Weekly Briefing No. 25 | Banks Should Stop Fretting Over Uberization and Start Getting “Ludicrous”

Banks are at risk of being Tesla’d. Read more on that as well as the huge opportunity for small insurance. Other topics this week include SWIFT’s take on blockchain tech, VC interest in Ethereum, EMV woes, Capital One’s latest innovative step and United Capital, a financial wellness company.

Tesla - fintech purple

Tesla - fintech purple


Banks should stop fretting over uberization and start getting “ludicrous.”

VCs and even bankers have joined the chorus of those warning of an impending Uber moment for banks. Here’s why that’s unlikely to happen: Uber’s business model is predicated on using its advanced technology and sophistication to overrun mom-and-pop businesses, not massive corporations; and there is no financial services Uber on the horizon that is posing an existential threat to any significant bank. The bad news for banks is that plenty of danger still lurks on the horizon. And it’s coming from fintech companies poised to outclass banks in cherished business lines through a combination of better technology and fresher approaches to delivering customer satisfaction — just like Tesla is doing. And as we observe the staggering pre-orders for Tesla’s first mass-market car, we are impressed by Tesla’s ability to keep bringing the heat to the auto industry. To be sure, Tesla is not going to drive Volkswagen out of business, but Tesla has shown traditional automakers that they can no longer dominate as they once did. Looking across the fintech landscape at companies like SoFi, Funding Circle, Robinhood, Kreditech and Affirm, we see Teslas in the making. Sure the fintechs mentioned above face challenges — as does Tesla — but in the wake of another lousy quarter for big banks, we are looking to see how they respond beyond simply cutting compensation and head counts. Those steps may be necessary, but no bank is going to cut its way to inspiration. They need to put in place bolder, more ludicrous innovation plans before their profits get permanently run over.

Small insurance is a big opportunity.

Kudos to AXA Ventures’ Drew Aldrich for articulating the huge opportunity that exists in microinsurance (i.e., insurance policies that cost just a few bucks per day in premium). In a guest post featured in CB Insights, Aldrich makes the point clear: the same technologies that have enabled microloans and microcredit to take root in the developing world can be utilized to provide sorely needed microinsurance policies globally. How big of an opportunity is this? According to Lloyds, the potential global market for small policies that incorporate telematics, mobile and Big Data technologies is 1.5 billion to 3 billion policies. That’s billion with a B. Not surprisingly, AXA Ventures has been investing in this trend, but we don’t mind a fund talking its book when the underlying thesis is this juicy. 

What color is the flower on your P2P lending lily pad?

We liked this Wall Street Journal (Subscription) article’s core point: being a niche player is the only way to go in marketplace lending circa 2016. With large P2P firms consolidating their hold on standard consumer loans, lending start-ups need to face the reality that their lack of scale and data will make it difficult to match the big players in their core markets. Moving forward, we think the keys to success will be in finding a niche that the big platforms aren’t serving, building a real edge — not an aspirational edge — in acquiring customers cheaply and in assessing risk better than the competition. As it relates to the wedding niche discussed in the article, we are skeptical, as weddings are one-off events. Perhaps the company featured in this article plans to expand into confirmations, Bar Mitzvahs and mid-life crisis sports car purchases.


VCs are forking on whether or not the time is right to bet on Ethereum.

"One of the challenges in evaluating Ethereum start-ups is the community is still fairly small and some of the entrepreneurs are newer to the cryptocurrency ecosystem, making it difficult to navigate.” That’s the view of one VC looking to put money to work in Ethereum start-ups. Some VCs are forging ahead, others are taking a wait-and-see approach. Read more here.

Interbank transfers via blockchain tech: a two-espresso must-read.

Dry, yes, but the new white paper from SWIFT on distributed ledger tech is important. A majority of the world’s bank-to-bank messages concerning financial transactions use the network run by SWIFT, a Belgian non-profit. Given its crucial role in the global economy, SWIFT’s views — prepared with Accenture — deserve your attention. Check out the white paper here.

Online fraud surging since EMV.

According to a new report by PYMNTS and Forter, online fraud has jumped 11 percent since the adoption of EMV in the US. While EMV adoption has been a success in Europe, the revelation that fraud has simply moved to another domain is yet another setback to the standard here, where EMV has frustrated merchants and consumers alike. The net winners of the EMV standard are banks, which now can shift liability to merchants who have not upgraded their terminals to EMV chip-enabled devices. The losers: everyone else — except for online fraudsters.

A survival guide for community banks.

Community banks comprise a staggering 97% of all US banks, according to Brian Hamilton of Sageworks, which provides financial data on private companies to these highly regulated local banks. In this opinion piece, Hamilton makes his case for how these banks, made famous in the movie classic, It’s a Wonderful Life, can navigate around alternative lenders.

Capital One’s latest innovative step.

Although Capital One hasn’t made any big fintech splashes as of late, we continue to watch the Virginia-based firm as it presses forward with an unending stream of innovation initiatives. This week, for example, the firm took the rather unbanking-like decision to open source a tool it developed via GitHub. The tool, known as Cloud Custodian, is a rules engine for optimizing its usage of cloud resources on the Amazon Web Services platform. By open sourcing its tool, Capital One hopes to build a community around the software that can both improve it and reduce the bank’s maintenance burden.

Company of note

United Capital Financial Advisors.

We are happy to feature this Newport Beach-based firm as it sits squarely in the middle of the financial wellness movement, which we believe is ripe with opportunity. This week, the company announced the roll-out of FinLife Partners, which will offer white-labeled wellness tools such as the Money Mind Analyzer and Honest Conversations, to RIAs. By allowing other advisory firms to white label United Capital’s technology, the company is betting big on its ability to be a tech solutions provider and not just an RIA. See more here.

Comings and goings.

Kraken, the San Francisco-based Bitcoin exchange, has hired Edward M. Stadum as its General Counsel. Previously, Stadum was US General Counsel to Fidor Bank, one of Europe’s leading online banks. Earlier in his career, Stadum founded TecVenture Partners, a Munich-based VC, which he ran for 12 years.

Quote of the week. 

“Cool means being able to hang with yourself. All you have to ask yourself is 'Is there anybody I’m afraid of? Is there anybody who if I walked into a room and saw, I’d get nervous?' If not, then you're cool."

~ Prince Rogers Nelson, R.I.P.