Weekly Briefing No. 27 | Your Margin is My Blockchain Opportunity

Will blockchain tech consortia stay in place long term? We ask that question and feature an inspirational horse race this week. We also cover insurance brokerage, the “real” Satoshi Nakamoto, online lending’s pain and GreenKey. A very happy Mother’s Day to all the moms out there.

IN DEPTH

Your margin is my blockchain opportunity. We have paraphrased Jeff Bezos’ famous aphorism because it’s relevant to blockchain tech, especially now that Amazon’s Web Services unit has made its first official foray into distributed ledger projects. Meanwhile, financial institutions are enthusiastically participating in consortia in an attempt to “own” blockchain tech’s advancements in settlement, custody and trade finance, among other activities. While we understand the urge to collaborate, we think that it will be difficult for any consortium to achieve Amazon-level success. For now, it’s reassuring for financial institutions and their shareholders to work closely with the likes of Ripple, Chain, Digital Asset Holding, R3, Digital Currency Group and others. But that’s in part to fend off a Silicon Valley type of disruption that would “steal” standard-setting from incumbents. Over the intermediate term, we think blockchain coopetition will give way to a more traditional competitive dynamic. Our reasoning is predicated on the belief that while blockchain tech will produce sizable efficiencies and transparencies that will save money and free up capital, it will also put downward pressure on margins in many cherished business lines. That, in turn, will create added pressure on weaker firms and open up opportunities for the strong to leverage scale and technical superiority. Amazon didn’t get where it is by being cooperative with its rivals; why would the world’s leading financial services firms act any differently? Or, to put it another way, what’s the point of being huge if you can’t use your hugeness to your huge benefit?

To catch up on the state of blockchain tech in financial services, check out this Morgan Stanley report.

Career reinvention courtesy of a horse race and a fintech class. Last month, a horse by the name of Exaggerator pulled off one of racing’s most remarkable performances in memory when it came from way behind to win the 2016 Santa Anita Derby. See it here. Watching that race reminds us all that big comebacks can, and do, happen — a welcome thought given the current dramatic changes in financial services, which are leaving many people behind. If you are looking to make a fintech-fueled comeback, watch the race and then take a concrete step. Consider enrolling in MIT’s online fintech certificate course, which is chock full of important information taught by accomplished MIT technologists and fintech entrepreneurs.

See here to receive $200 off the price when you use our discount code.

CFA Institute survey is an all-points bulletin for the buyside. As explained in this Bloomberg article, a survey of CFAs revealed that automated investment technology is poised to disrupt the asset management industry more than any other financial services vertical. No surprise there, but the size of the vote was interesting. According to the survey, 54% of respondents said that the asset management industry will be “most affected” by financial automation tools — leaving 46% who said that another vertical will be most affected. Really? And speaking of the CFA Institute, May is the organization’s “putting investors first month.” Was the month chosen to combat the old adage “Sell in May and go away?” Regardless, the CFA, or at least those who believe in the robo-rise, might want to refresh its May celebration message because every month should be investor month — especially now.

IN BRIEF

Insurance brokerage is broken (but change may not come easily). We liked this opinion piece by Whitney Arthofer of General Catalyst Partners. It offers a cohesive case for online insurance origination, underwriting and distribution. But the tipping point he describes — when millennials force broker disintermediation — may not be right around the corner. Regulatory arbitrage may have helped other fintech verticals, but our state-based system of insurance regulation is likely to be a harder nut to crack. Arthofer should consider writing an installment addressing the myriad of entrenched and powerful regulatory forces at work within the insurance industry.  Because without very shrewd tech solutions that adequately address regulatory requirements, those 59-year-old agents Arthofer references may just give way to younger agents or bigger brokerages.

Is Bitcoin’s George Washington a reluctant Aussie anti-hero? Yes, Satoshi Nakamoto is actually entrepreneur Craig Wright, says Gavin Andresen, chief scientist at the Bitcoin Foundation. Given Andresen’s role, his opinion carries substantial weight among many in the Bitcoin community. So has the mystery been solved? Check out this video, look into Wright’s eyes and judge for yourself.

Online lending pain worsens. This week, online small business lender OnDeck Capital saw its stock drop by about 34% in a day after missing earnings estimates. But when your stock drops by that much in a day, it’s more than a garden-variety disappointment. It’s panic, which is also being felt on the consumer lending side. Prosper, for example, announced that it is cutting 28% of its workforce on the back of Citigroup’s decision to stop buying and securitizing Prosper’s loans.  

Hong Kong is lagging in fintech. That’s the view taken in this South China Morning Post article that asserts that mainland China and other nations are surging ahead while Hong Kong is stagnating. What should Hong Kong do? Emulate Singapore. How should it do it? Establish a regulatory sandbox approach that enables Hong Kong start-ups to develop in an unencumbered environment.

Company of note: eShares

This Mountain View, California-based company serves as an SEC-registered transfer agent for private companies, issuing electronic stock certificates, option grants and convertible debt. That might not sound glamorous, but the company’s technology allows it to create a cap table that is dynamically updated. Given that employee ownership interests can get confusing in a start-up after multiple financing rounds, we think eShares offers an important tool to promote transparency and maintain employee motivation. Institutional investors also should appreciate this tool as it helps simplify modeling and scenario planning.

Check out the company’s web site here.

Comings and goings.  

GreenKey, a Chicago-based fintech company that makes encrypted voice software for brokers and traders, announced that it has appointed Richard L. Garnier to be its Chief Revenue Officer. Garnier was previously a veteran of Thomson Reuters, where he had held a variety of leadership positions including Managing Director for Northern Europe.

Quote of the week. 

“You should dress warmer. It’s going to get chilly later.”

~ Jan Selman (the greatest mom in the world)