Weekly Briefing No. 111 | It’s a Wonderful Life for Consumer Fintech Start-Ups; Quantopian’s CEO Speaks to The FR

Welcome to The FR’s final “live” edition in 2017. Over the next two weeks, we’ll be featuring our roundup of financially related movies, books and podcasts to take in over the holidays. We’ll also be sending out our annual predictions issue. In the meantime, here’s what’s under our Festivus Pole this week:

  • More fresh capital for consumer-facing fintech start-ups
  • The FR’s Gregg Schoenberg talks (again) with Quantopian’s John Fawcett
  • Should Bitcoin go to the moon? Are financial innovation labs worth it?
  • Tax “reform”; Intel’s Biotech blockchain patent; MiFID II and Ethereum
  • Financial Journalist of Note: Penny Crosman

It’s a wonderful life for consumer fintechs.

“You used to be so cocky! You were going to go out and conquer the world! You once called me a warped, frustrated old man. What are you but a warped, frustrated young man? A miserable little clerk crawling in here on your hands and knees and begging for help. No securities, no stocks, no bonds, nothing but a miserable little five-hundred-dollar equity in a life insurance policy. You're worth more dead than alive.”

That’s the venom delivered by Lionel Barrymore as miserable millionaire Henry Potter to James Stewart’s George Bailey in Frank Capra’s classic film, It’s a Wonderful Life. While overly sentimental and saturated during the holidays, the movie has come to mind positively in light of recent news that Affirm (See our recent conversation with CEO Max Levchin here) and Aspiration — which are both dedicated to promoting fairer, more transparent financial services — have raised fresh capital ($200 million and $47 million, respectively) to further develop their platforms. Now, we’re not suggesting that all big financial institutions are villainous Henry Potters. Nevertheless, some of their behavior certainly has a Potter-esque feel. To wit, we’re noting this week’s news that TD Bank is being sued for allegedly improperly charging overdraft fees and that Wells Fargo is being pursued by the Navajo Nation for alleged predatory practices. Underlying these suits is consumer resentment — not over the fact that banks are making a buck, but over how they are making a buck. Still, we are hopeful that as we enter 2018, progress (and hopefully more open source initiatives) will show that large financial firms understand that it’s in their long-term interest to act more like George Bailey than Henry Potter. Or, to loosely paraphrase another line from the movie, “Every time a bank sneaks in another fee or trick covered by an impenetrable terms of service agreement, a fintech angel gets its wings.”

Quantopian’s John Fawcett is long grit.

VCs often talk about “the team” as the most important factor in backing a company, but what does that really mean? Perhaps they are suggesting that great teams know how to manage the inevitable disagreements and conflicts that arise. Or maybe that great teams are willing to look objectively at a company’s direction and make difficult diagnoses when needed. It could also imply aggressiveness and a will to win against incumbents looking to mercilessly crush them. But more than anything else, we think it means having grit in the face of the turbulence that inevitably befalls a start-up, regardless of the names on the cap table or the prestige of the advisors. Avoiding the temptation to indulge in excuse-making is also a part of grit, because it’s always easier to blame a convenient bogeyman than to accept fault. And grit is the reason we’re re-highlighting Quantopian CEO John Fawcett this week. A former subject of our Conversations series, Fawcett has his work cut out for him given the recent departure of Quantopian’s CIO, the challenging environment for quant strategies and the perception by naysayers that the company’s crowdsourced model is flawed. He nevertheless agreed to take time out to talk with Gregg Schoenberg in a candid follow-up discussion. To us, this conversation revealed a CEO with exactly the kind of toughness and vision great entrepreneurs possess. As such, we’re looking forward to seeing how Quantopian’s destiny unfolds and would suggest that entrepreneurs bookmark this start-up. There could be some great lessons to learn.

IN BRIEF

Bitcoin’s going to the moon.

