Weekly Briefing No. 170 | Record Fintech Deals, Insuring Driverless Cars, and More


Weekly Briefing No. 170 | Record Fintech Deals, Insuring Driverless Cars, and More

Welcome to The FR. Always written by people, never robots.

In this edition:

  • Halcyon Days for Fintech Deals

  • How Do You Insure an Autonomous Vehicle?

  • The Downside of Direct Banks

  • Investment Advisors Embrace Technology

  • The Rise of “Africa’s Amazon”

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Halcyon Days for Fintech Deals

Fintech M&A has continued at an unprecedented pace, with 2019 shaping up to be the biggest year yet in terms of total deal value. The activity comes not only from private equity firms making investments in start-ups, but also from legacy financial technology vendors and financial firms acquiring innovative fintechs as a way to add to their own tech capabilities.

In just the first few months of 2019, we have already witnessed three of the eight biggest fintech deals ever, according to research from S&P.  As we have noted in the past, there is an escalating arms race among incumbents to add to their ever-increasing tech arsenals.

Indeed, S&P has noted these deals are becoming “defensive plays,” as the largest incumbents seek to gain any advantage in an increasingly competitive landscape. We predict that 2019 will add a few more deals to the “biggest ever” list before it’s all over.

How Do You Insure an Autonomous Vehicle?

Technology and data have allowed insurers to be much more predictive and accurate when it comes to calculating risk and measuring trends. Usually this has to do with analyzing the behavior of people, but in a world where automation continues to play a bigger role in everyday life, even more questions have to be answered.

Take, for example, the rise of self-driving vehicles. Though on the periphery today, autonomous vehicles will only continue to rise in number on our roads and freeways. While they have the potential to make driving safer by eliminating the most significant factor in accidents — human error — they still have other risks to consider.

In an interesting interview with Digital Insurance, Deeksha Joshi, Managing Director of Corporate Strategy & Research at Liberty Mutual discussed some of these, including the threat of cyberattacks. Joshi argues that risk models and products for emerging fleets will evolve and adapt to changing consumer needs, data availability, and technological advancements. Insurers probably didn’t think ten years ago that one day they’d have to come up with a risk model for insuring driverless cars, but the steady march of technology rolls on.

The Downside of Direct Banks

Direct banks — online-only banks that typically pay much higher interest rates on various accounts — have seen a rise in popularity in recent years. Without being burdened by the high operating costs of maintaining a traditional branch network, these banks generally offer robust digital services, as well as generally much more attractive rates on everything from savings accounts to CDs. But are there also downsides to their digital-centric approach?

According to a J.D. Power survey, there’s a downside to losing that human element. For one, people are quickly becoming very upset when they can’t easily get in touch with a real person when they need help with something. And they have higher expectations for the digital experience at direct banks: they expect it to be flawless. Further, the study found, the novelty of higher rates won’t last forever, and direct banks need to diversify their offerings if they’re going to retain and attract customers going forward.

All in all, some interesting thoughts, especially considering we live in a time when it seems like every bank is falling all over itself to offer a “digital-only” offshoot of traditional services.

Investment Advisors Embrace Technology

While the wealthtech revolution has largely been centered around robo advisors and bringing more “entry-level” investors into the market, independent advisory firms have tended to focus on building relationships, advisor productivity, and other factors. But that’s all beginning to change. According to an InvestmentNews poll, investing in technology to improve the client experience has turned into a top priority for these firms. These features include e-signing and videoconferencing capabilities and dedicated client portals, among other things. Even for sectors of financial services that are relationship-heavy, a baseline of tech capabilities is quickly becoming table stakes.

The Rise of “Africa’s Amazon”

It all started with the “original” Amazon, which changed e-commerce forever and almost single-handedly introduced the word “platformification” into the popular lexicon. Then came the “Amazon of China,” Alibaba, which successfully integrated digital payments, e-commerce, and fintech to create a world-beating behemoth. Now making waves is “Africa’s Amazon,” Jumia, a digital marketplace with some 80,000 merchants on its platform. The company, based in Nigeria and founded by two French former McKinsey execs, raised more than $200 million from its IPO last week, making it the largest African IPO outside of the energy sector, according to the Financial Times. Alibaba’s success is intertwined with the growth and strength of the Chinese market and economy. Investors in Jumia could be partially betting on the success of Africa as a mass market.

Quote of the Week

“Technology is, of course, a double-edged sword. Fire can cook our food but also burn us.”

—Jason Silva