Weekly Briefing No. 156 | Dueling talk abounds when it comes to new U.S. exchange

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Welcome to The FR. No mincing words here.

In this edition:

  • Competition about a new U.S. trading forum

  • Auto-tech as the new fintech

  • IBM’s new quantum machine belongs in a Prada store

  • A revolution in cross-border payments?

  • Google takes a trip to the mall

  • Financial services for rideshare drivers

OPINION

Competitive talk surrounds the announcement of a new U.S. exchange.

"We welcome competition to our transparent, highly regulated equity markets. However, with more than 40 equity trading venues already in operation in the United States, we are keen to learn more about the value proposition of a new exchange." That’s a quote from the Nasdaq Stock Market Inc. in commenting on the announcement of MEMX, a new consortium-based exchange whose founding owner-members include BofA, Merrill Lynch, Charles Schwab, Citadel Securities, E*TRADE, Fidelity, Morgan Stanley, TD Ameritrade, UBS and Virtu Financial. We were also amused by the following launch statement made by Virtu’s CEO Doublas Cifu, who said, “The founding members of MEMX represent leading retail brokers, global banks and financial service firms, and market makers – a diverse array of market participants organizing for the common goal of improving markets for retail and institutional investors.” It was a nice touch for Cifu to feature retail investors so prominently in his quote, but it’s laughable to assume that Virtu and the other participants behind the MEMX are driven by their desire to better serve the little guy.

NEWS ANALYSIS

Is “auto-tech” the new fintech?

When you think of companies that receive a high number of technology patents, large institutional tech firms like IBM, Microsoft or Oracle may come to mind, or the new tech giants like Amazon and Google.

However, while you may not immediately associate automakers with innovation, as it turns out things are hanging on in the century-plus-old industry. Ford was one of the most prolific patent recipients last year, with 53 more than Google and 88 more than Amazon. As Bloomberg writes, the auto industry has been trying to “shake their image as old-school manufacturers and fashion themselves as ‘mobility’ companies, pouring billions of dollars into self-driving car technology and new transportation services to move people and goods.”

Automobiles will likely also play a key role in the future of “connected” payments. Some financial services companies are already thinking about how to bring commerce to your car. Picture a scenario where a person prepays for fuel from the payments account embedded in their vehicle while pulling up to a gas station, or pays a restaurant from the car while they’re driving there to pick up food. Indeed, cars may be at the forefront of the evolving fintech landscape.

IBM’s new quantum machine belongs in a Prada store.

“Consultants included museum specialists Goppion, usually found protecting artwork and valuables in the world’s biggest art galleries, and the end result is crafted to perfection, moodily lit and set to crunch numbers like never before.” Yes, that’s a real line from an article in design magazine Wallpaper (See below) describing IBM’s new ‘Q System One’ quantum computer that walked the runway at the Consumer Electronics Show in Las Vegas this week. But the system, which is cooly encased in the world’s finest half-inch-thick borosilicate glass, will not be sold to any of Big Blue’s Fortune 500 customers. Why then go through all the trouble of waxing on and on over the design of IBM’s new Super C? Some have suggested that it’s a PR stunt, pointing to IBM’s decision to unveil its latest quantum machine at a flashy consumer-focused electronics event rather than an enterprise or quantum conference. Perhaps that’s true, but there’s no denying that a big theme from this year’s CES is the convergence of consumer electronics and computing power. In that context, IBM’s decision to highlight its 20 qubits of supercomputing fabulousness speaks to its commitment to regaining a seat at the head table of powering the future.

Disrupting cross-border payments.

The problems with cross-border payments have been discussed ad nauseum. They’re expensive, slow and inefficient. The major Swift hack of 2016 also called into question the security of the current system in place for cross-border payments.  The last few years have seen calls in some quarters for a new innovative settlement system.

Distributed ledger software company Ripple has its sight set on exactly that. This week, the company, which also issues the XRP cryptocurrency, announced its first bank partner that would use Ripple’s protocol for cross-border payments, as it looks to make a dent in the multi-trillion-dollar cross-border payments industry. But despite the designs of Ripple and firms like it, it will be difficult to dislodge the entrenched, bank-owned Swift network and the status quo. But, however minor, Ripple is making a start.

Google as anchor tenant at the mall.

Merry-Go-Round, Bugle Boy, Spencer’s… These and many other brands help define the experience of going to the mall for legions of consumers old enough to recall a time when you actually had to go somewhere to buy stuff (like parachute pants and jackets adorned with meaningless zippers). But now, as traditional retailers like Sears gasp for oxygen, shopping mall landlords are fast at work in redefining and repurposing their existing and future properties. Whole Foods, LifeTime and WeWork represent part of the solution, but only part. That’s because there’s a lot of square footage out there, which is why we think you’ll start seeing health clinics and Big Tech moving in to mall-based properties and driving very favorable terms for doing so. This week, Google affirmed this trend by announcing that it was planning set up shop in a new 584,000-square-foot space at the former Westside Pavillion in Los Angeles.

A fintech canary in the ride-hailing méi kuàng (coal mine).

This week, Chinese ride-hailing juggernaut Didi Chuxing announced that it was rolling out a suite of financial services offerings for both customers and drivers. We’re particularly interested in the driver side of the equation here, because as TechCrunch’s Rita Lau explained, China recently instituted a new legal framework that renders it much more difficult for gig workers to casually participate in the sharing economy. As a result, Didi is responding by offering financial benefits to its drivers as a recruiting and retention tool.  As we monitor the sales points (and valuation) that will accompany Uber’s and Lyft’s attempted IPO plans, we’re eager to see how these companies respond to the multi-dimensional pressures they face. Will they speak to future financial services and benefits (that stop short of full employment status) as a way to keep drivers and blunt the slings and arrows almost certainly to come by unions and worker advocacy groups? Of course, we know that both companies are working hard on their autonomous vehicle programs. But until such programs become a reality, Wall Street is going to want to know how these platforms can motivate its freelance-heavy workforce. It won’t be easy.

Quote of the Week

“I like nonsense; it wakes up the brain cells”

--Dr. Seuss