The View From Europe

We had the privilege to attend and present at EXEC Conference in Berlin last week. In an ideal location and surrounded by great company, we observed a rational, results oriented ecosystem that offers plenty of lessons and observations for the broader market.  Here’s what we learned:

PSD2 Matters

PSD2 was mentioned on nearly every panel. The law may not be implemented until 2019, but it is already encouraging innovation in the FinTech and Financial Institution landscape. Financial Institutions are not trying to stop it, and FinTech companies are seizing on the opportunity to collaborate with Financial Institutions under PSD2.  (Note:  I am sure that the sausage making behind the scenes is much less collaborative.)  Examples of the collaboration are evident in the number of API service providers represented; Financial Institutions with “at-the-ready” APIs and Fin-Tech companies such as Figo and N26 charting new business paradigms.

Framework-Based Discussions

The dot com bubble taught me that data should drive decisions, and strategic frameworks can uncover exciting & otherwise invisible opportunities. Lately, the US tech market feels more like a reality tv show than a real framework-based industry. At the EXEC conference in Berlin, high-level strategic frameworks were front and center, with panelists and keynote speakers displaying “value chains” to contextualize their arguments. Particularly in the Fintech eco-system, value chain analyses reveal multi-billion dollar opportunities, and help Fintech companies focus their resources strategically. This brings me to N26.

N26’s Model

One of the first keynote speakers opened with a simile: financial institutions today are like frogs boiling to death in a pot of water: the clock is ticking for them to innovate or boil. N26, a relatively young bank based in Berlin that has raised over $50MM, presented some important lessons that can help FinTech startups and incumbent banks avoid boiling. N26 has two notable differentiators: Design & Platform. On the design front, N26 wanted banking to be beautiful.  As their founder noted, 7/10 millennials would rather go to the dentist than their bank. N26 makes banking a beautiful experience, a quick way to draw in young clients. But beautiful design is easy to replicate; N26’s staying power is all thanks to their platform. While big banks are bogged down by legacy systems, N26 leverages best-in-class providers like TransferWise to provide non-core banking services, such as transfers, lending, credit and more.  N26 is a platform bank, with the potential to become a marketplace replacing the end-to-end ego of traditional banking with an adaptable tech platform for changing times.

When we stitch together these three observations, we see a bright future for TradeIt, as we build, manage and distribute APIs for the spectrum of investing firms. At the same time, we recognize that rescuing frogs out of boiling water will inevitably leave you with a few burn blisters.

Fintech News: April 7th, 2017

News this week: How the CFA made fund managers obscolete, the pitfalls of China’s unregulated retail investment products, and Jamie Dimon hints at JPMorgan’s evolving “fintech” strategy:

Swipe by Swipe, Chinese Smartphone Users Flock to Risky Investments (The Wall Street Journal)

The Chinese government has championed personal finance as a way to diversify their economy beyond manufacturing. But rapid growth has led to poorly regulated products – where anyone can create an ETF and market it to consumers.

Who Killed the Active Manager? (Bloomberg Gadfly)

The CFA certification, Vanguard’s rise, and other factors that led to the decline of the active fund manager over the past ten years.

What Dimon Had to Say About Fintech in his Annual Letter (American Banker)

JPMorgan’s chief used “fintech” to refer to new in-house technologies, API partnerships with fintech startups, and digital banking experiences.

FinTech News: March 24th, 2017

This week, lots of drama in the cryptocurrency world: Bitcoin’s community could split the currency, Ethereum continues surging, as governments debate over who regulates fintech. By the way, what is Ethereum?

Bitcoin Price Plunges on Fears of a Currency Split (The Wall Street Journal)

bitcoin-and-ethereum-sitting-on-a-tree@2xThe bitcoin developer community is divided over block size limits, and it’s threatening to split the currency in two. Unlike the volatility that followed Bitcoin’s ETF rejection, this debate carries fundamental implications for the cryptocurrency’s future. A permanent, definitive record of every transaction is central to Bitcoin’s value proposition, so splitting this history into two will cause uncertainty and could provide liquidity problems. Bitcoin price has hovered around $1000 all week, down from its previous highs around $1250.

New York Grants Coinbase License to Trade Ethereum (Fortune)

Ethereum, the current leader of “altcoin” currencies, has been unavailable to investors in New York. This week, the state legislature granted Coinbase a license to provide Ethereum,  and criticized the OCC’s encroachment on fintech reculation. The debate continues over who is best equipped to regulate fintech – states or the federal govermnent.

