Weekly Briefing No. 30 | Even Bank Titans are Reinventing Themselves

Jamie Dimon’s reinvention as a tech guy, Ethereum’s momentum and Deloitte’s new report on marketplace lending are on this week’s radar. We also note a move to put customers on the hook for banking fraud, a reinsurer’s concerns for insurance, a big roboadvisor financing and question whether an algo can run the Fed. Finally, we highlight Ping An, a major Chinese insurer with a big fintech appetite. 

IN DEPTH

Even bank titans are reinventing themselves.

Jamie Dimon’s new trademark v-neck is more than just a fashion choice. He’s sending a message that he is a born-again tech guy who feels perfectly at home on Sand Hill Road. A case in point: a few weeks ago, Dimon turned up at Sequoia's camping offsite in the Santa Cruz Mountains (in a v-neck) alongside tech luminaries and polar explorer Ben Saunders. Exhibit two is his Recode Decode podcast interview, taped earlier in May but posted this past week, which underscores Dimon’s full alignment with a Silicon Valley worldview. Every single minute of the podcast, where Dimon displays the breezy confidence of a seasoned VC who cuts deals at Coupa Café, is worth hearing. Is Apple a friend or foe? Dimon: friend (for now). Will robots replace branch employees? Dimon: bots might be on the second floor. Big Data and AI? Dimon: they are being embedded into our DNA. Autonomous vehicles? Dimon: in 30 years it may be illegal for humans to drive. His most interesting comments, though, were directed at the increasingly thorny (scary) issue of tech-induced job destruction. “There are downsides to flying — people die every now and then. Do you want to stop all air flights?” (No, Jamie, of course not). Dimon’s passion for technology should be noted by financial services employees everywhere. This personification of Wall Street — he is perhaps the single most important person in the entire US financial services industry — is far down the path of reinventing himself. How about you?
Listen to the podcast here.

Ethereum’s got the ‘Big Mo.’

Amid the Bitcoin community’s internecine warfare, Ether could well become the first cryptocurrency to gain mass adoption. To be sure, its $1 billion market cap is dwarfed by the $7 billion value of Bitcoin, the largest and most liquid digital currency. But the Ethereum network, which was launched just nine months ago, appears to be fueling a much stronger ecosystem of app development because its programming languages (Solidity and Serpent) are far more flexible and easy to use than Bitcoin’s highly restrictive language. That conclusion as well as several others are articulated in this widely-read Medium post from Coinbase co-founder Fred Ehrsam, who does a great job in explaining why Ethereum is well positioned to create the “killer app” necessary in order for a technology to achieve widespread adoption.

Deloitte’s untimely attack on marketplace lending.

In its new comprehensive takedown of the marketplace lending sector, Deloitte pointedly speaks of many truths that have been apparent for some time. The timing of the report, however, issued two weeks after Lending Club’s woes began, diminishes its punch because hindsight makes it easier to call out the sector on its current deficiencies. Had Deloitte issued its report six months ago, it would have been gloriously gutsy and attention worthy. Still, the report is a solid read for those who believe, as we do, that once the regulatory investigations settle down (they haven’t yet), the arrogance of some existing marketplace lenders disappears (it’s beginning) and equity and credit prices are re-set (it’s starting to happen), there will be attractive investment opportunities in the sector.

IN BRIEF

Paying the tab for bank fraud.

According to this FT story (subscription), the UK Government Communications Headquarters (GCHQ) is the driving force behind a potential rule change that would shift the cost burden of bank fraud from banks to individuals. The likelihood of this rule change going into effect is next to nil, but the GCHQ, which is widely viewed as the BFF to America’s NSA, is making its point known clearly and loudly: if UK banks can’t figure out a way to fight cybercrime more effectively, it will turn up the heat and make life miserable for everyone (banks, consumers, interest groups representing the poor, et al.).

Swiss Re sounds the alarm bell on several fintech-related topics.

As one of the more forward-thinking reinsurers in the world, Swiss Re gets our attention when it expresses its views on emerging risks to the insurance industry. The list includes 1) a loss of confidence in monetary policies; 2) a fragmented/firewalled internet; 3) inadequate capabilities to evaluate sharing economy risks; 4) insurance value chain and cyber risks emanating from fintech and blockchain tech; 5) mass unemployment; 6) phony data; and 7) an erosion of trust in insurance companies. For the last one, at least, there are several great start-ups working hard to transform the industry. For the others…we agree.

Eaton Vance, UBS, others go long on SigFig.

One shouldn’t compare SigFig to roboadvice leaders Wealthfront and Betterment. With a modest $100 million AUM, SigFig is not so much an asset gatherer as it is an enterprise platform that can provide tools for big-brand financial institutions. With $33 million of equity and $7 million of debt courtesy of its new investors, the company should be well positioned to help other incumbents enter roboland.

A blockchained melody in trade credit?

“Trade financing, a centuries-old banking mainstay, may become ground zero for blockchain adoption because it promises to do away with paper invoices and the fraud that accompanies them.” That’s the view according to this Bloomberg article. But there’s still lots of work to do before banks can agree to the common standards necessary to create a shared invoicing platform. For more fresh blockchain material, check out this new think piece published by Goldman via Scribd. We liked Page 5 in particular as it makes a call on when broader blockchain acceptance will happen (five to ten years) and what could go wrong in the meantime.

Algo vs. Yellen.

Could an algorithm replace the head of the Federal Reserve? That provocative question has been raised by Andrew Lo of MIT’s Laboratory of Financial Engineering. Unsurprisingly, economists disagree on the degree to which artificial intelligence can set monetary policy. Maybe, in conjunction with the creation of a robo-Yellen, the Fed (or whoever would be in charge of the Fed-bot) also could cut a strategic partnership with Affectiva, a Boston start-up that wants to infuse emotional intelligence and empathy into AI-based tools.

Crushing predatory lending through daily pay liquidity.

We were encouraged to read this Bloomberg article detailing the wave of fintech innovation that enables employees to withdraw a portion of their paycheck as they earn it. In doing so, people can avoid onerous interest rates charges often associated with meeting their liquidity needs.

Company of note

Ping An. 

Usually we highlight emerging fintech companies, but we thought it made sense to feature China’s second-largest insurer, Ping An, on the back of news this week that it has joined the R3 blockchain consortium. Alibaba and, more recently, its affiliate Ant Financial tend to garner much of the fintech headlines coming from China. But Ping An has steadily built its fintech presence through investments such as eToro and its backing of Lufax, which has developed into a major p2p lending marketplace. Learn more about the company here

Comings and goings.

BlueTarp Financial, a Portland, Maine-based provider of credit solutions for B2B companies, has hired Lisa Balter Saacks as Vice President of Business Development. Saacks is a veteran of Gust and SecondMarkets.

Quote of the week.

“It is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without.”

~ Albert Camu