December is upon us and the fintech developments are coming at a fast and furious pace. On this week’s agenda:
- The OCC’s new fintech charter
- The FR’s exclusive 1-on-1 with AlphaSense’s Jack Kokko, the Moral Machine
- Segregated Witness, PeerIQ, China’s fintech scene
- Company of note: Kash
A fintech judgement of Solomon.
When King Solomon of ancient Israel had to adjudicate a dispute between two women both claiming to be the mother of a child, he pulled one of the greatest gambits of all time by suggesting that the baby should be cut in half. Upon hearing this idea, the treacherous claimant agreed. The righteous woman said, “Give the baby to her, just don't kill him!" In doing so, the noble king got to the bottom of the matter and made the right decision. Well done, King.
Nobody is going to compare OCC Chairman Thomas Curry to the ancient king, but in rendering his decision yesterday to grant a special charter to fintech companies, we think he at least deserves a royal pat on the back. Tempers and anxiety ran high leading into the OCC decision because the implications for our financial system are significant. In the end, the OCC chose modernity over antiquity and the financial services sector over the tech world. How so? First, the byzantine state laws that govern our financial system have held back fintech innovators from reaching their full potential. Those state laws can now be pre-empted by a Federal standard. This is good news. But as Fed governor Lael Brainard said yesterday, “While ‘run fast and break things’ may be a popular mantra in the technology space, it is ill-suited to an arena that depends on trust and confidence.” Those words of caution were uttered to remind would-be applicants to a fintech charter that if their company receives the designation, they will be expected to comply with many of the controls, protections and standards asked of traditional financial institutions. So unlike King Solomon’s decision, the baby was in fact cut in half yesterday. Nobody can or should be completely happy, but as there wasn’t a wicked claimant involved, the OCC’s decision looks to be a wise choice.
Has the Google for investment analysts arrived?
When analyzing a stock, analysts don’t say, “Let me AlphaSense that name.” Turning your company into a verb is no small accomplishment and only a handful of companies besides Google have been able to achieve that kind of status. But when you consider that the fintech start-up co-founded by Raj Neervannan and CEO Jack Kokko is revolutionizing the way fundamental research is performed — and over 500 clients use their product — we think a slot in the Verb Hall of Fame may one day be within reach. The FR’s Gregg Schoenberg recently visited with Kokko and covered a wide range of topics including AlphaSense’s meteoric rise, the future for active investment management and the company’s decision to move its center of gravity from San Francisco to New York. We came away impressed by the AlphaSense story and Kokko’s message that good old-fashioned fundamental analysis has a future, and a tech-powered one at that.
Tech needs more philosophy majors.
Our (minority) view that fintech (and tech in general) needs more people who majored in Humanities and other Liberal Arts is supported by MIT’s new site, the Moral Machine. The site seeks to promote discussion around the “machine ethics” that must be factored into self-driving cars. That’s a nice way of saying that an algo built by humans will need to make decisions on who to kill when an autonomous vehicle must choose between killing groups of people. As AI entrepreneurs drive deeper into several tech verticals (including fintech), the ethical dilemmas around business decisions are going to get harder to tackle. We hope that as those decisions are made, there will be a few people at the table who spent their college years reading Plato and Proust rather than learning Prolog and Python.
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Segregated Witness: A program for wiseguys or a Bitcoin Xmas present? “SegWit” is not a witness protection program for Mafia figures who turn state’s evidence. It’s a Bitcoin technical upgrade that would significantly expand the Bitcoin blockchain capacity. The buzz within the digital community is that if this proposed upgrade goes through (95% of all code miners have to support the update) it could spell good things for two constituents: banks that have been reluctant to become involved in Bitcoin because the existing network is too “crowded,” and the start-ups, bloggers, publishers and artists who support greater adoption of micropayments.
PeerIQ and Transunion cut a smart deal. As the marketplace lending (MPL) matures, PeerIQ is a name to know. The New York start-up is increasingly relied upon by institutional investors seeking to gain exposure to MPL assets. That mission received a boost this week when the company struck a partnership with TransUnion, one of the “Big Three” credit bureaus, to use TransUnion data to power PeerIQ’s offerings. TransUnion has one of America’s deepest consumer databases, so this partnership looks to be a smart way for PeerIQ to bring more sophisticated analytics and robust data sets to the sector.
China’s fintech market: Huge, advanced and unencumbered by legacy players. S&P has estimated that China’s big banks will need $1.7 trillion to cover the bad loans on their books — that’s trillion with a “T.” But in parallel with the major problems, there’s also an astounding level of momentum in the Chinese fintech ecosystem, driven by a few large companies including Ant Financial, Lufax, JD Finance, Qufenqi and ZhongAn. Any non-Chinese financial services firm looking to enter the Chinese market would be wise to start their China strategy by approaching one or more of these firms and/or their backers including Baidu, Alibaba and Tencent. Given the macro environment in China, now may be an opportune time.
COMPANY OF NOTE: Kash.
We like the intentional misuse of the letter “K” as much anyone. But more importantly, we are highlighting this San Francisco start-up for building a full-stack payments company seeking to reduce the high fees that merchants must swallow for accepting credit cards. The company, which recently added former Visa CEO Joe Saunders to its board, has three business lines. The most compelling opportunity is a white labeled solution that will soon be utilized by a few major retailers. It’s true that retailers will have to combat credit card reward programs, but given the big interchange fees associated with debit and credit cards, Kash is betting that merchants would prefer to take the savings they reap from Kash to offer generous loyalty programs themselves. Sounds klever to us.
CAREER & INSIGHTS
Comings and goings: Citigroup named Vanessa Colella head of Citi Ventures and chief innovation officer for the bank. An alum of Teach For America and a former high school biology teacher, Colella worked at McKinsey, Yahoo and US Venture Partners before joining Citigroup in 2010.
Wisdom: Investment pros should know about Bill Snyder, even if they have no interest in college football. Although Snyder’s Kansas State Wildcats don’t get the attention of the Alabama Crimson Tide or Notre Dame, the story of how Snyder brought a one-time hapless franchise to greatness is inspiring. How did he do it? Through extreme hard work, a maniacal quest for the one detail that makes a difference and lots and lots of Kenny G music. Read more.
QUOTE OF THE WEEK
"As a historian, I’m skeptical about conspiracy theories, because the world is far too complicated to be managed by a few billionaires drinking scotch behind some closed doors."
~ Yuval Noah Harari