This week, we look at PwC’s fintech findings, regulatory sirens that should be alarming fintech and Investopedia’s latest offering. We also extol the virtues of being the annoying kid in marketplace lending and the benefit of studying African financial innovation. Finally, we highlight privacy.com, creator of “burner” cards.
PwC reveals juicy findings in its new fintech survey. In its new survey-powered fintech white paper, PwC found that financial services incumbents believe that 23% of their business could be at risk due to fintech innovation while fintech professionals believe that they can snag 33% of traditional financial services business by 2020. That differential is significant, but the tastiest morsels are related to a “second wave” of disruption focused on Asset Management and Insurance. According PwC, 74% of Insurance executives and 51% of asset managers believe that their sector is the most likely one to be disrupted by fintech over the next five years (Page 7). Those are big numbers, and yet, only 43% of Insurance executives and 45% of asset managers want to make fintech a core element of their strategy (Page 23). That leads us to conclude that while many professionals in those verticals believe that disruption is coming their way, a significant percentage would prefer to act like modern-day Neros. Instead of fiddling, perhaps these executives should be working on strengthening their empires.
Hear those sirens? It’s the sound of more regulation coming fintech’s way. “One way or another, greater oversight on financial innovation is coming. If prominent fintech voices don’t develop robust two-way conversations with regulators PDQ, they risk facing the lobbying phalanxes of big financial institutions wholly unprepared.” That’s the blunt assessment provided to us by Paul Lobo of Policy Integration Partners. And while an erosion of regulatory edge is natural for any upstart sector as it enlarges, the forces now coalescing to constrain fintech’s growth isn’t by chance. Large firms — especially banks — are growing increasingly annoyed by the “unfair” advantages afforded to start-ups when it comes to lending, handling customer data and marketing digital financial products. Now, Big Finance is fighting back on one hand even as it cuts partnership deals with fintech firms with the other. Its approach is a big business standard: prod your Washington friends to force disruptors to spend more resources on compliance and less on stealing your customers. Cynical? Yes. But the bottom line is this: members of Congress, the DOL, CFPB, OCC and other three letter agencies are turning-up the heat. Those sympathetic to relatively unencumbered financial innovation had better get their act together if they want to blunt some of the impact. Or to put it another way: when it comes to financial services, better tech doesn’t always win.
Investopedia’s next act: advice. That’s the idea behind the company’s launch of an “idea marketplace” that will connect investors who have questions with financial advisors seeking clients. Although the FAs won’t be paid for their answers, the thinking is that by providing responses to investor inquiries, they can audition for the role of advisor to those yearning for more than an algorithm. Our only issue with this clever idea relates to a central reason why the roboadvisor market exploded in the first place: it’s hard for an FA to make a buck on a modest-sized account.
“Be the annoying kid,” urges the smartest guy in marketplace lending. QED’s Frank Rotman doesn’t annoy us, and his support for asking tough second and third degree questions to online lenders is spot on in our option (See his blog: https://fintechjunkie.com). QED has a VC’s perspective, but Rotman’s point also applies to buyers of individual consumer loans and ABS structures. With default rates on the rise and one marketplace lending ABS deal already in distress, the P2P beta trade is over. Now, being annoying is the only way to play.
Africa continues to teach the world about fintech. Although M-Pesa has been a success in Kenya, the mobile money provider has struggled in Tanzania and has failed in South Africa. A lack of lack of interoperability and other challenges have hampered the company’s ability to grow further. Turning to Ethiopia, we were interested to learn about the use of digitally driven microinsurance to confront extreme weather events. Read more here.
Most web sites, including many financial ones, are sitting ducks. The good folks at Google have released a new report showing that many popular web sites fail to use an added layer of encryption to protect consumer data. Although PayPal and gmail provide this layer— known as HTTPS — by default, 79 of the web’s top 100 non-Google sites aren’t up to snuff, says the report. Google has also released a comprehensive list that categorizes the most popular sites into three buckets: running HTTPS by default, running modern HTTPS and the naughty companies in the “other” category.
Is financial blockchain fever cooling? Given the “promising non-financial applications” of blockchain technology that have emerged, one Bitcoin VC explains in this article that he finds himself increasingly “inclined towards applications with a much lower regulatory burden.” The Economist, meanwhile, is out with a new, easy-to-read piece that argues that while blockchain tech will be huge in the long-term, its hype is rapidly outpacing its potential adoption.
Company of note: Privacy.com.
Former executives from American Express, Palantir and Expensify are behind this company, which generates virtual card numbers that seek to advance greater e-commerce security. Its Privacy Visa Cards can be locked down to a single merchant, turned into “burner cards” or have pre-set limits programmed into them.
Comings and goings.
Seth Wheeler, formerly President Obama’s principal advisor on financial regulation and policy, has joined J.P. Morgan to help lead the bank’s innovation efforts in its consumer and community banking business lines.
Quote of the week.
“The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.” ~ Bertrand Russell