. Then, in the bank’s newly issued 2015 10-K, we noticed a small but meaningful change in the Competition section. For the first time, “financial technology companies” were added to the bank’s long list of competitors. The coup de grâce was the bank’s investor day, wherein presenter after presenter basically said that while costs will be watched closely, it’s game time for innovation. What does that mean? As the WSJ article states, the bank is rejiggering budgets to spend more on fintech. But we don’t think the bank has gone to all this trouble to throw an extra $25 million around. We believe Dimon is readying investors, regulators and other stakeholders for meaningful acquisitions and investments. Yes, the bank currently trades beneath book value, but Dimon’s team has set the table well for a full fintechization of the bank.

Check out J.P. Morgan’s investor day materials here.

British pols sponsor fintech bash while US pols bash each other and Wall Street. In a nicely sequenced orchestration, Ernst & Young released a report concurrent with UK Fintech week that ranked the UK as the world’s #1 place for fintech (See Page 6 for the rankings table).  Curiously, the chart listed the other contenders by nation/city-state except for the US. California and New York were broken-out separately, creating a divided and conquered American presence at #2 and #3. Still, there’s no denying it. The UK’s government is all-in on financial innovation and the most recent fintech week showed that in spades.  Perhaps after the presidential election, US politicians can stop bashing Wall Street and get as serious as our British cousins.

The LSE-Deutsche Börse deal was a media lovefest. Like teenagers at a Taylor Swift concert, financial media outlets went wild for the proposed “heavenly match” between these two exchanges. Yes, we think the merger could help address Euro- fragmentation issues and create another solid platform for derivatives and index innovation. But not everyone has been seduced by the deal’s PR. One notable skeptic is Patrick Young, former exchange CEO and publisher of Exchange Invest, who put it bluntly:  “Derivatives titans and exchange sector leaders CME and ICE can rest easy that two much smaller entities are embarking on a path to a bigger, bulkier entity which broadly lacks a compelling shareholder value additive proposition other than sheer girth.”

Fintech is hard ­— just ask Google­. We’ve often spoken to entrepreneurs who express concern that if Google ever decided to enter [insert fintech sub-sector] it could spell trouble because Google has infinite resources and talent. That logic sounds convincing, which is why we take special note of the company’s decision to wind down Google Compare, the ballyhooed initiative launched last year to enable consumers to compare offerings in car insurance, credit cards and mortgages.  Perhaps the aborted venture taught the almighty Google something financial services firms have always known: providing financial products that consumers embrace consistently isn’t beanbag. It’s true for incumbents as well as newcomers, no matter who they are.

In brief

Blockchains and basis points. When blockchain company R3 CEV announced that it successfully conducted a distributed ledger experiment with 11 banking partners, the financial world took notice. Now, another closely watched blockchain firm, Ripple, is seeking to score with a newly issued white paper and opinion piece claiming that use of its protocol and digital currency can save banks up to 12.6 basis points (60%) on international payments. That may not sound like much, but when you consider that banks exchange over $1 trillion per day, those basis points can add up to real money.

Using your face to pay online? Priceless. MasterCard is going full speed ahead with rolling out an app that enables consumers to pay for online purchases with selfie authentication. Consumer will need to first download an app that will enable them to take a photo when they make a purchase. Their “faceprint” will then be used to make sure that the transaction is legit.

Are roboadvisors unregistered investment companies? An investment adviser is “safe” from being deemed an investment company if client portfolios are customized and the advisor provides access to “personnel.” However, some regulators are beginning to question whether robadvisors fall under the advisor safe harbor.  Read more here.

Company of Note: LendingFront.

Cash-flow based small-business lending remains an antiquated process, full of friction points, fees and frustration. That’s why we took note of LendingFront, a New York start-up founded by two foundational members of the OnDeck Capital team. LendingFront aims to make its LAAS (Lending as a Service) solution available to lenders of all sizes who want to extend credit to small-business customers based on daily cash flow performance.  Check out the company’s site here.

Comings and Goings.

Duke University behavioral economist Dan Ariely is joining insurance start-up Lemonade (a former Company of Note) because he dislikes the current “adversarial” nature of the insurance industry. The outspoken Ariely wants to change that dynamic and believes that a peer-to-peer insurance solution is the key. Read more here.

This week’s little known facts about…US currency.

In 2013, it cost the US Mint 9.4 cents to make a nickel vs. 4.6 cents to make a dime.

The two ATM machines in Antartica (McMurdo Station on territory claimed by New Zealand) are controlled by Wells Fargo and only dispense US bills.

The North Korean government is one of the largest counterfeiters of greenbacks. Its government has stated that its “super dollars” are simply “US dollars not made by the US government.”