Weekly Briefing No. 31 | Fintech Collaboration Kumbaya Pays (For Now)

Tired of fintech partnership happy talk? So are we. This week, we’ll explain why, and also discuss the impact of a Brexit on UK fintech, PayPal’s new cryptocurrency filing, the world’s first DAO, job risks in an automated society and the challenge of cyber insurance. We are also highlighting SelfLender because a person’s credit history is a significant digital asset. Finally, if you work at big firm resistant to innovation, we urge you to contemplate Samuel Goldwyn’s pithy quote on being a “yes-man.”

IN DEPTH

Fintech collaboration kumbaya pays (for now).

With the widely-covered difficulties of once marquee fintechs in the UK and the US, it seems that swagger has been replaced by collaboration as 2016’s big financial innovation theme. In fact, if you google “fintech” and “collaboration,” you will find a slew of examples (like this one and this one) that convey a similar message: financial services disruptors and incumbents can accomplish more together than apart. Perhaps collaboration in areas such as blockchain tech will endure, but our sense is that the collaborative era will fade — especially in consumer facing activities. For now, though, kumbaya pays. For banks and asset managers, it provides time to build comparable solutions in-house. For start-ups, it builds expertise in acquiring clients more cheaply. The downside is that most of the time, one side of the collaborative effort transfers more value than it receives. To illustrate our point, consider the recent story of Bartolo Colon, the wily New York Mets pitcher who deliberately struck out in his three times at the plate against pitchers for the Washington Nationals. Here’s his explanation: "I swing at the balls pretty hard and I thought, not worth making my back worse, so I told their catcher from the beginning, 'Just throw it right down the middle, I'm not swinging.’” The Nationals pitchers obliged, thereby enabling Colon not to swing and avoid running the bases. Win-win? Hardly. We think that the Nationals pitchers should have deliberately thrown pitches out of the strike zone, forcing Colon to swing three times per at-bat. The Mets and the swing-free Colon proceeded to win the game and the Nationals pitchers, for all their kind collaboration, were left with meaningless strike-out credits to their name. Nice job Nationals... If you are involved in a financial innovation partnership — whether at the established firm or at the start-up  — remember that collaboration is a means to an end, not an end. Or in other words, it’s better to be the Bartolo than to whiff.

Should I stay or should I go?

Next Friday, radio listeners should expect to hear that famous Clash song as it will mark the 34th anniversary of its release. The song takes on added meaning this year given the upcoming Brexit vote on June 23rd.  For London’s explosive fintech sector, the crown jewel of UK’s technology efforts, a Brexit could spell turmoil, especially given the outsized importance of financial services in the UK economy. If “exit” wins, UK fintechs such as Zopa, TransferWise, DueDil, Bankable and others will have to navigate new complexities of doing business or refocus and try expanding elsewhere. From the Yanks perspective, it would be great if some of our British cousins chose to set-up shop here, thereby strengthening America’s global leadership in financial innovation. As for US fintech companies seeking to expand eastward, we think it would be logical for them to consider continental alternatives to London. The UK domestic market is attractive, but it pales in comparison to the broader EU market, which would be harder to penetrate from a stand-alone Britain.  

IN BRIEF

PayPal files cryptocurrency patent.

The difficulty in using cryptocurrencies for day-to-day transactions is one of the core impediments to their wide scale adoption, says payment consultant Mercator Advisory Group. Apparently, PayPal thinks so too, which is why we are noting its recent patent filing for a “modular payment module” that includes a “chassis which has a modular device connector.” In trying to wade through the “modules” and translate patent-speak (which is even worse than Fed-speak), we are guessing that this contraption has funding source and security information that can help legitimize transactions made via this system.

Big deal DAO.

As we pointed out a few weeks ago, the launch of the first decentralized autonomous organization (DAO) — via blockchain tech — is a key thing to watch. And that’s what we are doing by highlighting the Tapscott father and son duo who are out with a new article asking whether DAOs will usher in workerless corporations that are pre-programmed to carry out the wishes of stakeholders. Does the Family Tapscott have a vested interest in heightening the significance of the first DAO? Perhaps, but they make a good case in asserting that software can automate important aspects of human governance and decision-making. As such, we’re sympathetic to their assessment that we could be witnessing a “watershed moment in the history of financial services.”

And speaking of technological displacement of labor…

The FR’s Gregg Schoenberg appeared alongside Deke Digital’s Dave Maney this week at PKF O’Connor Davies’ symposium on investment perils and opportunities in an automated society. Here’s a quote from a seminal piece Maney wrote in Forbes entitled, The Death of Jobs: “The path of moving from the ‘job-centric’ system we have now, which emerged during the Industrial Revolution, to an information-powered ‘Individual Economy' is going to be painful and disruptive. But it’s also inevitable, and ultimately beneficial to our society — so long as we don’t measure our economic progress by the degree to which we look like we used to look.”

Cyber security risks aren’t easy to isolate for insurance providers.

As a result, the insurance industry is scared, according to this article in Business Insurance. “It's challenging enough to be able to understand how our exposure is coming from explicit cyber coverage, but when you throw in the addition of (directors and officers) policies, management (liability), crime, even property policies — that's where it becomes even more challenging,” said Eric Cernak of Munich Reinsurance. 

Physical Bitcoins have arrived.

While it may seem somewhat contradictory, Bitcoin is following Amazon, Warby Parker and other online-driven entities by entering the physical realm (aka the world where you can actually touch stuff). 

CB Insights is nailing it on fintech.

That’s why, even though its June 8th –10th fintech conference is sold out, you may want to register for the livestream to catch all the action. 

Company of note

SelfLender.

Thanks to Efi Pylarinou of Daily Fintech Advisers for highlighting this company, which touts credit-builder loans as a way for people to enhance their credit scores. As Pylarinou explains, one’s credit history is an important digital asset that has not been given the attention it deserves in the US. Enter SelfLender, which seeks to broaden the use of credit-builder loans (used almost exclusively by credit unions to date) in partnership with NerdWallet and Austin Capital Bank.

Comings and goings.

Barclay’s Simon Taylor will be leaving the bank to become a co-founder of 11:FS.  Taylor, who helped Barclays establish Rise, its in-house accelerator, will join David Brear, Jason Bates and Chris Skinner in the blockchain consulting firm that also hopes to have a sizable venture arm. Meanwhile, former FDIC chair Sheila Bair has added to her portfolio of fintech activities with her appointment as an advisor to Bloom, an online retirement plan optimizer.

Quote of the week.

"I don't want yes-men around me. I want everyone to tell the truth, even if it costs them their jobs."

~ Samuel Goldwy