Weekly Briefing No. 22 | This fintech CEO is no Zoolander.

This week, we discuss Betterment’s fundraising, Citi’s new fintech report and the importance of innovation culture within a bank. Auto insurance, Title III of the JOBS Act, Ethereum, EMV and Gradifi also get a look.

In-depth 

This fintech CEO is no Zoolander.

The founder of Betterment could have turned his company into a unicorn — even in today’s weaker venture environment — with his company’s most recent capital raise. And other CEOs probably would have pushed their boards into accepting a valuation higher than the $700 million number he just accepted in conjunction with the Kinnevik-led round. But Stein is not a preening CEO and he showed maturity by opting for a lower valuation with cleaner deal terms than his more “glamorous” options. By taking the best deal and not the biggest headline, Stein can stay true to his employees and vision for Betterment. That vision will include the development of two durable business opportunities: white labeling an automated solution for other institutions and accelerating the growth of the company’s 401k effort. Both of these businesses will help Betterment continue to grow once the robo hype has faded and the trench warfare era of robo investing begins.

Keep calm as you read Citi’s new fintech report. 

In Citigroup’s new fintech opus, “Digital Disruption,” the bank’s analysts predict huge job destruction (30%) within financial services over the next ten years thanks to a shift from humans to software. We concur. However, there’s some good news for non-techy financial professionals who want to build their careers in a related field: there’s still some time to prepare for the tipping point. Not everyone can become a Python prince, but financial pros with solid expertise can carve out a niche for themselves. The catch? Career reinvention requires you to put all the meat on the grill — a half-hearted effort won’t fly. In order to win, the first step is to make a plan. That plan should have the following action steps: read a diverse set of fintech publications (we hope The FR is included), take classes to boost your tech knowledge, develop your financial innovation network like a banshee and lastly, stay current on the regulatory environment. On that last point, this newly released OCC white paper is a must read.

ING Direct founder proclaims culture is king.

Arkadi Kuhlmann has been a longtime fintech entrepreneur. After starting ING Direct Canada in 1996, he built ING Direct USA into America’s largest direct savings bank — with over $90 billion in deposits — before it was sold to Capital One in 2011 for $9.2 billion. So when Kuhlmann says that a financial institution’s culture is the essential ingredient in fostering innovation, the notion should be taken seriously. It’s especially notable now that some banking CEOs like to brag about the number of developers they have on staff. It’s great for a firm to hire hoards of talented techies, but if internal processes, layers of bureaucracy and an afraid-to-fail culture represent the working reality, legacy firms should ease-up on recruitment. Instead, they should just buy fintech start-ups — and then resist the urge to fully integrate them (See BBVA’s acquisition of Simple as a smart template).

The Jobs Act (aka “Breaking Bureaucratic")…

Robert Cringely’s new piece on equity crowdfunding and the pivotal Title III of the JOBS Act is partially titled, “Curb your enthusiasm.” It should be titled “Breaking Bureaucratic” given the author’s view. He writes: “What was supposed to be a simple funding process now has 686 pages…In the long run, I suspect that the SEC and FINRA caution will drive equity crowdfunding offshore.” Not everyone is so pessimistic. In commenting to The FR, James Murphy, CEO of EquityNet, struck a balanced tone: “It will take some time for regulators and industry participants to land on the optimal framework for non-accredited investor participation and protection. But there are some constructive ideas floating around. As Cringely points out, crowdfunding mutual funds have been disallowed. In time, I think regulators may consider reversing that decision because regulated, crowdfunded investment baskets could allay some of their concerns.”

In brief

Ethereum is all the rage.  

As this gushing New York Times article points out, Ethereum is on everyone’s mind — from corporate giants including JP Morgan, Microsoft and IBM, to former Wall Street kingpin Michael Novogratz. Is the software that powers its smart contract framework complex? Yes. Does Ether have the track record of Bitcoin? No. But right now, it’s very fashionable for the intelligentsia to be “intrigued” by the promise of this institution-friendly alternative to Bitcoin. 

Fed’s shocking finding: mobile banking is growing fast.

Our sarcasm notwithstanding, the Fed’s new report on mobile banking is an excellent read. It’s just too bad that it didn’t publish this report two years ago. The tardiness makes one wonder what else has the Fed not yet studied that is adversely affecting the accuracy of its economic assessments.

There’s good, bad and good news for auto insurers.

According to a new report issued by Moody’s (subscription), accident avoidance features are becoming common. That’s good as they will lead to lower accident frequency and higher profits. Then, as self-driving cars come along, premiums will drop so low that insurers won’t be able to protect their profits. That’s bad. But, in a surprising stance, Moody’s says that insurers don’t need to worry so much because widespread adoption of self-driving cars is “decades away.” Really? Tell that to Ford CEO Mark Fields and Elon Musk.

So far, EMV is all pain, no gain.

According to this article, fraudsters are continuing their nefarious ways by shifting tactics now that EMV chips are the standard for credit cards. Meanwhile, the chips are making cards less convenient for consumers and small businesses alike. Perhaps issuers should start giving “hassle rewards” to individuals and small businesses until there’s some value provided to them.

Company of note

Gradifi.

Although this start-up gets plenty of attention, we couldn’t resist highlighting the Boston-based firm. Gradifi’s Student Loan Paydown Plan enables corporations to pay down their employees’ student loan balances. PwC was the company’s first big customer. Hopefully, thousands more will follow.

Comings and goings.

Paul Muhr, formerly of Citigroup’s Stockholm office, has left the bank to join Finstar Financial Group, a $2 billion investment holding company founded by Russian entrepreneur Oleg Boyko. Making a bigger push into financial services disruption is a core objective of the fund.

Quote of the week.
“There lives more faith in honest doubt, believe me, than in half the creeds.”

~ Alfred Lord Tennyson