Weekly Briefing #14: Before You Bet The Farm On Blockchain Tech…

Welcome to our 14th edition of The FR*. This week, we hear from a blockchain skeptic, a harsh critic of European tech and someone who thinks Google will have a tough time cracking insurance. We also feature KPMG’s take on roboadvisors and take note of FinVR, an augmented reality fintech start-up. Thank you for joining us. 

*Actually, it’s our 13th edition, but we’re superstitious like that. 

In depth.

Before you bet the farm on blockchain tech…Why haven’t we seen mass adoption of blockchain technology just yet? Maybe because the prototypes for stock trading, asset registry and payment clearance are more expensive than simpler methods relying on established database and software stacks. That’s the view expressed by Saifedean Ammous, an assistant professor at the Lebanese American University, in this American Banker opinion piece. His is a rare voice of skepticism in a world where enthusiasm for blockchain tech is 1999 Dot-Com hot. This Wall Street Journal article, for instance, points to the so-called “Cambrian explosion” that will occur within finance once blockchain applications are implemented on a wide scale. Although we don’t share the Professor’s skepticism, we believe that it’s healthy to at least consider the devil’s advocate view before going all-in on blockchain tech.

Everything you wanted to know about roboadvice* (*But were afraid to ask) can be found in a white paper just released by KPMG. Great insights, some of which are counterintuitive, can be found throughout the paper, but here are a few key takeaways: 1) It’s not too late for asset managers to enter the space; 2) Move quickly given Schwab’s and Vanguard’s early traction; 3) Only a small percentage of KPMG’s clients are familiar with fintech darlings SigFig, Betterment and Wealthfront. The FR asked Dan O’Keefe, Banking Lead for KPMG Strategy, if he was concerned by the potential impact of market volatility on the growth rate of passively managed robosolutions. O’Keefe acknowledged that absolute near-term growth could be impacted if market volatility remains high, but he believes that the relative growth rate of roboadvisor vehicles “will continue to far exceed the growth rates of actively managed products.” O’Keefe added that passive roboadvice solutions should continue to attract new investors into the market for the asset managers that provide the right customer experience and investment options. Download the paper, Robo Advising: Catching Up And Getting Ahead, here.

The company formerly known as Google is no Prince of insurance. Usually, when Alphabet (nee Google) decides to enter a sector, global domination soon follows. But when it comes to insurance — and the Google Compare auto insurance marketplace specifically — things haven’t gone so smoothly so far. “We can’t get the regulators to say yes to everything we demand,” says one Google executive. In discussing the challenges faced by the new Google product, insurance expert Barry Rabkin, president of Market Insight Group, isn’t surprised: "The low-hanging fruit opportunities within insurance remain alluring, but the reality is that we haven't arrived at the Jetson’s world yet and regulators aren’t going to make life easy for tech companies seeking to disrupt any aspect of the insurance industry."

Sequoia Capital chief takes aim at European tech. Google’s recent tax deal with the U.K. government spurred Michael Moritz, the Welsh-born former journalist who is now chairman of Sequoia Capital, to ridicule European innovation in a Financial Times op-ed.  His takedown of potted plant politicians in Brussels and London was quite entertaining, but we shouldn’t ignore the fact that Europe, anchored by London, is competing quite nicely for global fintech leadership. For example, a French startup has recently caught our eye as an outstanding innovator to watch. The trailblazer we are referring to is Compte Nickel, which has gone from 0 to 213,000 banking clients in less than two years. How positively Silicon Valley of CEO Hughes Le Bret.

Fintech companies are cruising for a DC bruising. At tech conferences, entrepreneurs love to portray financial giants as modern-day Keystone Cops who employ platoons of developers yet can’t innovate. Still, when it comes to getting things done in Washington, it’s fintech companies that are disadvantaged. As this article demonstrates, politicians love to extol the need for creating a better regulatory environment for financial innovation. However, when laws and regulations are being crafted, large financial organizations are sitting at the table while fintech representatives wait in the hallway.

In brief.

Sweden: FIFO on cash. While other countries debate going cashless, Sweden — the country that used the first bank note, the Kreditivsedlar, in 1661 ­— is actually doing it. By some estimates, bills and coins make up just two percent of Sweden’s economy, but even that two percent is two percent too much for Gunnar Berger, Head of Cash Management Solutions at Nordea. See his interview here. P.S. How will you tip a porter upon arriving at a Swedish hotel?

SoFi calls an audible on Super Bowl ad. Last week, we joined several others who criticized SoFi for the elitist tone of its upcoming Super Bowl ad. In response to the criticism and feedback it received, SoFi has modified the ad to make it more consistent with the brand that SoFi is seeking to build. The ad is still provocative, but we think this was a smart move by the company.

Millennial debtors preyed on by next gen payday lenders. The underbelly of the online-powered alternative lending industry is brought to light effectively in this thoughtful opinion piece on Credit.com’s web site. The writer, industry executive Mitchell Weiss, laments the rough economic conditions facing millennials and the marketing tactics deployed by some payday lenders that have refashioned themselves as hip alternative lenders. 

First Data: A pre-fintech fintech company. This seller of payment processing infrastructure is looking to make its presence felt in the antiquated B-to-B payments space. The premise behind First Data’s recently announced partnership with SAP’s AribaPay unit is that while B-to-C payments innovation has raced ahead, B-to-B payments remain stuck on Gilligan’s Island. If successful, First Data may be able enhance its image as an original and growing fintech play.

Company of note: FinVR.

If you took the Tom Cruise film Minority Report, put it inside Interactive Brokers, and then located the company in St. Louis, FinVR is what you’d get. In essence, the company is seeking to incorporate machine learning and augmented reality technologies into an artificial intelligence software solution named Sherlock — to enable any investor to operate at the speed of a big-time hedgie. If FinVR’s technology works as well as it sounds, this company will blow a lot of minds.  

This week’s little known facts about…the New Hampshire presidential primary.

As both the Republican and Democratic parties have sought to give bigger states more sway in presidential races, feisty New Hampshire has responded by repeatedly moving up the date of its primary to maintain its first-primary status.

Unlike in most states, a New Hampshire voter only has to be affiliated with a party for the few minutes it takes to vote. A voter can then revert to being “undeclared.”

Winners in the New Hampshire primary have a mixed record in winning their party’s nomination. Republican winners of the state’s primary have included Leonard Wood in 1920,  Harold Stassen in 1948, Henry Cabot Lodge, Jr. in 1964, Pat Buchanan in 1996, and John McCain in 2000. Democratic winners include Estes Kefauver in 1952 and 1956, Paul Tsongas in 1992, and Hillary Clinton in 2008.