Separating the bull from a bull market isn’t always easy. Below is our weekly attempt to do just that.
- KPMG’s new fintech report and a tale of animal spirits
- Will Amazon actually buy a bank?
- Bill Gates doesn’t really want to tax robot productivity
- China fintech in perspective, Numerai
- Wells Fargo lessons for Uber, why tech alone can’t defeat fraud
- Company of Note: Abaris
- Spark: cyber-hygiene
Fintech insights from a raging bull in NYC.
Last Tuesday, a bull escaped from a New York City slaughterhouse and ran amok through the streets of Jamaica, Queens. The 1,800-pound rampaging beast shocked onlookers and captivated thousands on Twitter who were riveted by this ad hoc Pamplona bull run. After police peppered their target with tranquilizers and the sedation drug xylazine, the poor animal was carted off to a Brooklyn animal shelter, but went into shock and died en route.
Perhaps the moral of this sad occurrence is that, in hindsight, it’s not hard to see the arc of the bull’s story and what led to its demise. In the heat of the moment, however, the road to the bull’s downfall is not so clear and it’s easier to see other possible endings. That same point holds true for bull market narratives, which is why we’ve attached KPMG’s recently released fintech report on Q4 and 2016 overall. It illustrates that fintech was sedated last year; however, unlike the rampage in Queens, the fintech bull wasn’t killed outright. That cooldown actually leaves us feeling more bullish that 2017 will see a return to better conditions — not a trip to the slaughterhouse.
Would Amazon really want to buy Capital One?
Tech giants will continue to become more involved in financial services, but they won’t actually buy or build true banking entities because they wouldn’t want the regulatory headaches. That’s been the conventional wisdom for some time. Then again, the conventional wisdom through the 19th century held that bloodletting was an effective way to cure disease. Our point is this: we think one of the big tech giants may actually take the banking plunge at some stage. Digiday’s Tanaya Macheel thinks so too and her nominee is Amazon. In response to the recent rumors about a merger between Amazon and Capital One, Macheel asserts that the Seattle-based e-commerce giant “needs” payments and lending solutions to be central to its future. What better way to do that than buy a bank with Capital One’s “thin” credit file lending, customer acquisition and analytics expertise.
The Tax Bot Not Cometh.
Bill Gates isn’t a dummy. So when he asserted last week that corporations should have to pay a “bot tax” to fund worker-retraining programs (as the EU has suggested), we were interested in the dismissive commentary that followed throughout the week. “If you are going to tax robots, why not tax software that enhances efficiency?” asked one blogger. Another pointed out the dubious track record of worker-retraining programs. But all of this dissection misses the point. In our view, Gates’ so-called “proposal” was a way to make the point that the pace of tech-fueled job displacement was happening at a rate exceeding our financial system’s ability to create new jobs. Sure, he could have written an op-ed in support of Universal Basic Income, but that would have been forgotten by day’s end. So instead, he decided to make a “proposal” that would hit employers where it hurts: threatening their ability to increase efficiency. Over time, and if other government-driven fixes fail to take root, we expect freelance-driven On Demand businesses, sharing economy platforms and micropayments initiatives to grow in response to new economic realities. Of course, not everyone has assets or talents that can be monetized to the same extent as a well paying job. But absent a national consensus on economic policy (unlikely) we think fintech-fueled solutions to technological unemployment will win out over new taxes and subsidies.
China fintech in perspective.
The abacus, a counting frame also known as the suànpán in Mandarin, first found its way to China in the 2nd century BC. Yet according to the attached Economist article, use of the abacus remained prevalent within Chinese banks throughout the 1980s. Even more amazingly, many Chinese bank employees still had to take an abacus proficiency test in the 1990s. So while companies like Ant Financial and Lufax have emerged as large, fast-growing fintech giants, it’s not as though they had to leap over their own versions of Goldman Sachs and JP Morgan. Now, as these Chinese-based giants look to expand globally, they may find that the competition from local incumbents and fintechs may be a bit stiffer.
Eat what your neighbor kills?
“Why is tech positive-sum and finance zero-sum?” That question offered by Numerai’s CEO Richard Craib reveals the basis of his company’s experiment in trying to open-source hedge fund idea generation through the establishment of a new digital token, Numeraire. The token recently was distributed to 12,000 quants who are incentivized to collaborate. The process of how this happens (both Ethereum and Bitcoin figure into the equation) is too complicated for our taste, but investors ranging from Union Square Ventures to Renaissance Technologies’ Howard Morgan are on board.
A wagon wheel and a steamroller.
When Wells Fargo first plunged into crisis last year, some analysts predicted that the cross-selling scandal’s impact on the bank’s growth rate would be negligible. But as recently released figures demonstrate, Wells is still paying a price for promoting a culture that emphasized cross-selling over clients. Fast forward to today and observe the raft of analysts who have asserted that while Uber may have countenanced a corporate culture straight out of a 1980’s trading floor, it will emerge unscathed because people love Uber’s services. That may ultimately be true. Still, as the case of Wells demonstrates, when you’re in a consumer-facing business full of competition, and your brand gets demonized on social media for acting like a bucket shop, the road to redemption can be bumpy — even for a steamroller.
Catch my data if you can.
Few people have anything nice to say about bureaucracy, but when it comes to fraud prevention, “if you don't have a process in place that people understand, then technology alone is not going to keep you safe." That’s the assessment by the famed ex-con and security consultant, Frank Abagnale. In the attached Ars Technica piece, Abagnale explains that whereas stolen credit card information has a short-shelf life, medical records and date of birth information get more valuable with time as this data can’t be changed. That’s also why it’s worthless for a company or government to provide a year or two of free credit monitoring services to people who have had personal information stolen. Criminals who steal data, says Abagnale, will often warehouse it for three to five years.
COMPANY OF NOTE
People love pensions but hate annuities — which are essentially the same thing. This contradictory and irrational state of affairs is known as the annuity puzzle, and it’s why insurers push expensive variants that hide the annuity core. Enter Abaris, a New York-based startup whose mission is to “reinvent how people plan for life’s next phase.” Led by Matt Carey, who worked on retirement policy at the Treasury Department after a stint at Lazard, Abaris is the first direct-to-consumer online marketplace for retirement income products that include deferred income annuities and qualified longevity annuity contracts (QLACs). Selling low-cost products from major carriers, the Abaris non-sales marketing approach is based on providing unbiased information — and even recommending not buying an annuity when appropriate. That alone is noteworthy.
CAREER & INSIGHTS
Comings and Goings:
Scarlett Sieber, a former BBVA senior vice president and well known fintech voice in New York, has joined Opus Bank as its Chief Innovation Officer. The California-based bank, which has $7.9 billion of total assets, has 56 branches in four western states and operates an IRA custodian subsidiary.
Are you practicing sensible cyber-hygiene? Although you can never be fully protected against hacking (see our previous segment on Frank Abagnale), it doesn’t mean you shouldn’t try to mitigate your professional and personal vulnerability to a data breach. Where should you start? According to the attached article, look to what cybersecurity experts do and don’t do in their personal lives.
Quote of the Week:
“I live my life a quarter mile at a time. Nothing else matters: not the mortgage, not the store, not my team and all their bullsh*t. For those ten seconds or less, I'm free.”
~ Dominic "Dom" Toretto, The Fast and the Furious.