Weekly Briefing No. 50 | The Wells Fargo Board Should Visit Wrigley Field

Wells Fargo’s new skipper, fintech chatbots and Deep Learning all caught our attention this week. Also in the batter’s box: TechCrunch’s Bitcoin series, Goldman’s launch of Marcus, Cloud9’s fundraising and why insurance companies are subsidizing smart homes. Finally, we note WayUp, a marketplace for college students, and Crowdcube’s appointment of a chairman.

IN DEPTH

The Wells Fargo board should visit Wrigley Field.

Last Wednesday, Wells Fargo did the right thing in changing its CEO. But in promoting Tim Sloan, a 29-year veteran of the bank, the board looks to have made a very cautious choice in light of the major reputational damage sustained by the bank. Sloan is intent on hiring a slew of new risk management professionals and could wind up being a new, enthusiastic buyer for all sorts of compliance and sales-related technologies. But throwing personnel monitors, cool fintech and a healthy PR budget at Wells’ core trust problems won’t be a panacea. The bank needs a fresh perspective, which is why we’re only half kidding when we suggest that Wells should approach Theo Epstein, general manager of the Chicago Cubs, to join its board. For those who don’t follow baseball, Epstein has accomplished some remarkable things. As the general manager of the Boston Red Sox, he was instrumental in breaking the team’s 86 year-old Curse of the Bambino. In his current role as head of baseball operations with the Cubs, Epstein is on the cusp of banishing the team’s 108 year-old World Series drought, known as the Curse of the Billy Goat. How does he do it? By being different. Although Epstein uses sabermetrics and sophisticated software to identify undervalued talent (now commonplace in baseball), his key to winning/curse-breaking has been an approach to personnel development that emphasizes the full human being, not just a player’s production statistics. As Wells looks to revamp its sales system and beat back threats from other large banks and fintechs alike, it should look to the man who helped defeat Wells’ hometown San Francisco Giants. Epstein’s sharp understanding of how to motivate people is just the kind of insight the bank needs to break a slump of its own.

Has Peak Chatbot arrived?

Lately, it’s been hard to miss news of the latest and greatest chatbot coming to disrupt a financial services vertical near you. Several start-ups want to help millennials manage their money and guide them in deciding whether they can afford to buy a cappuccino. Others use chatbots to enhance the customer service experience associated with processing insurance claims and to provide customized trade ideas based on a user’s responses. Right now, if you take the hype at face value, you could easily think chatbots from Facebook and elsewhere are about to take over the world of mobile based e-commerce and financial services. But there’s just one problem with bot-based enthusiasm: reality. The truth is, most chatbots aren’t good at chatting yet. The reasons are multifold, as this VentureBeat article states, but in a nutshell, chatbots require a lot of manual programming, do a poor job of understanding user requests and have no memory. They aren’t proficient at processing follow-up questions or understanding context either. Maybe consumer-facing fintech applications will solve these problems, but better iterations will take time. Apple, for example, has been working on Siri for years and it’s still “dumb,” according to Walt Mossberg. Perhaps when the next new thing arrives in fintech, the chatbot hype will fade and the real improvements can finally take hold.

What’s the difference between Machine Learning and Deep Learning?

Thanks to advancements in parallel processing, Big Data and data storage, the potential of AI to be applied throughout financial services and society at large has grown dramatically in the last few years. But understanding the differences between AI’s two big guns, Machine Learning and Deep Learning, has escaped us. To better appreciate where one ends and the other begins, we turned to Bloomberg’s Ravi Sawhney. In an opinion piece contributed to The FR, Sawhney suggests that while Machine Learning is the far more accessible technology today, the potential of Deep Learning to transform financial services and other industries is much greater. That’s the good news. The bad, or at least cautionary news, is that a much more concerted effort is needed to understand how Deep Learning-based computer programs “reason.” That’s because artificial neural networks, which are inspired by the human brain, can make “mistakes.” Check out the full post here.

IN BRIEF

Bitcoin muscle on the banks of the Min Jiang.

“What do you do in a situation where one particular entity or group of entities acting collectively gain enough power in an open system that they can begin dictating the governance of that open system?” That’s the question posed by R3’s Charlie Cooper on the rise of Chinese Bitcoin miners in this second installment of TechCrunch’s youtube series on Bitcoin and blockchain tech. There are other key themes addressed by the series, but we were most intrigued by the images of Bitcoin miners in a remote section of China, several of which have utilized cheap electricity to build formidable operations.

Goldman launches online lending platform Marcus.

"Don’t underestimate a large, well-capitalized bank that understands consumer credit risk,” says Ram Ahluwalia, CEO of PeerIQ. However, his perspective on Marcus, which launched on Thursday, was a minority view among panelists at a recent P2P conference. Could Goldman’s foray into online consumer lending flop? Sure. Even mighty companies sometimes strike out, but we aren’t going to bet against Goldman here. The firm has carefully built the Marcus platform and has put its reputation behind its success. Plus, we think the timing is right for a new well-capitalized online lending entrant.

A who’s who of Wall Street backs trading start-up.

This week, Cloud9 Technologies announced the closing of a $30 million funding round led by JP Morgan. Other backers included Barclays, Point72 Ventures, ICAP and Hudson Ridge Asset Management. The premise behind the company is that voice communication remains an essential way in which traders deal with counterparties and foster relationships. Given the company’s heavyweight investors, it would appear many on Wall Street want to keep things that way as long as security, efficiency and compliance can be ensured.

Insurance companies want “data spigot” smart homes.

Here’s the high-tech quid pro quo being offered by USAA, State Farm and other insurers: equip your home with sensors and detectors and get a discount on your homeowner’s insurance. But as this MIT article indicates, insurers aren’t likely offering these incentives merely to expedite claims. It’s about data and preventative maintenance suggestions that an insurer could make to a homeowner. However, turning homes into “data spigots” comes with significant privacy and security risks that could make it much more complicated to implement data collection efforts.

COMPANY OF NOTE

WayUp.

It’s easy to be concerned about the balance sheets of today’s college students.  Student debt levels, which will put the average graduate $37,000 into the red this year, is poised to grow. After landing a job (if they’re lucky), their rent will be so high in many cities that they’ll be under the gun for years. That’s why we are highlighting WayUp, America’s largest online job marketplace for current students and recent graduates. Co-founders Liz Wessel and JJ Fliegelman seem determined to address the huge inefficiencies currently facing students, recent alums and employers. Backed by General Catalyst Partners, Box Group, Lerer Hippeau and Index Ventures, this start-up hopefully will do well while doing good. See the company’s site here.

Comings and goings. 

Crowdcube, one of the UK’s leading crowdfunding platforms with a 300,000-strong investor community, has named Simon Williams as its new chairman. Previously, Williams led HSBC’s wealth management group and ran several divisions within Citigroup. Crowdcube, which welcomes so-called “armchair dragons” to its platform, indicated that its new chairman has participated in the company’s most recent £8 million round. Williams may have built his career with incumbent financial institutions, but he’s no stranger to innovation, as he has also invested in other fintechs including Lending Club, Nerdwallet and OnDeck.

QUOTE OF THE WEEK

“A civilization is not destroyed by wicked people; it is not necessary that people be wicked but only that they be spineless.”

~ James Baldwin