Weekly Briefing No. 71 | Breaking Operating Models, SoFi’s Heavy Hitter, Quant Funds in Seduction Mode

Vault 7 hit and SNAP swooned. Did the Ides of March come early in ‘17? Fortunately, a brave girl faced down a bull this week on Wall Street. Here’s what else inspired us:

  • The 206th anniversary of a highly symbolic event
  • The FR’s exclusive conversation with SoFi’s Nino Fanlo
  • The war for quant talent, counterintelligence pros headed to banks
  • Mike Pence’s finserve guy, homeowners insurance, MPL’s rope-a-dope
  • Company of Note: WorkingGroupLink

IN DEPTH

Remembering Mr. Ludd.

March 11th marks the 206th anniversary of the date when an angry Nottingham man lost it. This likely fictitious fellow, Ned Ludd, and his band of disgruntled Midlands textile workers, gained fame by destroying the machinery that was threatening their livelihoods. These rogues became such a menace to the nation’s burgeoning economy that the British Parliament passed a series of "machine breaking" acts punishable by death. Even the famed warrior-poet-libertine Lord Byron couldn’t get the condemned machine breakers off the hook.

Today, “Luddite” has become a catch-all phrase for anyone averse to new technology. As such, you could argue that incumbent financial services firms employ many such people who are resisting the adoption of AI, Big Data, cloud and mobile technologies — out of a (often justifiable) fear that these innovations are a threat to their livelihoods. But we couldn’t help dwelling on another kind of antiquated thinking as we read the attached McKinsey article. In it, the firm argues that many companies fall short in transforming their operating models for the digital world because their well-meaning “one-off initiatives in separate units” lead to “temporary gains” that aren’t sustainable. Are companies that are too fixated on maximizing near-term profitability at the expense of long-term viability the real Luddites? Perhaps. But unlike the British weavers of old, today’s corporate Luddites would be better served by breaking their own antiquated machinery before it’s too late — unless they plan on being saved by a modern day Byron.

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Credit two ways: The FR’s 1-on-1 with SoFi’s Nino Fanlo.

It its current iteration, fintech is a young sector. As such, the industry could use more mentors who can bring wisdom, markets experience and perspective to the enticing but difficult task of upsetting the financial status quo. Fortunately for SoFi, it has Nino Fanlo. This accomplished executive currently serves as the company’s CFO and President. Perhaps more importantly, Fanlo understands that building a successful long-term business requires a rabid commitment to developing a deep bench of talent and supporting those people in every way possible. So while understanding credit is Fanlo’s claim to fame, what impressed us most about him was his willingness to share credit with others for the company’s notable successes in capital markets, securitization and product development. For more, check out our recent conversation with Fanlo in Part 2 of our deep dive into what makes SoFi tick.

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Quant funds are trying to fight the siren song of Mountain View.

How are hedge funds trying to prevent computer science graduates from responding to the allure of Silicon Valley? According to Bloomberg, they are pitching their firms as academic research centers. That plus $300,000 starting salaries sound tempting, but not everyone is impressed. In response to the piece, John Fawcett, CEO of the crowdsourced quant powerhouse Quantopian, offered The FR his perspective: ”Financial firms, including quants, are still searching in the same places (college campuses), offering the same opportunity (full time employment), and organizing their people in the same way (academic research groups). My opinion is that the employment model and the recruiting search all have to change. The explosion of data from all areas of the economy is dramatically outpacing the global rate of recruiting and training people. There's no way the old approach will meet the demand.”

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When it comes to data, act like a boss.

Yes, data is a big deal, but let’s face it, some people don’t know how make it work for them.  If you’re tired of getting kicked around by your data assets, it’s time to show your data who’s in charge. One way is to attend DataDisrupt’s upcoming conference on March 29th and 30th that will focus on the strategies, benefits and challenges of fielding a cutting-edge data strategy. Act now and pay only $595 ($300 savings) for each ticket when using the promo code "FR" at checkout.

Reserve Your Seat

IN BRIEF

Banks are hiring counterterrorism pros to strengthen their cyber game.

Eric Chien of Symantec once ruefully noted that too many of the most talented technology experts were working on creating the next Flappy Bird over more serious projects. Fortunately, banks are doing what they can to fight this trend. Even ahead of the Vault 7 bombshell, we’ve noted that in recent weeks, several leading banks including Morgan Stanley, Goldman Sachs and JP Morgan have hired hard-core counterterrorism experts to amp up their cybersecurity efforts. One such professional is Jen Easterly. Although not a developer herself, Easterly has held an impressive number of positions within the government in fighting bad guys with great coding skills.

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Mike Pence’s financial services guy.

If you believe — as we do —  that Vice President Mike Pence’s stock is on the rise, then getting to know the Veep’s financial services influencers isn’t the worst idea. That’s why we’re keeping an eye on Mark Calabria, who according to several press accounts has been appointed as Mike Pence’s chief economist. Previously, Calabria led financial regulation studies at the libertarian Cato Institute. A purported supporter of Bitcoin, Calabria also tweets and retweets frequently on topics related to financial reform and innovation as well as on lighter things (such as the Ronnie James Dio holographic tour). For someone who could perhaps wind up being a key voice on financial services regulation, Calabria is followed by only about 4,300 people on Twitter. How unTrumpian.

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A roadmap for homeowners insurance disruption.

If you’re interested in disrupting the homeowners insurance market, check out the attached report by Rutgers University on “use it and lose it” states. That dynamic describes an instance where a homeowner who has paid premiums for years experiences a single loss and/or simply contacts their insurance company to see if a claim would be covered. Even if the insurer doesn’t pay out anything, a premium increase or nonrenewal can occur. Which states provide the best protections for policyholders? The leaders are Rhode Island and Texas (how’s that for an odd juxtaposition?). So if you’re looking to enter this insurance vertical with a more customer-friendly solution, it might be better to set your sights on  the 21 states that earned only one star for their commitment to fair treatment of consumers.

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Marketplace lending fighting off the ropes.

In a recent speech at Lendit, Prosper’s Ron Suber invoked Rocky Balboa in connection with the turbulence facing marketplace lenders. We would have preferred a rope-a-dope metaphor (Muhammad Ali’s brilliant strategy of absorbing George Foreman’s punches ahead of countering his way to victory), but we acknowledge his point: the marketplace lending industry has taken some blows, but it’s still in the game and poised for a comeback.  

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COMPANY OF NOTE: WorkingGroupLink. If you’ve worked in investment banking, you’ve encountered the basic working group list that accompanies every deal. It’s no fun to be the party responsible for it, but someone’s got to be. That unlucky soul usually builds the document in Microsoft Word or Powerpoint, then repeatedly sends it around to the entire deal team. This modus operandi hasn’t changed in a long time; however, thanks to this San Mateo company, there’s a software solution bringing banks into the modern era. The company’s solution offers a digital working group list that provides mobility, ease of use, security and searchability. Its core product, which is typically charged against a deal, is priced affordably so that it can be easily passed through to syndicates and/or clients. Regarding the future, founder and BofA alum Brian Bissonette says the company is evaluating a variety of new products and features, including relationship mapping, document sharing and workflow management.

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CAREER & INSIGHTS

Comings and Goings: Lantern Credit, a consumer credit start-up that counts John Mack and John Sculley as board members, has announced that Michael Korns will serve as the company’s Chief Data Scientist. Korns joins on the back of an agreement to sell ARC, the machine-learning library he created, to Lantern.  


Quote of the Week

Until you make the unconscious conscious, it will direct your life and you will call it fate.

~ Carl Gustav Jung