Weekly Briefing No. 62 | Fintech Pros: Are You In or Are You In?

As we enter the new year, we note that some are into fintech for real and some are into it for a trade. We suggest that 2017 will be the year that determines who’s really in. Also this week:

  • A human vs. machine contest relevant for investors and traders
  • Divisions emerging on the promise of blockchain tech
  • The end of Chase’s deal of a lifetime
  • MIT’s AI forecasts
  • France’s self-sabotage in luring London fintechs
  • Company of note: Clarity Money

IN DEPTH

Fintech pros: Are you in or are you in?

“All I need is $300,000 a year; I’ll go without a bonus for a year or two if I think there’s an exit.” Those sentiments, expressed to us by a banker looking to work at a fintech start-up, reveal why some dyed-in-the-wool fintechers remain skeptical of Wall Streeters. But one misguided banker doesn’t make a trend, and for every out-of-touch trader, PM, salesperson or banker, we see just as many if not more Wall Street hands who recognize that financial innovation, whether at an incumbent or a start-up, requires a long-term commitment. So here’s the good/bad news: 2017 is going to be the year of an old school head fake. We’re likely to see pay levels for traditional jobs start to creep up, regulations start to creep down and some plain old creeps start to spin narratives that fintech is overhyped or just plain over. But if you are in, and we mean really in, on the idea that financial services is never, ever getting back together with old business models, you won’t be lured into thinking we’re heading back to 2007. You’ll realize that the pace of innovation is increasing and that the future of enterprise and consumer financial services belongs to the revolutionaries at start-ups and big firms alike. And in some respects, 2017 will signify the opposite of Warren Buffett’s famous saying, "Only when the tide goes out do you discover who's been swimming naked.” This will be the year when the old school tide comes in for a while. Will you be swimming with the temporary tide or are you really into going somewhere new?

Every investor should know about this upcoming battle in Pittsburgh.

It was big news when IBM’s Deep Blue and Watson postered chess champion Garry Kasparov and Jeopardy kings Ken Jennings and Brad Rutter. So too when Google’s DeepMind creamed Go champion Lee Sedol which led us to note the prediction of Two Sigma’s David Siegel that at some point, no human investor will be able to beat the computer. But while chess and Go are complex, there’s one game even more relevant to investors and traders: poker. That’s why we are taking note of a Carnegie Mellon crew who have built an AI system that’s ready to challenge some of the world’s top players at a heads-up, no-limit Texas Hold’em poker tournament next week at a Pittsburgh casino. Poker, a game of imperfect information and infinite probabilities, has been a longstanding part of battle training for young talent at many funds. It’s tough to know if the bot will win the first time out, but it’s unlikely that the CMU rocket scientists will embarrass themselves. If that’s correct, Siegel’s famous prediction could be coming sooner than some believe.

Throwing ice on a cash blockchain.

In contrast to the halcyon days of 2014 and 2015, blockchain tech had a rougher time last year. Earlier, the logic of Distributed Ledger Technology (DLT) seemed poised to melt away intermediaries at the pace of Moore’s law. But a funny thing happened on the way to the blockchain financial forum: resistance. Sure, some blockchain start-ups are making great progress and at least two major firms, State Street and Deloitte, have already doubled down on blockchain tech in 2017. But the reality is that many blockchain start-ups are learning that the path to becoming a blockchainacorn is paved with turf protection landmines, regulatory ambiguities and entrenched thinking. Notable Bitcoin proponent Ferdinando Ametrano has a different rationale for his reservations, especially regarding cash-on-the-ledger projects, which he explained in a recently published opinion piece. Ametrano argues that you can’t simply repurpose DLT and/or strip it of Bitcoin or another native token because “decentralized consensus seems so far very hard to reach without the economic incentives provided by a blockchain native digital asset.” Although we part ways with him on several aspects of his arguments, we think his thoughtful analysis is worth a read.

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IN BRIEF

So long, Sapphire. 

In an extremely successful (and costly) bid to acquire new premier customers, Chase blew minds when it launched the Chase Sapphire Reserve card that offered 100,000 bonus points after spending $4,000, 3X points on travel and dining at restaurants worldwide, plus a new Tesla and a stay at Richard Branson’s private mansion on Necker Island. Okay, we’re exaggerating to make the point that the card’s benefits were unbelievable. Now, with the offer sunsetting, you can almost hear the sigh of relief from other card issuers and online lenders focused on the high-end.

Don’t break hearts, Erica. 

“2017 won't be the year that voice banking takes off. Significant customer adoption of voice banking is three to five years away.” That’s the view of Emmett Higdon, director of mobile for Javelin Strategy & Research, in the attached American Banker piece by Jonathan Camhi. Still, the article reminds us that Bank of America soon plans to roll out a virtual assistant named Erica who will be available through the bank’s mobile app to provide basic financial advice.

AI pranksters and 2017 predictions. 

The big joke at last month’s Neural Information Processing Systems conference was around Rocket AI, a faux AI start-up that was focused on Temporally Recurrent Optimal Learning, or TROL(L). Do those AI PhDs know how to pull off a prank or what? Kidding aside, we developed a greater appreciation for the TROL(L) joke after we read the commentary offered by MIT in its list of AI predictions for 2017. Apparently, a big buzz in AI circles these days is that there’s too much buzz.

Memo to France: Limiting email hours is no way to lure London fintechs. 

French professionals get a bad rap. The nation’s business, tech and engineering schools produce brilliant people, and its quants are very talented and entrepreneurial. Not only is eBay’s founder French, so too are the heads of US start-ups including Docker, Moderna Therapeutics and Numberly. And why not? The word “entrepreneur” is French, for heaven's sake. That’s why we hate to see the news that French companies with more than 50 employees are now required to make sure that emails don’t spill into days off or after-work hours. Given the way the world works these days, the new law is more surreal than a Cocteau film.

COMPANY OF NOTE

Clarity Money.

This week, Clarity Money launched its mobile app for iOS with a fair bit of fanfare. We understand why. The company — co-founded by Matt Jacobs, Adam Dell and Hossein Azari, and backed by the likes of Bessemer, ff Venture Capital and Maveron — is one part savings app and one part consumer advocate. Clarity’s basic service, which includes access to a credit score courtesy of its relationship with Experion, is free. However, if a customer uses its AI-infused technology to cancel unwanted subscriptions and/or negotiate bills, it takes a percentage of the savings.  That’s a good trade in our book . As such, we expect that you’ll be reading a lot more about this company in the months to come.

CAREER & INSIGHTS

Comings and goings:

IMPESA, a Costa Rican electronic payment solutions provider that’s behind the Monibyte SaaS platform, has appointed Stewart Carlin as its Chief Financial Officer. Previously, Carlin worked at Triad Capital, Coty and J&J.

Wisdom:

If you’re a regular-way finance type as opposed to a tech guru, it’s difficult to gain a knowledge edge in a fintech vertical. In a space like blockchain, for instance, you’re competing against brilliant people who have been studying it for years. Perhaps a better approach is to leapfrog into an area that has been relatively unexplored by finance to date. One such area is the strange and fascinating world of quantum computing. See the attached article in Nature and get busy.

QUOTE OF THE WEEK

"One must still have chaos in oneself to be able to give birth to a dancing star."

~ Friedrich Nietzsche