Weekly Briefing No. 37 | A Silicon Valley Leader Reveals Dim View of Financial Incumbents

A recent podcast from Andreessen Horowitz says a lot about how Silicon Valley views financial services. We discuss what they said, as well as the possible financial services implications of the Pokémon craze and Lending Club’s ongoing woes. Also this week: the fintech grief cycle, Morgan Stanley’s take on roboadvisors, a cooler-than-thou Deloitte initiative, a new Twitter/Bloomberg tie and an Insurance tech framework courtesy of Bain’s Matteo Carbone. Finally, we highlight bud, a new financial portal. 

IN DEPTH

A Silicon Valley leader reveals dim view of financial incumbents.

Armed with a fresh $1.5 billion from their new fund (its fifth), the top honchos at Andreessen Horowitz, aka ‘a16z,’ sat down recently for a podcast (Software Programs the World) to discuss tech trends and investment perspectives. Their views on technology’s impact on financial services, while not the primary subject of the podcast, were nonetheless revealed throughout their insightful discussion. But they lost us when they asserted that with $10 trillion of debt trading with a negative yield throughout the world (now $13 trillion, actually), there’s a limitless abundance of capital sitting on the sidelines just waiting to finance innovation (around minute 29). Their analysis is tough to follow and reveals the bias of analyzing the global economy and financial systems from the perspective of a sector-agnostic early-stage tech investor. We’ve always believed that financial services isn’t just another sector of the economy waiting to be disrupted and that investment paradigms need to be altered significantly when it comes to financial services. A16z’s assessment of the bond market underscores our thesis.

Will Citémon and Wélls Fargomon follow Pokémon?

It’s Pokémon’s world now. Everyone else is just living in it. That’s how it feels to us since the augmented reality game, Pokémon Go, exploded on the world recently and captivated children and adults everywhere (causing some controversy along the way too). Not surprisingly, banking and payments executives have tried to assess the potential for AR to enhance engagement and customer experience in consumer-facing services. One such individual is Marvin Chang, Global Head of Loans at First Data Corp., a company that was steeped in fintech before fintech was cool.

See Chang’s take on the potential for AR to fuel banking innovation in The FR’s Opinion section.

Someone should buy Lending Club.

These days, Lending Club’s prestigious board is probably sick of seeing critical articles like this one in The Wall Street Journal. And while Scott Sanborn is doing about as good a job as possible in trying to clean up the mess, he’s constrained by the realities of having to please his badly burned shareholders. Adding to his headaches is the fact that charge-off rates are now rising fast (a bad sign no matter how it’s spun). The article didn’t even mention the industry’s ongoing problem with “loan stacking,” whereby a borrower takes out multiple loans before the loans can be reported to the credit bureaus. That could be the next shoe to drop. Some fund or some company with vision, patience and an appreciation of credit cycles should buy Lending Club and fix it before time runs out. 

IN BRIEF

The fintech grief cycle explained. Kudos to JP Nicols for writing this short and sweet article that puts fintech’s advancement and disappointments in some useful context. “Fintech is the new normal,” says Nicols. He also adds that fintech is moving from its “pie-in-the-sky” phase to the application phase where “real companies are learning real lessons.” We couldn’t have said it better. See more here.

Morgan Stanley states the obvious regarding roboadvisors. “Roboadvisers aren't going away any time soon, and the wealth management industry needs to make some changes if it wants to beat them and a host of other threats it is facing.” That’s the not-so-groundbreaking view offered by an Institutional Investor rising star, Michael Cyprys of Morgan Stanley. Still, given his role as a sell side analyst covering investors who make their living through active portfolio management, we give him credit for pulling no punches and seeking to prod his own clients into action. Read more here

Deloitte backs uber cool microinsurance initiative. The accounting and consulting giant has partnered with two start-ups (Statumn and Lemonway) to launch a proof of concept project named LenderBot. Billed as the first microinsurance solution for the sharing economy, the product aims to allow people to use Facebook’s messenger platform to create a peer-to-peer microinsurance contract for borrowed goods. The process of doing this is patched together crytographically through a blockchain-powered solution, making this initiative the buzziest POC in recent memory. Read more here.

Twitter and Bloomberg deepen link.  As Bloomberg continues to fend off a challenge by Blackrock and Goldman-sponsored competitor Symphony, it’s turning to Twitter as a new distribution partner for selected live markets coverage and three of its regular shows. For Twitter, the deal makes sense given its desire to be the live content platform of choice for just about everything. For Bloomberg TV, which has been a troubled little sibling within the Bloomberg empire, the deal represents the latest attempt by Bloomberg Media CEO Justin Smith to build an online audience to compensate for its small TV following — a shrewd move given that Fox Business is trouncing CNBC and everyone else in the business/markets TV universe.

Paypal gets even more P2P company. Early Warning is not a home alarm company. It’s a P2P solutions provider for banks that recently announced (see its press release) that Chase, Capital One and Wells Fargo are now using its pipes to facilitate P2P money transfers. The company’s clearXchange network allows payments to be made in real time too, although not all its member banks offer real-time exchange just yet. The responses from PayPal subsidiary Venmo (which saw its total payment volume grow by 154% in Q1 vs the prior year), Square Cash and other payment fintechs will prove instructive, not just for this segment’s observers, but for all of fintech.

Insurance tech’s four Ps. For those trying to get a handle on Insurance disruption, we suggest you check out this new post by Matteo Carbone of Bain & Company. Carbone puts a useful, catchy framework around digital disruption of Insurance guided by the Four Ps: Profitability, Proximity, Persistence and Productivity. Carbone, who is based in Milan, further explains that Italy is a global leader in connected insurance and is home to the Connected Insurance Observatory.  Who knew that Italy was positioning itself as an Insurance tech powerhouse?

McKinsey issues a new white paper on falling incomes. McKinsey & Co. isn’t exactly an anti-establishment flamethrower looking to overturn the status quo at WTO meetings. It’s a pillar of the status quo, so when its venerable research institute issues a white paper like this one, which shows that the United States is a global leader in flat or falling incomes, we take notice. If you work at a start-up focused on serving an elite segment of the US population, you may want to take notice as well.

Company of note: bud.

We will avoid the obvious beer pun associated with this start-up. This bud (yes, it has a lower-case initial “b”) is a self-financed UK-based mobile app that has managed to cobble together partnerships with major UK banks and challenger banks to offer a money portal and (eventually) an app store for financial services. Ambitious? Yes, but we suspect you’ll be hearing much more from this company and CEO Ed Maslaveckas in the years to come. Check out the company’s site here.

Comings and goings.

Karyn Williams, who has served as CIO of Farmers Insurance, has departed for hedge fund Two Sigma where she will serve as head of the fund’s new client solutions role. In her new capacity, Ms. Williams will focus on data and technology driven products and manage the firm’s advisory business.

Quote of the week.

“People wish to learn to swim and at the same time to keep one foot on the ground.”

~ Marcel Proust