Weekly Briefing No. 74 | Mnuchin’s Genius, Funding Circle’s Mo, Bloomberg and Le Cirque

A very happy March 32nd, which is otherwise known as April Fool’s Day. In between your pranks, we invite you to stay foolish and stay hungry with us by considering our highlights of the week. They include:

  • The brilliance of Secretary Mnuchin, a faux flat-earther
  • The FR’s exclusive conversation with Funding Circle’s Sam Hodges
  • Le Cirque and Bloomberg show their age
  • The rise of financial plumbing and “reinsuretech”
  • Bot-hype and the “dark web”
  • Company of Note: Elsen

IN DEPTH

Treasury’s Mnuchin is no flat-earther.

“I think people should do their own research, man.” That’s NBA star Kyrie Irving doubling down on his February assertion that the earth is flat. Fortunately, another NBA figure, Shaquille O’Neal, stated that he was joking all along when he said that he agreed with Irving. By coming clean, Shaq reaffirmed that he is a smart guy who knows how to work the world of sports media like a maestro. And speaking of smart guys, newly-minted Treasury Secretary, Steven Mnuchin, has taken a drubbing for stating that AI won’t have a “big effect” on the economy and jobs for another “50 or 100 more years.” In fact, the tech and innovation media complex, some economists and even presidential aspirant Mark Cuban ridiculed him mercilessly.

Then it hit us: Like Shaq, Mnuchin didn’t mean it. But unlike Shaq, he maintained appearances for a serious reason: Treasury secretaries must be coy. For instance, they have to be officially in support of a strong dollar because it signals confidence in the US economy. To say otherwise would be blasphemous. Does Mnuchin realize that AI will have a greater long-term impact on our economy than a trade war or a surging greenback? Yes he does, but because he doesn’t have any answers to the challenges posed by an increasingly automated economy, he couldn’t play it straight. That’s not what Treasury secretaries do. Their job is to look everyone in the eye and say that the world is flat. That’s precisely what he did, and everyone believed that he meant it. Well done, Mr. Secretary. You made AI jobs destruction denial the new strong dollar. Even Shaq would be impressed.

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Funding Circle’s Big Mo.

Despite the global embrace of fintech, you can count on two hands the number of fintech start-ups that have achieved a true global presence in the years since the financial crisis. One winner is Funding Circle, the small business marketplace lender that has built a significant presence in its home UK market, America, Germany and the Netherlands. While the last year has been rocky for marketplace lending, Funding Circle has somehow managed to avoid much of the turbulence and continues to grow at a robust clip. How has the company managed to do that? There’s no one magic bullet, says its American arm’s CEO and Co-founder, Sam Hodges. Maybe so, but clearly the company is doing something (or many things) right. The FR’s Gregg Schoenberg recently met with Hodges to dig deeper into the Funding Circle story in an exclusive one-on-one conversation.

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Terminal tartar.

Le Cirque has been a Manhattan fixture since Sirio Maccioni opened its doors in 1974. Now ensconced in the Bloomberg Building, the restaurant’s tuna tartar still delights. But fewer diners today care to indulge in an expensive, buttery, multi-course power lunch replete with French wine and a side of ego. And while its service is legendary, the doting patronage given to selected New York elites is a turn-off to younger customers who have no interest in navigating its caste system. Now, the restaurant has filed for Chapter 11 bankruptcy in order to protect its lease. Upstairs, meanwhile, Bloomberg, an institution in its own right, also finds itself in unwelcome territory. For only the second time in its history, Bloomberg’s terminal user base shrank, despite rising demand for financial data and information. More agile competitive offerings from Money.Net and Symphony are clearly a factor. However, we’d argue that there’s more to it than that. Bloomberg may be a hugely profitable company, but like its neighbor, its current menu is too pricey and too heavy for the times.  

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IN BRIEF

Good times for financial plumbing.

Kids don’t lay awake at night dreaming about one day owning a market infrastructure business, but perhaps they should. According to a new report from McKinsey (which unfortunately requires you to fill out a form in order to download it), grit is taking share from glamour. Specifically, trading venues, interdealer brokers, clearing houses, securities depositories and other technology-heavy subsectors have been “conspicuous high achievers” in recent years. The buy-side, meanwhile, will maintain its share of wallet at 38 percent of finance industry revenues while investment banking’s share will drop three percent to 37 percent.

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Reinsuretech?

“Digitization shortens the distance from reinsurance to the ultimate customer significantly. Suddenly, we have a chance to get in touch with them, get real signals from them, and shape their behavior ─ influence them.” That’s a recent quote from Swiss Re’s Rainer Baumann. Now, fast forward to the attached piece on Swiss Re’s annual report, which discusses its desire to become a “risk knowledge” company. Add it up and it seems apparent that pressures in the core reinsurance market combined with unparalleled risk capabilities mean that reinsurers like Swiss Re are seeking service revenue opportunities. Partnering with insurtech start-ups, particularly those with a direct-to-consumer model, could further enhance that aim.

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Short “frat” bots?

Ok, we get it. Financial and insurance based chatbots are a going to become an even bigger deal. There’s “Allie” from Allianz, “Arbie” from RBC, “Erica” from Bank of America (later this year) and a host of others who sound like they are straight from a fraternity-sorority mixer. But a healthy level of skepticism should be employed before a bot roll-out, because as many of us who’ve tried them know, bots often underdeliver. That’s why we like the attached article on the seven deadly bot sins.

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The dark web is scary and real.

During last week’s Data Disrupt conference in New York, Gregg Schoenberg of The FR (a conference partner) moderated a panel on fraud that featured leaders from four well-regarded cybersecurity companies (IDology, iovation, Payfone, and ThetaRay) that work with financial institutions. A recurring theme throughout was the importance of the dark web for fraudsters looking to procure malware, ransomware and data sets they shouldn’t own. It led us to conclude that we need to better understand this online mecca of black market badness. If you’re in the same boat, check out the attached report from Digital Citizens Alliance, which discusses the dark web and its “special” connection to American colleges.

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COMPANY OF NOTE: Elsen. If you’re a coding samurai, your ability to take in large data sets, create backtests and build new investment strategies can be accomplished in short order. But what if you studied portfolio theory over Python in your formative years? One answer is to ask someone else to handle the development work for you. Another would be to cut a deal with Elsen, which has built a platform-as-a-service offering to help asset managers solve their most challenging data problems regardless of their technical chops. A prominent Boston-based FinTech Sandbox alum, Elsen counts Thomson Reuters as a strategic partner and has other notable tech and data partnerships. “With growing interest in sophisticated, quantitative investment strategies, funds are eager to provide their managers with better tools to control their own destiny. During the next quarter, we will have some exciting news that demonstrates our clients’ enthusiasm for our empowering solutions,” said CEO Zac Sheffer.

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Note: The FR is a proud sponsor of FinTech Sandbox’s Demo Day on April 20th. In conjunction with our participation, we are featuring FinTech Sandbox companies, such as Elsen, leading up to the event.

CAREER & INSIGHTS

Comings and Goings: BBVA has named David Puente as its new global head of data. The fintech-forward BBVA created the role for Puente, who has been a 13-year veteran of the bank.

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Quote of the Week

"The only mystery in life is why the kamikaze pilots wore helmets."

~ Al McGuire