Weekly Briefing No. 82 | Digitally Remastered Banks and Surgery vs. Savings Accounts

Beatles, API

During this rainy week leading up to Memorial Day. Here’s our weekly catch:

  • The strategic importance of APIs
  • Banking vs. heart surgery, the payments power of Facebook
  • Ford’s AllianceBernstein path, blockchain doom, cryptotulips, insurtech
  • Company of Note/Comings and Goings: Domino Data Lab

IN DEPTH

With a little help from my APIs.

When engineers remaster an album, they remove flaws that get in the way of a song’s clarity. But as Mashable recently emphasized in an article about the May 26th re-release of the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band, the goal of sound remastering isn’t just sharpening. According to producer Giles Martin, it’s about using modern mixing techniques and software to bring the listener closer to the music by removing “intermediate layers.”

Banking and insurance customers may not be looking to rock out with their service providers, but they are seeking a simpler user experience with less layers of friction involved. That’s why we are noting BBVA’s announcement that it will release eight APIs to companies, start-ups and developers to help them better integrate data into the services customers want. On this side of the Atlantic, Liberty Mutual has launched an API developer portal via its Solaria Labs incubator, and BofA just announced an open data sharing service as a key plank in its API strategy. Last but not least, Goldman Sachs has gone all-in on a digital future, with its CFO Marty Chavez saying recently that the firm is “redesigning the whole company around APIs." So with these firms in essence digitally remastering themselves, doesn’t it follow that every other financial institution is doing the same? Actually, it’s complicated, and in the attached piece, Narmi’s Chris Griffin lays out why it’s hard for some firms to open up. Along with listening to the Beatles’ old-new album, his piece makes for an excellent weekend reminder on why digital is the way to go.

Transmyocardial revascularization vs. HSBC’s Premier Savings (0.10% APR).

Sometimes, fintech truth is stranger than fiction. Our proof: HSBC just conducted a survey of 12,000 consumers in 11 international markets to better understand their views on AI and trust in technology.  Not surprisingly, the survey found that just 14% of survey participants would be willing to trust a machine to perform open heart surgery, even if it was programmed by a leading heart surgeon. After all, heart surgery is serious business, right? Well, there may be more to the story here, as the survey also discovered that only eight percent of people would trust a humanoid programmed by an expert to offer mortgage advice, and just seven percent would trust a bot to advise them on opening a savings account. We can certainly understand the reluctance of some to trust bots, but unless the survey was somehow secretly conducted by Ali G looking to make a comeback, the findings suggest that many banking consumers have a long way to go before they embrace automation. And by long way to go, we mean a really long way to go.

Facebook has four billion reasons to be bullish on payments.

Last week, we suggested that financial services incumbents may want to take greater note of the so-called FAAAAM (e.g., Facebook, Amazon, AlphaBet, AliBaba, Apple and Microsoft) as they ─ and not fintech start-ups ─ could pose the real long-term competitive threat. We’re going to revisit this thesis as developments arise. To that end, we are highlighting Facebook’s Messenger, which is using its 1.2 billion monthly active users to interject itself into peer-to-peer payments. A case in point: Plum, an AI-powered Facebook chatbot start-up, just announced that it would tether itself to Messenger to help customers manage their finances. CEO Victor Trokoudes’ rationale: “With Facebook introducing payments into Messenger next year, Messenger is set to create a platform to further disrupt banks.” If Facebook were just another company, we wouldn’t take Trokoudes’ analysis too seriously, but when you’re talking about a company that has significant, largely unchecked influence over what four billion of the world’s eyeballs see, every move this giant makes needs to be viewed with careful attention.

IN BRIEF

New deck chair configurations or a new bow?

It felt like déjà vu this week when Ford CEO Mark Fields was unexpectedly ousted by chairman Bill Ford Jr. as part of an initiative to speed up Ford’s innovation efforts. As many will recall, AXA’s Denis Duverne recently fired former AllianceBernstein CEO Peter Kraus under a similar rationale. It’s tough to say whether these abrupt moves will make a lick of difference to their respective firms, but our guess is that while reconfiguring the c-suite sends a signal to Wall Street, exciting growth won’t come unless big leaks (e.g., technical debt and firm culture) get fixed. If Ford’s new CEO Jim Hackett is free to ignite dramatic change, it may have a shot at retrieving its mojo. But if he’s tied to short-term performance metrics and the forces of incrementalism (which have held back many manufacturers and financials), then it won’t matter who’s at the wheel.

Doom and gloom await 90% of firms building blockchain tech.

“A chasm of death” is not a trendy new dystopian bestseller. Rather, it’s the likely fate awaiting 90% of blockchain tech companies seeking to find a niche for themselves. That’s the prediction of Arvind Krishna, director of research at IBM, who gave an interview (See attached) after appearing at this week’s Consensus blockchain conference. Big Blue, which launched a blockchain accelerator last week and a hyperledger-powered ecosystem last year, is hardly a neutral voice in making blockchain predictions. Still, Krishna’s core argument ─ that many blockchain start-ups, especially those trying to introduce new protocols, will run out of cash before the technology goes mainstream ─ is valuable to consider.

Tiptoeing through the cryptotulips.

We enjoyed fellow blogger Ben Thompson’s history lesson on why the 17th-century tulip bubble is a flawed construct for examining the digital currency boom, which counts just about everyone. His first point, based on a paper by a UCLA economist, is that European demand for tulips was rising in the 1630s. But in 1636, a mighty Swedish army delivered a decisive blow to the Germans at The Battle of Wittstock, which drove tulip option prices through the floor. This external shock, not irrational exuberance, was the cause of the tulip crash. However, a false analysis of this famed event has led to miscalculations when analyzing the meteoric rise of Bitcoin, Ethereum and Ripple. Thompson goes on to assert that while cryptocurrency prices may crash, it’s important to note that bubbles of irrationality and timing are different. Perhaps the current cryptoboom, he says, is more like the internet of the 1990s, where failed dot-coms were reincarnated years later as viable businesses.

Reiterating our ‘Strong Buy’ on dragging insurance into modernity.

Insurtech funding has dipped from the stratospheric levels we saw last year, but we remain bullish on the opportunities for many aspects of the industry to be reimagined. So too does Caribou Honig, QED’s outgoing co-founder, who recently sat down for a terrific interview to discuss insurance innovation trends (See attached). We’re also taking note of the news flow coming from insurtech companies demonstrating that innovation momentum is going strong ─ especially in the life sector (one of our favorite subsectors). They include new announcements from Fabric, which announced it has entered the ~ $50 billion New York life insurance market, and PolicyGenius, which will start offering its life insurance comparison tool to LendingTree customers.

COMPANY OF NOTE & COMINGS AND GOINGS

Domino Data Labs.

This week, we are combining two sections of our newsletter to focus on one of the hottest companies in enterprise fintech, Domino Data Labs. Founded in 2013 by former Bridgewater Associates employees, Domino offers a centralized control system that enables quantitative professionals to better manage collaboration, data governance and experimentation, irrespective of coding language. Whether you’re talking about an asset manager, insurer, bank or ratings agency, the need for a robust control system is crucial, as data scientists tend to be brilliant, freewheeling types who aren’t naturally concerned with recordkeeping. But for organizations looking to scale a rigorous quantitative effort, keeping track of hundreds, or perhaps thousands, of models is crucial to success. On the back of a $27 million funding round completed last month, Domino is looking to bolster the success of its European clients by bringing on London-based Ben Harknett, a former Google alum, as its new head of Europe, the Middle East and Asia.

Quote of the Week

“I'm never less at leisure than when at leisure, or less alone than when alone.”

~ Scipio Africanus