Welcome to The FR’s 115th edition. Here’s what’s sizzling on our plate this week:
- Smile and enjoy the crypto-madness. Just be careful
- Branko Milanović’s innovative ideas for reducing economic inequality
- January’s heavy deal activity; Caribou Honig on pushy bots
- UK’s open banking implementer; Aflac, MasterCard and Alexa rock CES
- Company of Note: Nav
- Follow-Ups & Corrections: We’re sorry, Mayor Lowry
Cryptoassets: Point and shoot at your own risk.
“Jamie just covered his Bitcoin short and it’s going higher thanks to Colonel Sanders!” “Forget Bitcoin; you can’t even use it at a Bitcoin conference. But Ethereum is up over 13,000 percent in the last year and there’s room for it to run.” “I actually like Sexcoin on this pullback.” “Give me a break. XRP is the true serious contender taking over the world.”
Forgive us for the hypothetical crypto-dialogue based on this week’s newsflow, but the loony chatter seems emblematic of a world gone mad. Will South Korea actually ban speculation in Bitcoin, or is its government just trying to jawbone some calm into its society? Who knows? But what we do know (or at least believe) is that there are valid reasons why the US has caught the bug. First, the government that presides over the world’s reserve currency seems a bit loony itself these days. As yet another shutdown over a federal budget impasse looms, potentially jeopardizing the full faith and credit of the US, it’s not hard to see appeal in the security of math over the instability in Washington. Of course, the stirrings of mania preceded the 2016 election, which is why we believe the other driver is more significant: where else can retail and increasingly institutional speculative liquidity seeking juicy returns go? Urban real estate and equity valuations are at historic highs, high yield spreads are very tight and while commodities are rousing, headwinds remain. Enter Kodak, which just licensed its brand to a new Bitcoin mining machine, the Kodak Kash Miner. In fact, this development could wind up being a bigger deal than the KodakCoin. Just think, you too can mine your way into returns of 500 percent or more! Too good to be true? Of course, but this is nothing new. And when some other, not-so-well-understood asset that tells a compelling narrative comes along, crypto will calm down while oversight goes up (See below). Until then, point and shoot at your own risk. And best of luck.
A fintech role in reducing income inequality?
We’ve become fans of the scholarship and blog of Branko Milanović. But whether you agree or disagree with his views on economic inequality, it’s hard to argue with his leitmotif that economists, like generals, often wage the current war using lessons from the last one. For Milanović, an economics professor at the CUNY Graduate Center (a.k.a. the best education bargain in New York), old theories about how to narrow the widening gap between economic elites and everyone else just won’t fly. In a new edition of a terrific new podcast, The Indicator, he lays out his main insights: 1) Quality of education, not quantity, is the more important driver of economic benefits; 2) Raising taxes on the rich won’t work because people will move their capital to places where tax policies are friendlier; and 3) Forget about re-unionization as a way to spread economic benefits throughout society. Instead, Milanović argues that we should expand ownership of companies beyond the current high concentration at the top. Broadened employee stock ownership programs, tax breaks and other “creative ideas” will do far more than increasing wages, as capital appreciation is the way wealth is accumulated now, he says. When we heard the inclusion of “creative ideas,” we thought about all the great innovators out there looking for a big important problem to address. Several areas of fintech are more than covered by the existing start-ups and incumbents on the field of battle. But win-win, private sector solutions to address income disparity before the pitchforks get pointier? Now, that’s interesting.
Deals, deals and more deals (and even more deals).
The usual January rush of deal announcements hasn’t disappointed this year. In M&A, SS&C announced that it would acquire rival DST Systems to further its push into wealth management. Also, online commercial real estate marketplace Cadre secured a commitment from Goldman Sachs to invest in $250 million worth of properties via its platform. Speaking of big names, Bono’s and TPG’s fund have backed micro-investing star Acorns, while Greycroft and Raine Ventures have gotten behind YieldStreet. Finally, Ladder, one of the leading start-ups bringing life insurance into the digital age, announced a $30-million Series B led by RRE Ventures. The company also announced its new REST API.
In praise of pushy bots.
This week, M, Facebook’s half human-half AI chatbot assistant that was first announced in August 2015, was finally put out of its misery. But in the financial services world, bots remain a transformative innovation with significant potential. The key, says Caribou Honig, a former investor at QED Investors and current chairman of InsurTech Connect, is being able to distinguish pullbots (i.e., marginal value bots that that pull customer engagement from other channels) from pushbots (i.e., transformative bots that act as an agent of the consumer, not the business). The latter, says Honig, have a bright future in battling friction points present in everything from banking to insurance to dealing with parking tickets.
An interview with the UK’s open banking point person.
At long last, consumer banking is going to be opened up throughout Europe and the UK. Under new rules issued by the EU (via PSD2) and its fairly close equivalent in the UK (issued by the UK’s Competition and Markets Authority), banks will need to allow third parties to access troves of customer data, including current account transactions, if the customer provides consent. Of course, plucky start-ups have been waiting for this moment, but the big question is whether the ruling will accelerate the encroachment of Big Tech into financial services. That question was posed recently to Imran Gulamhuseinwala, the implementation trustee of the UK’s Open Banking initiative, who said, “I must admit at the moment I don't see it.” While it may be easy to dismiss Gulamhuseinwala’s equanimity as simply a reflection of the “keep calm and carry on” spirit that Americans believe to be genetically British, he comes across as very direct and credible. See for yourself in the interview below.
Financial services firms were well represented at CES.
Financial innovation was in full force at this year’s CES, as MasterCard used the event to formally announce its partnership with Coin. Under the deal, Coin’s software and hardware will be integrated into MasterCard’s Digital Enablement Service, facilitating payment via fitness bands, watches and other wearables. Meanwhile, Alexa was on the minds of auto insurance executives as they evaluated the opportunity of Alexa’s integration into autos as a way to improve first notice of loss and claims status interactions with customers. Last but not least, Aflac won CES’s Tech for a Better World Award for its My Special Aflac Duck. This "smart duck” robot was developed to provide support to children coping with cancer. Aflac’s CEO Dan Amos also announced the goal of giving a free duck to the nearly 16,000 children diagnosed with cancer each year. Well done, Aflac.
COMPANY OF NOTE
Nav didn’t need the new tax law changes that came into effect this year. The six-year-old San Mateo-based company, backed by the likes of Goldman Sachs, Point72 Ventures, KPCB, Tencent and Clocktower Ventures, was already generating considerable traction in growing its small business credit and finance platform. But the company’s co-founder and CEO, Levi King, acknowledged to The FR’s Gregg Schoenberg that the new tax law will serve as a tailwind to the company’s already attractive set of growth prospects. That’s because a 20-percent deduction for qualified pass-through entities will now be available for many S corporations and LLCs, which should convince many freelancers to incorporate and/or build their own business on top of freelancer platforms like Uber and Udemy. “The gig economy is transforming the small business landscape at warp speed,” said King. “We’re looking forward to offering educational tools, recommendations and credit reports to these legions of new businesses, and improving their long-term survival prospects by providing them with data-driven, impartial solutions.”
FOLLOW-UPS & CORRECTIONS
Last week, we mistakenly referred to Jason Lary as the mayor of Atlanta. He’s actually the mayor of newly-formed Stonecrest, Ga. Atlanta’s mayor is Keisha Lance Bottoms. And speaking of Atlanta, Governor Nathan Deal recently dedicated part of his speech at the annual “Eggs and Issues” breakfast to what the state would do if Atlanta made the short list for Big Orange’s HQ2.
QUOTE OF THE WEEK
“Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.”
~ Martin Luther King, Jr.