Weekly Briefing No. 84 | A Blockchain-less Future and Brick & Mortar 2.0

With a nod to George Orwell in our 84th edition, we’re making a special effort this week to help you avoid doublethink and to abet you in the thoughtcrime of independent thinking. So pour yourself some Victory Gin and see below:

  • Is a blockchain-less future ready to take flight?
  • Physical financial services are here to stay
  • Huge fintech financings; AI’s impact on inflation; UK’s bright fintech future
  • Comings and Goings: JPM’s loses a big name while Uber makes two key hires
  • Company of Note: Spruce Holdings 

IN DEPTH

Is a blockchain-less future ready to take flight? 

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Lately, ICOs have been soaring higher like birds in ascent. But unfortunately, approximately 600 million winged creatures ultimately smash into windows and die violently each year (American Ornithological Society). At some point, several crypto coins/tokens are likely to suffer the same fate ─ but probably not IOTA, an interoperability protocol created to be the backbone of the Internet of Things. In the growing IoT world, there’s no easy way for surplus computing power to be transferred among devices through the major blockchain protocols. One reason is the fees associated with all the necessary microtransactions. To address that issue and others, IOTA was built on a “directed acyclic graph” known as Tangle that is a lightweight “blockchain-less” solution. It drops fees to virtually zero yet maintains the incentivization that has propelled blockchain innovation. But even if IOTA doesn’t rise forever, we have a hunch that it’s going to be a thing for a while. First, the IOTA Foundation didn’t opt for an ICO straight away. Rather, the token was seasoned through private OTC trading ahead of its scheduled listing next Tuesday (it still has surged in one-off trades). Second, and even more importantly, the IOTA white paper speaks to a compelling use-case for IoT based on a fresh scalability solution, where increased activity enhances network speed rather than slowing it down. “IOTA could be a game changer for scalability,“ said noted digital currency trader Alex Steele. “Even if initial proof points are slow to materialize, IOTA’s protocol could represent a paradigm shift that creates practical, new opportunities for distributed ledger technology.” To us, it sounds like Steele is among a small but growing coterie of pros who are taking a flier on this bird.

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Brick & Mortar 2.0.

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The reviews on Amazon’s efforts to bring an offline component to its business model are in, and they can be summed-up in one word: odd. That’s because Amazon (a FAAAM), which is usually able to go from one successful launch to the next, is a newbie when it comes to brick & mortar ─ and it shows. Why, then, is Amazon going physical? After all, even if it vigintupled (20x) the number of grocery and bookstores in its arsenal, its store effort wouldn’t be a major driver for a company expected to post $200 billion in 2018 revenues. Regardless of what the tech press says, we’d suggest that Amazon sees physical locations as an important way to engage with and learn from customers in a more authentic way. In the financial innovation world, companies like SoFi, which spends significant resources on hosting its members at trendy places, understand the value of face-to-face. Similarly, when we observe the proliferation of fintech conferences, innovation events, and (in our case) Jeffersonian Dinners, we see a similar hunger for non-digital interaction between colleagues, clients and customers. Still need more convincing on the rise of a new physical? Consider our favorite analogous sector, music. Sure, DVDs and downloads are plummeting at the hands of streaming services, but in 2016, North American concert sales hit another record. What’s true for music will be true for financial services, so let’s do away with all of the talk of a conference bubble. As long as humans crave actual connection, even the mighty Amazon will risk its brand’s prestige to reach out and touch its customers.

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IN BRIEF

Gracias for the $140 million.

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Fintech financing levels may be muted right now, but large deals are still happening. A case in point is AvidXchange, an automated payment processing software company, that raised a whopping $300 million from Mastercard, Temasek and Peter Thiel amongst others. Then there’s Addepar, which took in $140 million to further develop a platform that, in the words of our colleague Graig Norden of Freewheel Marketing, offers a “remarkably lucid” approach to synchronizing data aggregation, investment analysis and reporting capabilities for the world’s ultra wealthy. But on top of having more money to go against formidable competitors, the news that Valor Equity Partners’ Antonio Gracias is joining Addepar’s board could signify plans for a bigger push into another area: the pension and endowments sector. That sector constitutes a sizable component of the world’s wealth and has been an innovation laggard to date. Perhaps a little more Addepar glamour could bring it into the modern era.

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 Will AI kill wage pressures forever?

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When it comes envisioning the future, a case can be made that Elon Musk, who started out as a fintechepreneur, should be seated at the head of our future-of-the-world table (other fantasy guests: Ray Kurzwell, Joanne Liu, Zhou Qunfei, Lisa Randall, Craig Venter, and of course, Jonathan Goldsmith). But when we heard Musk’s latest provocative prediction that AI will be better than humans at everything in just 13 years, we had to stop for a moment to question his view. Then we noted Dubai’s recent launch of a robocop and the latest-and-greatest insurance chatbot courtesy of IBM Watson. Our conclusion: maybe Musk’s call isn’t so brilliant. Perhaps he’s just looking at the bond market, which has been defying economists (none are invited to our fantasy table) and telling us all year that it’s not concerned about wage pressures building in our increasingly automated economy.

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 A strong buy on UK's fintech future.

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"America has no truer friend than Great Britain. Once again, we are joined together in a great cause. I'm so honored the British prime minister has crossed an ocean to show his unity with America. Thank you for coming, friend." That statement was made by the US president to Britain's prime minister nine days after the 9/11 attacks. Fast-forward 16 years and it’s not only terrorism, but more wars, a global financial crisis and anti-immigrant fervor that Americans and Britons are facing. On the productive side of the ledger in the financial world, nearly every aspect of the financial services system is being reimagined by great minds in the US, the UK and elsewhere. And we have no doubt that London's leadership in financial innovation will endure, even after Brexit, a wave of terrorism and its current political uncertainty.

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COMINGS AND GOINGS: Matt Zames, Frances Frei, Bozoma Saint John.

JP Morgan COO and Jamie Dimon protégé Matt Zames announced he’s leaving the bank. Also, as our readers know, we think there’s a lot to dislike about Uber. However, the company just made two wise decisions in bringing on Harvard Business School’s customer-first guru, Frances Frei, and Bozoma Saint John, formerly of Apple, to help define its brand.

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COMPANY OF NOTE: Spruce Holdings.

In most of the industrialized world, the Torrens title system is used to determine land ownership. Under this framework, a conveyancer guarantees title, with the government providing redress when an individual loses a property due to error or fraud. But in 49 US states, a recorder of deeds generally does not guarantee indefeasible title to land holders. As a result, America now has a $17 billion title insurance market that remains woefully broken. One bright light seeking to do something about that is Spruce, a New York-based title insurance agency founded by Betterment alums Andrew Weisgall and Patrick Burns. In a recent discussion with The FR’s Gregg Schoenberg, Burns emphasized that mortgage lenders now face greater responsibilities thanks to additional back-office fulfillment and compliance obligations under a Dodd-Frank rule (TRID). That has created an even greater opportunity for Spruce to reimagine the title insurance process by using advanced data and analytics, encryption and ID verification technologies. Backed by Bessemer Venture Partners, the Collaborative Fund, Betterment’s Jon Stein and Joe Ziemer, Funding Circle’s Sam Hodges and others, Spruce expects to be originating in 29 states by year end. “With our recent capital raise, Spruce has the chance to bring a holistic, win-win solution to borrowers and lenders, both of whom can expect a much smoother title and closing process when they use our product,” said Burns.

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Quote of the Week

“The people will not revolt. They will not look up from their screens long enough to notice what’s happening.”

~ O'Brien (From George Orwell’s 1984)