Weekly Briefing No. 49 | Fintech Collaboration is Today’s King. Got a Back-up Plan?

A halcyon age of collaboration between incumbents and start-ups is here. Should you jump on? We raise that question and feature our recent interview with Money.Net’s Morgan Downey. Also this week: AQR’s Cliff Asness defends index investing from those who believe it’s worse than Marxism, the frayed social contract between banks and millennials, Uber’s ubiquity, a new OnDemand insurance product, blockchain as the world’s savior and a Capital One acquisition. Finally, we highlight Marstone, a roboadvisor taking a distinct path.

IN DEPTH

Fintech collaboration is today’s king. Got a back-up plan?

Ah partnerships, those synergistic 1+1=3 collaborations that yield unscripted good times and profits for all. Black and Scholes, Watson and Crick, Key & Peele… the list goes on and on. And if you caught the recent comments made by Goldman Sachs fintech honcho Jeff Gido, you could be easily convinced that the golden age of fintech-incumbent partnerships, snazzily termed the ‘third wave,’ is going to mean a permanent high for all parties. But unlike the partnerships of myth, the partnerships Gido describes are ones borne of deficiencies because — let’s be real — if a fintech startup didn’t need an incumbent’s vast trove of captive clients and if Bob from the IT department could mastermind a new Ethereum-based blockchain solution, there would be no third wave. That’s not to say we don’t agree with Gido’s analysis. Rather, it speaks to the need for caution before parties choose to collaborate. In fact, it’s particularly important for the start-ups because these collaborations speak to a kind of quasi-M&A whereby the acquirer gets to demo the start-up for a long period  before it decides whether to make an offer. If the incumbent likes what it sees, it has the inside track on a half-diligenced target even before the offer is made. And if things don’t work out, it’s on to the next one. So what should a start-up do when approached by a large institution promising to make all of its customer acquisition blues disappear? Our suggested recipe has three parts: 1) Make sure you have at least one seasoned, gray hair on your operating team (not just on your board) who knows how to deal with institutional decision-making processes; 2) Never fib up front in the hopes you can grow into whatever capabilities you profess to have; and 3) Maintain enthusiasm for your partnership, but don’t be too needy or eager to please. Preserving the ability to remain viable as a standalone company is crucial because it’s always possible that a third wave morphs into a wave goodbye.

Captain Morgan is on deck.

“If you are in finance in any capacity, from trading, to investment banking, to middle and back office, to corporate Treasuries, my vision is for you to get all the raw material for your job from Money.Net.” That’s the ambitious goal set by Money.Net’s CEO Morgan Downey as he takes on giant competitors including Bloomberg and Thomson Reuters. But unlike those who are seeking to attack the trading platform status quo one feature at a time, Downey is delivering a comprehensive financial data and news solution at a compelling price point. Delivering for demanding Wall Street clients is certainly no walk in the park, but for Downey a former oil trader, best-selling author and ex-Bloomberg executive — it appears to be the challenge of a lifetime. The FR’s Gregg Schoenberg recently sat down with Downey to learn more about his company and to get his thoughts on the future of Wall Street and fintech.
 

Are roboadvisors really worse than Marxists?

Anyone who knows anything about AQR’s Cliff Asness knows that the quant hedge fund entrepreneur and American Enterprise Institute fellow is the total antithesis of a Marxist, let alone a Leninist or Stalinist. But if you believe Inigo Fraser-Jenkins of Sanford Bernstein, anyone who promotes index investing is destroying capitalism and free markets — which would put Asness and ETF-using roboadvisors in the ‘worse-than-Marxist’ camp. Last week, Asness took aim at Fraser-Jenkins’ bold assertion in a well-articulated rebuttal that acknowledges a world without any active management would be “odd.” But he rightly asserts that in a capitalist economy, we all rely on existing market prices to determine the value of most goods and services. In other words,  freeloading off price signals is a perfectly pro-capitalist thing to do.

