Weekly Briefing No. 173 | Fintechs and FIs BFFs?, Investor–Insurtech Lovefest, and More

Welcome to The FR. We’ll always be together. 

In this edition:

  • Fintechs and Financial Institutions: Together Forever?

  • Investor–Insurtech Lovefest

  • How Can Banks Innovate?

  • Buffett Shades the Uber IPO

  • Prison Life for Wall Streeters

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Fintechs and Financial Institutions: Together Forever?

In the early part of this decade, fintechs were viewed by some traditional financial institutions as barbarians at the gate, eager to take customers away. Fintechs, for their part,  frequently talked about “disrupting” the financial industry and doing things digital-first, not being held back by legacy technology or processes.

But as the decade winds down, the two sides have become more like starry-eyed lovers in a sappy romantic comedy. Indeed, the last few years have seen the rise of fintech partnerships, or increasingly outright acquisitions of fintechs by traditional players.  

"Brand and scale matter,” says Dan Schleifer, co-founder and CEO of ChartIQ, a fintech firm. “No VC-backed start-up is going to take down Goldman or JPMorgan, or even make a dent in their bottom line. However, the ideas and technology incubated in these nimble start-ups, deployed at scale through legacy institutions, can have a huge impact for both banks and start-ups."

At this point, are fintechs even seen as competitors anymore? Not to most financial institutions. A survey released in March by PYMNTS.com found that just 6.5 percent of surveyed FIs said they considered fintech firms to be their competitors. So, are FIs and fintechs going to play nice from here on out? Or should traditional players be concerned that there are still some relative upstarts trying to move in on their business? Only time will tell.

Investors Love Insurtech

Insurtech is a booming sector, and deep-pocketed investors show no sign of slowing down in pouring money into the next hot start-up.

The latest example is Health IQ Insurance Services, Inc., which this week announced it has raised $55 million in growth capital, bringing its total funding raised to $140 million. The firm, now valued at $450 million, creates online quizzes designed to learn about people’s exercise habits. It partners with a number of insurance firms to identify health-conscious individuals who might have lower risks of early death and who might be interested in discounts on term life insurance.  

Overall, insurtech funding reached more than $3 billion in 2018, almost double the figure from 2017. This trend doesn’t look like it will slow anytime soon.

How Can Banks Innovate?

Why can’t banks innovate like start-ups? It’s a question that’s been asked a thousand times and has many answers. It’s certainly true that financial firms face a more stringent regulatory environment than most other industries. And they tend to have a more conservative nature than other businesses that tend to take fewer risks.

But a big part of it is that banks don’t have an ingrained “start-up culture.” The idea of “failing fast” is foreign to banks; in fact, they don’t want to fail at ANY speed. But these hurdles can be overcome little by little. One op-ed argues banks need to embrace the idea of containment—that is, to put in place tools and protocols that allow teams to mitigate the impact of failure while still moving quickly and learning. It’s a very “startup-y” notion; would banks go for it? We don’t know how many will embrace the idea, but the smart ones are most likely already putting something similar in place.

Buffett Shades the Uber IPO

We’ve written a bit on Uber’s IPO, one of the most anticipated stock offerings in many years. However, one person who is not sharing in the enthusiasm is Warren Buffett, who is going to pass on this one. That’s part of a larger strategy the Oracle of Omaha abides by, which is not to invest in any new stock offerings as a practice. “The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that’s going to better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn’t make any sense,” Buffett told CNBC.

It will be interesting to see if Uber follows the pattern of other hyped IPOs, which started hot and then cooled off, such as its rival Lyft, whose shares skyrocketed on the first day of trading but are down 20% since then.

What Prison Is Like for White Collar Criminals

In light of Michael Cohen’s conviction and prison entrée on May 6, we thought we’d share a fascinating story from Institutional Investor on what white collar criminals and Wall Streeters face in prison. Since the 80s and the height of the “greed is good” era, there has been a perception that the minimum security prisons that white collar felons go to are more akin to hotels (think “Club Fed”). It turns out they’re a bit rougher than that, though still very different from your run-of-the-mill high-security prisons.

It was also interesting to read about the struggles these people have when trying to re-enter society. All in all, an extremely well reported piece, and a good job by Institutional Investor for getting so many ex-con Wall Streeters to speak so candidly on the record. Bottom line—Stay true.

Quote of the Week

“Act boldly and unseen forces will come to your aid.”

—Dorothea Brande