Weekly Briefing No. 93 | An Insurtech Rising Star, Marketplace Lending Rebound? Bitcoin vs. Gold

This week, we’re coming at you with lots of good stuff. Here’s what you’ll find below:

  • PolicyGenius’ Jennifer Fitzgerald discusses her company’s journey
  • Marketplace lending benchmarks posted better Q2 results. Does it matter?
  • Should Bitcoin be a safe haven alternative to gold?
  • Low volatility isn’t the chief bogeyman of Wall Street’s labor malaise
  • No fintech vacation for the Milken Institute's white paper machine or M&A
  • Comings and Goings: Jon Butler, Heather Tuason and Jeff Kelisky
  • Company of Note: Privitar

IN DEPTH

PolicyGenius’ road to traction.

“We’d walk into meetings with VCs and receive a huge number of blank stares from investors who said, ‘I don’t get insurance. I don’t get what you guys are doing. It feels like this probably exists already.’” That was the rough reception delivered four years ago to ex-McKinsey consultant Jennifer Fitzgerald as she pitched her company to a skeptical crowd that hadn’t yet gotten the memo on reimagining insurance. Today, Fitzgerald doesn’t get shown the door so abruptly by investors or major insurance incumbents, now that PolicyGenius has become a significant force in introducing life and other types of insurance to consumers eager to comparison shop. However, the “Kayak for insurance” metaphor that is sometimes attributed to PolicyGenius isn’t welcomed by Fitzgerald. That’s because shopping for insurance can be a complicated process with no hard and fast rules. To help, Fitzgerald, co-founder Francois de Lame and the PolicyGenius team have expended a fair bit of blood, sweat and the capital they subsequently raised in making that selection process as smooth, thorough and confidence-inspiring as possible. Recently, The FR’s Gregg Schoenberg met with Fitzgerald to discuss the company’s journey thus far and to find out what’s next for the rising insurtech start-up.

Marketplace lending sobering needs more time.

The ongoing rationalization of the marketplace lending space still has a way to go, says Ryan Gilbert of Propel Venture Partners, who notes that “too many princes have wanted to be kings, and they will not all be successful.” The fact that OnDeck and Lending Club posted upbeat Q2 earnings this past week is a constructive step. But in the wake of Goldman’s growing Marcus juggernaut, Affirm’s point-of-sale traction, Softbank’s $250-million infusion into Kabbage and ongoing rescue financings courtesy of Asian conglomerates and US credit hedge funds, it’s premature to suggest that the good times are back for the publicly traded former wunderkinds. And for that, we blame the 2014-15 fintech hype machine, which led the consumer and small business marketplace lending sector to achieve skyscraper technology multiples in the first place. Cleaning up after a wild party is never fun, and given the former frenzy of online lending start-ups, it’ll take more than a decent quarter to make things right.

Bridgewater’s Ray Dalio, gold and Bitcoin.

This past week, Bridgewater’s Ray Dalio took to Linkedin to discuss why investors should allocate up to 10 percent of their portfolios to gold. His reasons appear to be predicated on: a) an ongoing feud between President Trump and North Korea’s Kim Jong-un that has gone from humorous to dead serious; and b) greater odds that Congress will fail to raise the nation’s debt ceiling. Perhaps we shouldn’t be too concerned about the second issue, given that National Economic Council head Gary Cohn and Treasury Secretary Steven Mnuchin appear to have quickly learned the ways of Washington. But given the difficulty in assessing the US-North Korea standoff, we think it’s hard to argue with Dalio. Our only question is: why gold vs. Bitcoin? Despite all of the drama associated with the Segwit adoption, and a hard fork that resulted in the creation of Bitcoin Cash, Bitcoin has powered on. Sure, market sages like Oaktree’s Howard Marks believe Bitcoin is an “unfounded fade,” in part because people are ascribing “value to something that has little or none beyond what people will pay for it.” But as Envestnet’s Zachary Karabell points out in Wired, neither gold nor US dollars have intrinsic value either. And with fund giants like Fidelity getting on the digital currency train and institutions pouring money into digital currency infrastructure, splitting one’s doomsday investments between gold and cryptocurrencies seems like a reasonable way to go.

