Weekly Briefing No. 56 | 2016 Recap: Best of The FR

This week, we are recapping some of the most popular segments we’ve featured in 2016. Next Saturday, we’ll be back with a regular edition of The FR.

  • Blockchain: hype or margin-killer?
  • Machine Learning vs. Deep Learning, Betterment
  • The Bionic RIA, ABC’s of encryption, career-reinvention F-bomb style


Your margin is my blockchain opportunity. (May 7th, 2016)

We have paraphrased Jeff Bezos’ famous aphorism because it’s relevant to blockchain tech, especially now that Amazon’s Web Services unit has made its first official foray into distributed ledger projects. Meanwhile, financial institutions are enthusiastically participating in consortia in an attempt to “own” blockchain tech’s advancements in settlement, custody and trade finance, among other activities. While we understand the urge to collaborate, we think that it will be difficult for any consortium to achieve Amazon-level success. For now, it’s reassuring for financial institutions and their shareholders to work closely with the likes of Ripple, Chain, Digital Asset Holdings, R3, Digital Currency Group and others. But that’s in part to fend off a Silicon Valley type of disruption that would “steal” standard-setting from incumbents. Over the intermediate term, we think blockchain “coopetition” will give way to a more traditional competitive dynamic. Our reasoning is predicated on the belief that while blockchain tech will produce sizable efficiencies and transparencies that will save money and free up capital, it will also put downward pressure on margins in many cherished business lines. That, in turn, will create added pressure on weaker firms and open up opportunities for the strong to leverage scale and technical superiority. Amazon didn’t get where it is by being cooperative with its rivals; why would the world’s leading financial services firms act any differently? Or, to put it another way, what’s the point of being huge if you can’t use your hugeness to your huge benefit?

Postscript: Goldman Sachs and Banco Santander quit the R3 CEV blockchain consortium this week.

What’s the difference between Machine Learning and Deep Learning? (October 15th, 2016)

Thanks to advancements in parallel processing, Big Data and data storage, the potential of AI to be applied throughout financial services and society at large has grown dramatically in the last few years. But understanding the differences between AI’s two big guns, Machine Learning and Deep Learning, has escaped us. To better appreciate where one ends and the other begins, we turned to Bloomberg’s Ravi Sawhney. In an opinion piece contributed to The FR, Sawhney suggests that while Machine Learning is the far more accessible technology today, the potential of Deep Learning to transform financial services and other industries is much greater. That’s the good news. The bad, or at least cautionary news, is that a much more concerted effort is needed to understand how Deep Learning-based computer programs “reason.” That’s because artificial neural networks, which are inspired by the human brain, can make “mistakes.”

This fintech CEO is no Zoolander. (April 1st, 2016)

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.


BofA Merrill’s nod to the gig economy. (October 22nd, 2016)

We’ve been watching Modo, a Texas-based payments company, for some time and were interested by its newly announced partnership with BofA. Under the deal, BofA’s clients will gain access to Modo’s payments hub, a so-called digital Swiss Army Knife, which allows users to transact across the spaghetti network of global payments systems. In explaining the partnership, the growing and globalizing gig economy was mentioned as a core rationale. At first blush, this looks like a smart, forward-thinking deal all around.

The rise of the bionic RIA. (June 16th, 2016)

Joe Duran, United Capital CEO and founder, has a bold vision for the future of fintech. Rather than viewing technology as a replacement for labor, he sees it as a critical component to making humans — RIAs in particular — better at doing their jobs. The FR’s Gregg Schoenberg spoke with Duran in a wide-ranging interview that led us to conclude that he is one of the more no-nonsense, truth tellers in fintech today.

The ABCs of encryption explained. (May 14th, 2016)

Encryption is like wine in one respect: people like to pretend that they know more about it than they really do. Our suspicion is that many of the politicians and businesses commentators advancing points of view on the encryption of financial data and other sensitive information really don’t get it.  Do you know the difference between a Diffie-Hellman key exchange and Lattice-based cryptography? If not, see below.

Making sense of MiFID II. (August 13th, 2016)

No, it’s not a programming language or a new Mercedes model. It’s the awkward acronym given to an EU financial services directive aimed at increasing competition and consumer protection in investment services. MiFID II, which is set to come into effect at the beginning of 2018, will further unbundle equity trading and research, creating a new dynamic between the buy-side and sell-side. Ahead of the shift, firms in Europe — and to some extent in the US — are evolving their business models.

Better to be a living donkey than a dead unicorn. (September 3rd, 2016)

We liked the attached article highlighting Silicon Valley fallen stars that have managed to hang on. Companies such as Evernote and Zirx saw the tide turn against them, but rather than go down in a blaze of glory, they engaged in some old-fashioned belt tightening and re-emerged as hard-working donkeys. We remain persuaded by the arguments put forth by VCs such as Bill Gurley and Mark Suster indicating the next few years may be marked by turbulence for investors and start-ups. But we also agree — at least directionally — with the sentiment expressed by Affirm founder, Max Levchin: “The start-up world did heed the warnings.”

Having egg on your face is relative. (August 6th, 2016)

Hampton Creek, maker of eggless mayonnaise, is taking heat for getting caught buying its own product as a way to goose revenues and impress big-time investors, which include Khosla Ventures and Hong Kong’s Li Ka-shing. But before you condemn the company too harshly, consider this: Central banks have been buying billions worth of their nations’ own “mayo” for years now in the greatest goosing attempt of all time. At least Hampton’s manipulation has led to robust growth. Who’s got more egg on their face, really? Hampton’s CEO, Josh Tetrick, or the bond-buying members of the ECB, BOE, BOJ and the Fed?

Postscript: On October 31st, Vinod Khosla defended the company and pointed out that the American Egg Industry was plotting to destroy Hampton Creek.


Overbond. (July 9th, 2016)

Fintech for fixed income doesn’t attract nearly the attention of equity-related platforms. That’s why we are noting Toronto-based Overbond, which recently raised $7.5 million and is focused on providing a fully digital bond market platform that connects issuers, dealers and investors. Check out the company’s site here.


Insurers poised for mother of all disruptions. (January 9th, 2016)

We’ve made no secret of our long-term bullish view on opportunities for innovation within the insurance industry. Consider these data points:

  • 5%: The percentage of millennials who consider themselves to be “very familiar” with the concept of insurance
  • 9: The average age of America’s P&C insurance agents

Source: McKinsey & Co.


Insights: F-bombing your way to career reinvention? (October 22, 2016)

The crazy outfits and foul language may not be everyone’s cup of tea, but there’s no denying T-Mobile’s John Legere, or specifically John Legere 2.0, can serve as a font of inspiration for financial services professionals looking to break free from their rut.


"The new always happens against the overwhelming odds of statistical laws and their probability, which for all practical, everyday purposes amounts to certainty; the new therefore always appears in the guise of a miracle."

~ Hannah Arendt