No, we’re not talking about Bitcoin’s inevitable rise to $20,000 (even if Goldman decides not to provide leverage to Bitcoin futures traders). We’re talking about the growing realization that mining Bitcoin is a dirty business that will have real negative environmental consequences on Planet Blue. How bad? According to a great article by Adam Rogers in Wired (See below), the Bitcoin mining network is now taking up about 0.15 percent of the world’s electricity consumption, which means that Bitcoin is belching out the equivalent of 17.7 million tons of carbon dioxide per year. Perhaps Proof of Stake adoption could address this issue, but another handy solution could be for miners to jump aboard the MoonTech craze and somehow look to capture that delicious supply of helium-3 on the moon that is just begging to be plundered.

Hey, financial innovation labs: where’s the beef?

This week, we were pleased to partner with S&P Global Market Intelligence on its Fintech Intel conference. One notable topic explored was the efficacy of so-called innovation labs. After years of hype, an increasing chorus of people are essentially parroting the famous question posed by Clara Peller in a string of Wendy’s commercials: Where’s the beef? In an attempt to address the core point implied by this growing legion of doubters, we’ve stumbled on some thoughtful pieces as of late, like this one by Andy Howard with the catchy title “Innovation Labs Don’t Work.” Another one more specific to financial services that caught our eye comes from Richard Turrin, who takes aim at “meaningless hackathons” as well as an emphasis on mastering technology over people and culture.

The real National Pork Board isn’t in Iowa.

“People, Pigs and Planet.” That’s the tagline of the National Pork Board. But as the House and Senate work to get a tax bill on the president’s desk next week, you get the sense that the true national pork board is in Washington, not Iowa. With its grab bag of tax expenditures (i.e., favors), people left, right or center may agree that whatever emerges from the reconciliation process, it will be a porcine cornucopia that follows the tradition (on both sides of the aisle) of paying lip service to simplicity while doling out the kielbasa. Speaking of which, if the offshore cash repatriation provision is given an expected nod, it will be interesting to see if that cash actually flows into capital investments or whether it becomes part of the “buyback economy.” We hope it’s the former, but suspect the latter.

The convergence of blockchain and biotech.

A patent was filed by Intel this week for a computer that envisions a new way to conduct genetic sequencing via a Proof-of-Work blockchain. We’ll grant you that getting your head around not only blockchain tech, but also how nucleobases in DNA and RNA are ordered, can be daunting. But if you take the word of genetic scientist and entrepreneur Craig Venter, genetic sequencing is the future of medicine. So yes, this could be a big deal.

MiFID II meets Ethereum.

“Enough with the MiFID II stories.” That’s been a consistent refrain we’ve heard from some subscribers, who’d rather have us curate more blockchain articles. Happily, we are finally able to combine these themes thanks to a host of financial services and data firms. That’s because a Massive Autonomous Distributed Reconciliation platform, catchily nicknamed Madrec, has been created to make it easier for banks to reconcile counterparty reference data as required by MiFID II. Hatched by UBS’s R&D office at Level 39, the anonymized data is hashed to the ethereum blockchain, while source data stays within the institution. The smart contracts then reconcile the data, enabling users to spot anomalies.

FINANCIAL JOURNALIST OF NOTE

Penny Crosman, Editor at Large at American Banker

This week, instead of noting a promising fintech start-up as we usually do, we decided to shake things up a bit by highlighting a financial journalist instead. These professionals play a vital role in helping executives and consumers make sense of the revolutionary changes taking place in financial services. But let’s face it, truth-telling isn’t the most popular profession these days. So this week, we’re highlighting one of our favorite financial journalists: Penny Crosman, from whom we’ve come to expect excellent reporting that usually incorporates a fresh angle and/or diverse perspectives. Such was the case Monday, when she kicked off the week with a story on remote browsing technology, which can insulate financial firms from phishing attacks. Then, later in the week, Crosman covered BBVA spin-off Covault, which is using a non-blockchain solution (quelle horreur) to solve the chicken-and-egg problem confronting digital identity services. As usual, it was very well done.

QUOTE OF THE WEEK

“There are two ways to enslave and conquer a nation. One is by the sword. The other is by debt.”

~ John Adams