IN BRIEF

Tech firms trounce banks on social contract with millennials.

In this opinion piece, Andrew Sharpe, Chief Product Officer of Australia’s onefill, articulates the missing link that prevents many banks from “getting” millennials: “There is a widespread feeling that when a customer provides their personal data to a bank, it will primarily be used to push more products onto the customer,” Sharpe says. Conversely, Google, Apple, Facebook and Amazon understand that in exchange for handing over their data, millennials want “better, life-enhancing” experiences. Sharpe’s point seems pretty sharp to us.
 

From Singapore to Summit to Suffolk, Uber steamrolls on.

If you played a drinking game called Uber, in which participants took a shot every time Uber did a deal, you’d get awfully sloshed. For example, last week, Uber announced it had partnered with Standard Chartered to provide up to 25% cash back per ride for the bank’s credit card holders in six overseas markets. That deal occurred at that same time in which Uber inked a pilot with the town of Summit, New Jersey to offer free or highly subsidized rides for the town’s rail commuters. Rounding out the week was Uber’s announcement that it has partnered with the Commonwealth of Virginia to provide safe rides to Virginia’s Wine of the Month festivities. Uber never stops.

Prosper bids farewell to secondary trading partnership.

Leading marketplace lender Prosper quietly announced recently it will be terminating its partnership with FOLIOfn, which enabled Prosper’s retail investors to sell notes in a secondary market. While not great news for investors who used the service, we think it’s a smart move by Prosper. Simplifying its business should be the name of the game as the company seeks to find a buyer and/or diversify its funding sources.

Slice Labs targets house-sharing insurance.

Slice Labs, a New York-based insurance start-up, has launched a specific policy for hosts who rent their homes via Airbnb, HomeAway and other platforms. When you consider AirBnb alone boasts a supply of rooms that exceeds the combined inventory of Hilton, Marriott and InterContinental (See here if you don’t believe us), our questions are as follows: 1) What took so long?; and 2) When will the beta test extend beyond Iowa? We have nothing against the insurance-friendly Hawkeye state, but New York, San Francisco and other cities will likely embrace instant on/instant off insurance solution.

Deus ex blockchaina.

Years ago, campaign jester James Carville quipped that when he died, he'd like to be reincarnated as the bond market because it could impose its will on anyone. During the time he said this, the Fed was feared, Bill Gross, founder of Pimco, was revered and Richard Branson was establishing himself as a billionaire badass. But in the past week, Gross and Branson spoke publically about blockchain tech as a powerful counterweight to central bank mismanagement and global economic challenges. Times (and power dynamics) have certainly changed.

Capital One puts Paribus in its wallet.

A former Company of note, Paribus has built a clever system for automating the process by which consumers can qualify for refunds under retailers’ price matching policies. But unlike other price-tracking apps, the company has figured out a way to work collaboratively with at least some retailers. With this acquisition, Paribus will now be the latest addition to Capital One’s growing portfolio of financial wellness offerings.

COMPANY OF NOTE

Marstone.

Marstone is a different kind of roboadvisor.  Founded by Margaret Hartigan, a former Merrill Lynch financial advisor, this start-up has focused (for now) on white-labeling its offerings for RIAs, banks and other advisors. Its sub-advisory and tech solutions have been furthered by its deal with Pershing, a major clearing and custodian firm for RIAs and independent broker-dealers. In addition, the company has recently inked a deal with IBM Watson to infuse its automated services with cognitive computing and self-learning technology. 
 

COMINGS AND GOINGS

Veronica MacGregor has joined Goodwin, a global law firm, as a partner in the firm’s financial industry and fintech practice. In addition to her broad and extensive background in financial services, MacGregor serves as the vice-chair of the Consumer Financial Services Committee of the American Bar Association and chair of its Electronic Financial Services Subcommittee.

QUOTE OF THE WEEK

“Yesterday is history. Tomorrow is a mystery.”

~ Vanilla Ice to Ryan Lochte