Welcome to The FR. On our Oktoberfest menu for this week:
- The decentralization of everything
- More tech is needed to combat insider trading
- Jeff Bezos and his second chocolate factory
- Payments deals; America’s fintech artist; AI hype vs. reality
- Comings & Goings: Rebecca Kaden and Ken Chenault
- Company of Note: CollegeBacker
Decentralization of money takes you to interesting places.
Cryptocurrency carnivorism — a bizarre lifestyle espoused by Michael Goldstein and Bryce Wilcox-O'Hearn (a.k.a. “Zooko”) that combines a love for cryptocurrency (often Bitcoin) and a meat-only diet — seems like a joke. The rationale: "The people who tell you to eat your six to ten portions of indigestible toxic grains a day 'for a healthy and balanced diet' are the same types who tell you central banks have to determine interest rates for a modern economy to function.” But while Goldstein and Zooko are eccentric, they aren’t joking, and their distrust of institutions is not so kooky today, nor does it disqualify them from mainstream business life. In fact, JP Morgan recently announced that it was integrating Zooko’s ZCash security layer into its enterprise blockchain project (See below). Then, we discovered newly hatched TetzelCoin, which will award SIN forgiveness tokens on October 31st for each sin that the confessor owns up to. Scoff if you want, but maybe the smirk lessens when you learn that 85% of the proceeds raised from the ICO will go to RIP Medical, an established non-profit dedicated to extinguishing medical debt. With the average price of MRIs and bandages in the U.S. absurdly high relative to other countries, and with our out-of-control, tragic opioid crisis, which appears to have been fueled by government policies, it’s not hard (again) to see why an increasing number of people are looking for decentralized solutions to address economic and other entrenched problems. Does it makes sense to eat lamb burgers morning, noon and night? Of course not, but amidst the half-cooked crypto-zaniness, there might be a few game changers out there ready to be devoured by a hungry nation.
What real estate and insider trading have in common.
Location, location, location. That’s the punchline of a recent study on insider trading by Trung T.H. Nguyen at Stanford and Quoc H. Nguyen at the University of Illinois. Specifically, the researchers found that distance from an SEC office is a significant determinant of whether suspected insider trading is investigated. According to the study, the SEC is more likely to investigate companies that are closer to its offices, and illegal insider trading increases with a company's distance from an SEC office. In fact, it rises by an astounding 16.5% with a 100-kilometer increase in distance away from an SEC office. If this study stands up to scrutiny, it should rouse budget-constrained financial enforcement regulators to wake up and smell the regtech and surveillance-tech. While enforcement laxity at the SEC and other agencies undermines credibility, the good news is that there’s no shortage of great start-ups that can help sniff out bad actors and would gladly work with the government to do so.
Amazon’s contest to find its Charlie Bucket city.
Who can forget those wise Oompa Loompas, who offered cautionary guidance to the contestants vying for a lifetime supply of Willy Wonka’s famous chocolate? Looking at New York’s orange radiance on Wednesday night to secure consideration for Amazon’s second headquarters (fully undermined by Mayor de Blasio on Thursday), we found ourselves missing the green-haired sages. It’s tough to know which secret ingredient will unlock the key to 50,000 sweet-smelling $100,000 per year jobs, but this thoughtful article by Greg Leroy in Fast Company suggests the formula may include huge goodies for Amazon, which will ultimately raise everyone else’s taxes. So while we’re enjoying the municipal battle to secure some of Amazon’s pure imagination, we suspect that the company, which knows a thing or two about zero-sum negotiations, is setting up a winner’s curse. So if a bid by Atlanta (our bet to win), Tennessee, Washington, D.C. or Detroit ultimately proves successful, the ‘losers’ should hold their heads up high and take inspiration from the wise mayor of San Antonio.
Payments M&A, deals and financings all happened.
This week, JP Morgan announced it was buying payments start-up WePay for an undisclosed amount (likely $220 million) in a smart move by the bank. Also, First Data accidentally let it slip that it was thinking about buying payments processing partner BluePay and subsequently confirmed it the next day. Alibaba meanwhile had a good week as it saw its investment in Qudian do well. Then, its Alipay subsidiary struck a deal with Poynt that will enable Alipay users to pay with Alipay at all merchants that use Poynt’s smart terminal. Finally, Israeli-based PayKey announced a new $10-million raise to promote its keyboard solution, which allows customers to send payments and do other things from inside any mobile app.
