Weekly Briefing No. 09 | Can Fintech Take A Bear Market Punch?

This week, we turn to Mike Tyson for wisdom amidst the market turmoil. We also discuss fintech’s customer acquisition challenge, Toast (the company), insurance and the looming tension between finance portals and banks.

Can fintech take a bear market punch?

As the markets get whipsawed, we’re reminded of boxer, ear-biter and Bitcoin entrepreneur Mike Tyson (See here) who famously remarked that “everyone’s got a plan until they get hit.” So listen up fintech entrepreneurs, Iron Mike may be onto something if January’s market volatility portends further declines in 2016. All the best planning in the world may come to naught if the assumptions on which those plans were made change. For example, if retail investors grow increasingly fearful, will they still pour money into passively managed ETFs offered by roboadvisors? If junk bonds and other fixed- income yield premiums stay at current levels or widen further, will newly minted online lending platforms face difficulty in obtaining debt funding? And those longer term blockchain and cyber security projects — will banks press forward as aggressively if near-term profitability is pressured? Over the longer-term, the negative phases of equity and credit cycles may be constructive for fintech as some of the hot VC money flees and valuations settle down, but in the near-term, early stage fintech companies would be wise to conserve cash and develop a solid survival guide (See here). Financial institutions with capital and vision, on the other hand, should be preparing their shopping list; the cost of infusing coolness into their organizations could be coming down a lot. 

Deals keep coming—so far.

Despite the market turbulence, fintech deal activity was heavy in the first full week of 2016. Student loan refinancer CommonBond announced that it had secured a $275mm funding line led by Barclays and Macquarie (See here). French telecom giant Orange announced it was in exclusive talks to buy the banking until of Groupama in an effort to provide banking services through mobile phones. Core Logic, a real estate analytics company, agreed to buy collateral information company FNC, and Lendful, a Canadian online consumer lending platform, announced that it had secured a $15mm CAD investment from Alterna Bank.      

Fintech’s costly customer acquisition problem.

In terms of technology, there’s no doubt that many fintech start-ups possess an edge over lumbering legacy rivals in several business segments. But while some of today’s huge asset managers and banks lack agility or a culture of innovation, they do have something the innovators don’t — millions of longstanding customers. And because customer acquisition is so expensive and challenging, many fintech companies are at a disadvantage no matter how well funded they are, says this article on Disruptive Finance. Over time, we believe the inability to rein in customer acquisition costs may jeopardize the independence of many fintech companies. That shouldn’t be forgotten the next time you read some VC or pundit confidently equating Wall Street to a dinosaur or some other extinct reptile.

Another crack in the bank/portal Kumbaya.

Who owns a bank customer’s financial data, the bank or the customer? That question, while not explicitly raised, lies at the heart of what may become a contentious issue among banks and financial portals such as Mint and Digit. Brian Peters, executive director of Financial Innovation Now — a new trade association backed by Amazon, Apple and Google — recently fired a salvo in American Banker that takes banks to task for limiting access to customer data. Peters criticizes Bank of America, JPMorgan Chase and Wells Fargo for suppressing competition by temporarily restricting financial portals’ access to customer information last November. He argues that banks should empower their customers to have greater choice in selecting tools to manage their finances, and that U.S. banks will be disadvantaged globally if they impede progress. Peters’ arguments sound well reasoned to us, but they don’t address the big question of who controls a customer’s data. 

Insurers poised for mother of all disruptions.

We’ve made no secret of our long-term bullish view on opportunities for innovation in the insurance industry. This piece underscores our reasons for enthusiasm. It references several facts that, when considered together, make a compelling case for a recast insurance business model. Some of our favorite data points:

  • The insurance industry accounts for 7% of US GDP.
  • Only 5% of Millennials consider themselves to be “very familiar” with the concept of insurance.
  • The average P&C insurance agent is 59 years old; 25% of those agents are planning to retire in the next few years.
  • “I think insurance is in the Stone Age while other people are circling Mars.”  Mark Wilson, CEO of major insurer Aviva.

Meet the fastest-growing group of retirees: 20-to-24-year-olds.

When it comes to understanding our modern economy, the Fed and many prominent economists seem as clueless as Inspector Clouseau. The gig economy? Driving for Uber? Freelance work may be providing income for multitudes of people, but in the eyes of the Fed and other government employment watchers, the people doing the work have retired from the labor force. The government will eventually catch on, but we hope others do too.  As this Wired article points out, the benefits, protections and overall infrastructure to support gig economy workers haven’t kept pace with the structural economic changes afoot.  Those companies — big and small alike — that can provide critical financial services to the growing ranks of gig workers are poised to find the economic winds at their back. 

Arrivals and Departures:

Beth Starr.

In addition to bolstering its balance sheet, CommonBond enhanced its personnel ranks when it announced that Beth Starr would be joining the student loan refinancing company as head of its capital markets group. Starr was previously a Managing Director at Jefferies in structured finance sales. She also worked at Lehman Brothers in a similar capacity. (See more here).

Company of note


The crowded payments world is full of well-funded start-ups intent on grabbing a piece of that massive pie. Amid the competition, we think Toast stands out as an attractive niche player. The android-centric, Boston-based company has taken aim at the highly fragmented and complex restaurant sector. According to this article, the company serves 1,400 restaurants in 43 states. That’s a great start, and the more than 600,000 restaurants in the U.S. provide lots more room to grow.

This week’s little known facts about…Household Savings.

According to the U.S. Bureau of Economic Analysis, the household savings rate, which is currently 5.5%, averaged 8.36% from 1959 to 2015. 

The all-time high U.S. rate was 17% (May, 1975) and the all-time low was 1.9% (July, 2005).

Switzerland, Luxembourg and Sweden boast the world’s highest savings rates, each in excess of 15%.