Why pay retail when you can pay wholesale?

Sponsored by Fundrise

When investing in real estate, this age-old question still applies. That’s because most REIT and private equity managers usually slip additional layers of added costs into the price an individual investor pays to gain exposure to income-producing real estate assets. That’s never seemed fair to the folks at Fundrise, which is why they’ve created a technology-powered platform to provide individual investors with a suite of attractively priced, direct real estate investments. With Fundrise, individuals can finally invest like the most successful real estate investors, without all of the added fees and markups that usually accompany that opportunity.

alt text

IN BRIEF

Low volatility is not the core reason for Wall Street’s employment malaise.

We were interested in CNBC’s Bob Pisani’s recent article pointing out the so-called “paradox” in equities hitting a record high while Wall Street headcounts and compensation head south. Our contention with his argument is that it ascribes much of the paradox to recent years of low market volatility, whereas we think technology is the biggest driver of Wall Street’s secular headcount decline. We don’t think tech will kill the majority of financial services jobs anytime soon, but software is certainly having its impact. So too is low volatility, but does anyone really believe that if the VIX migrates towards its long-term average, it will lead to a hiring boom? If you do, we’ve got an ICO backed by Floyd Mayweather we’d like to sell you.

A regulatory framework for the era of vacuum tubes.

A white paper just out from the Milken Institute and fintech specialist Jackson Mueller says that developing a fintech hub “requires more than just a press release or a news soundbite.” It contends there must be an impetus for change that leads officials from the top down to wade into uncharted regulatory territory. After reading this report from front to back, we are more convinced than ever that not all sandboxes are created equal, that Jamie Dimon’s ongoing jawboning against existing US regulation is emboldening others to speak, and that the US will lose its fintech leadership position over the long term if it doesn’t do more to modernize its financial services regulatory framework. See pages 13-18 in the Milken report for an overview of regulatory modernization efforts around the world.

Fintech M&A activity stays active in August.

It’s gratifying to see start-ups highlighted in our Company of Note section receive their just validation. A case in point is ClearGraph, which we highlighted in March as a compelling solution to help financial institutions better harness their raw data. This week, the firm agreed to become part of business intelligence and analytics firm Tableau. Also this week, Lend Core LLC, the parent of marketplace loan portfolio manager NSR Invest, announced it had purchased LendingRobot, a five-year-old Seattle-based pioneer in the sector. Finally, PayPal announced it was scooping up SMB lender Swift Financial so that it can make bigger loans and expand its universe of prospective borrowers.

COMINGS AND GOINGS:

Jon Butler, Heather Tuason and Jeff Kelisky

Jon Butler has left his senior technology role at Goldman Sachs to join Deloitte’s technology consulting practice. Also this week, Heather Tuason, formerly of Capital One, has joined StreetShares, a small business lending marketplace. Given the company’s dedication to helping America’s veterans grow their businesses, we wish Tuason double good luck in her new role. Finally, Jeff Kelisky, who previously served as COO of Seedrs, has been promoted to CEO of the London-based equity crowdfunding platform.

COMPANY OF NOTE:

Privitar.

Advanced analytics and machine-learning applications present financial services firms with a challenge. On one hand, consumers want their financial institutions to utilize technology to provide new and more frictionless services. But they also want their sensitive personal data to be protected to the fullest extent possible. That dichotomy has created an attractive opportunity for start-ups that can ensure privacy as data moves from a lockdown environment to an analytical environment where data scientists can access it. One firm doing interesting work in that area is Privitar, a London-based fintech that recently raised $16 billion in a Series A, in part to expand across the Atlantic. Although the US doesn’t provide the same regulatory tailwind as the EU’s General Data Protection Regulation, which is set to take effect next year, the American market should prove receptive to Privitar’s solutions. That’s because, regulation or not, data privacy will be increasingly viewed as a way for US banks to obtain a competitive advantage when trying to woo new customers and keep existing ones.

QUOTE OF THE WEEK

"You can either accept slower growth; you can spend a lot of money to subsidize fertility – child care, etc., very expensive – or you can embrace immigration. That’s math."

~ Minneapolis Federal Reserve Bank President Neel Kashkari