A financial revolutionist artist.
If you’re passionate about the ability of technology, finance and art to provide insight into the human condition, our suggestion is to get to know artist Sarah Meyohas. Her new exhibit at New York’s Red Bull Arts Center is a large-scale virtual reality experience that uses roses as a way to explore a ‘post-human,’ data driven workforce as well as the traditional labor roles played by men and women. But this is not the first time Meyohas has dared to provoke. In 2015, she launched a curiously named cryptocurrency in conjunction with a Brooklyn gallery to sell her art, and in 2016, the Wharton/Yale MFA graduate was said to sell stock from brokerage accounts (Charles Schwab and TD Ameritrade) before a live audience as part of an exhibit in which she painted her stock trades. According to several news sources, Charles Schwab shut down her account in response.
This week, Bloomberg added to Wall Street hysteria about robots taking over, publishing this piece entitled Bankers Publicly Embracing Robots Are Privately Fearing Job Cuts, and a tour de freakout entitled Robots are Coming For These Wall Street Jobs. The unfortunate reality is that while both articles are brutally on point about financial services’ technologically-driven future, the arrival of that future and the role of humans in it remain open questions. Moreover, as longstanding AI practitioner Sultan Meghji recently wrote in The FR, the hype surrounding AI vastly exceeds the reality thanks to a large garbage-in-garbage-out problem concerning the data used to train AI systems. The result, says Meghi, is an AI system that answers “anvil” when you ask it what someone’s favorite food is.
Fintech, regulation and the Trump administration.
On Thursday, The FR was delighted to gather together a formidable group of professionals to examine the financial regulatory changes taking place in Washington and their impact on fintech innovation. Sponsored by Latham & Watkins, in conjunction with WeWork and Direct Swap, the evening was keynoted by Paul Atkins, CEO of Patomak Global Partners and co-chair of the Token Alliance. In the recent past, Atkins had served on President Trump’s Strategic and Policy Forum and led the President-elect’s transition team for independent financial regulatory agencies. If you are interested in attending future FR-powered events, please let us know.
COMINGS AND GOINGS:
Kaden says hello, Chenault bids farewell.
This week, Rebecca Kaden announced that she has joined Union Square Ventures. Previously, she was a partner at Maveron and had worked as a journalist for The Economist. Also this week, American Express CEO Ken Chenault, a 37-year veteran of the credit card giant and a class act, announced that he would step down next year. Since taking over as CEO in 2001, Chenault had to navigate 9/11, the financial crisis, fierce challenges from other credit card providers, the sudden death of his heir apparent and, last but not least, intense digital disruption.
COMPANY OF NOTE
Here are the realities about Section 529 college savings plans: 1) Last year, a report by Edward Jones found that over 70% of Americans are not familiar with these savings vehicles; 2) Fees associated with 529 plans are often exorbitant (sometimes in excess of three percent); and 3) A great deal of the innovation surrounding mobile commerce and social media technologies hasn’t made it to the antiquated world of 529s. That’s why we’re delighted to highlight CollegeBacker, a San Francisco start-up founded by Jordan Lee and Abby Chao that is reimagining college savings for today’s world. The company is achieving that worthy mission by creating a robust social element to its offering that invites a student’s family and friends to participate in the 529 selection and contribution process. CollegeBacker also has adopted a transparent, pay-what-you-can fee structure that’s devoid of sales commissions and recently launched a first-of-its kind payments feature that allows contributors to pay with their credit and debit cards. “We’re excited by the opportunity to demystify college savings,” said co-founder and COO Abby Chao to The FR’s Gregg Schoenberg. “Plus, our platform makes contributing to a 529 as easy as buying a toy on Amazon or sending money on Venmo.”
QUOTE OF THE WEEK
“If I had to live my life again, I’d make the same mistakes, only sooner.”
~ Tallulah Bankhead