What is Ethereum, and Could it Actually Replace Bitcoin? (Mashable)

Ethereum 101: what is it, and why are people suddenly talking about it? It’s a nerdier and slightly more complicated version of Bitcoin – and some companies are getting behind it. It’s up 200% in the past month. Get the overview here.


Who’s buying $SNAP, and where?

$SNAP’s IPO has dominated financial news for the past month. After the stock gained 45% on its first trading day, bloggers called it “dumb money,” and not a single Wall Street analyst gave it a buy rating until today. In this post, we compare our transaction data for three social media giants: here’s our take on $FB vs $TWTR vs $SNAP.

Not So Millennial:

According to the headlines, $SNAP investors are a bunch of college-aged power-users buying their first stock ever. Our data points to a more diverse group of investors: our average $SNAP order size was over $10,000, which was slightly higher than the average order for $TWTR. A fair share of young people invested in $SNAP, but given the volume and quantity of large retail orders, it looks like Gen-Xers and Boomers are buying shares as well.

Fear of Missing Out

ezgif-3-b9aa9a85bdWhat’s more interesting is where people are trading these stocks. A large portion of our trade data comes from from social trading communities like StockTwits, where investors can share predictions on a stock’s direction. The $SNAP IPO generated huge buzz on these networks, with a steady stream of speculators sharing their opinions and price targets for the company.

Social InfluenceIt looks like all the buzz influenced some investors to join the party and buy in. Investors were twice as likely to buy $SNAP from a social investing community when compared to $FB and $TWTR. Sounds like people in the forums are buying $SNAP because, well, everyone is doing it.

Trading the Headlines

Though everyone was talking about $SNAP last week, most financial commentators were talking $SMACK. Investors were much less likely to invest in $SNAP from a news website; they were 10 times as likely to buy $FB and 3 times as likely to buy $TWTR when reading the financial news. If you take a look at the headlines, you can see why:

News InfluenceSnapchat IPO: Don’t Confuse Popular with Profitable (Forbes)

Is Snapchat IPO the Good Kind of Crazy? (Bloomberg)

SNAP is Clown Car 2.0 (Fortune)

The Complete Bearish Case Against Investing in SNAP (Business Insider)

So, if you’re reading the grim headlines in the news, you’re probably not investing in Snapchat without doing more research elsewhere.

In the weeks since $SNAP’s IPO, we’ve been surprised by large order sizes of the supposedly “millennial” stock, the large influence of social platforms, and the small number of news-related transactions. Got ideas for our next data dive? Tweet us!

Fintech News: March 17th, 2017

This week: the Bitcoin ETF was rejected last Friday, and alternative cryptocurrencies are rallying, China’s winner-takes-all fintech market, and $SNAP’s IPO could encourage private unicorns to make the jump and go public.

Ethereum Price Tear Continues Setting All Time Highs (CoinDesk)

Ethereum, a bitcoin alternative, rallied 230% this week. The cryptocurrency’s main feature is “Smart Contracts,” which automatically execute when the conditions are met. That’s obviously useful for businesses, and JP Morgan, Intel, and Microsoft are experimenting with it. This week, it rallied from $15 to a peak of $50 as speculators questioned Bitcoin’s ability to remain the dominant cryptocurrency.

Alibaba, Tencent to Get Most of China Fintech (Investopedia)

The Chinese fintech market is predicted to grow to $67 Billion by 2020, and it appears the giant tech companies are going to reap most of the profits.

Snapchat Means IPO Ice Age is About to End (Forbes)

The most valuable private tech companies in the country – Airbnb, Uber, etc – have avoided IPOs at all costs for the past few years. Now, Snapchat’s (relative) success could encourage them to change course and go public.

Fintech News: March 10th, 2017

This week in Fintech: 72 hours until the Bitcoin ETF decision, and discrimination in online lending practices.

Bitcoin May Go Boom if SEC Approves Winklevoss ETF (Fortune Tech)

The Winklevoss twins filed their Bitcoin ETF application four years ago. The SEC’s decision on whether or not to approve it is due Monday the 13th. The decision has huge implications for mainstream adoption of blockchain technologies, beyond illegal transactions and funneling assets out of China. In the short term, Bitcoin price is shooting up from speculation. Stay tuned.

Is it OK for lending algorithms to favor Ivy League schools? (American Banker)

While fintech companies often claim to be more inclusive, online lending algos are drawing criticism for favoring Ivy League graduates. Recent research shows that less prestigious institutions outpace the Ivy League, when it comes to getting poor kids into the 1% in their adult careers. In short, there is still room for debate over which assumptions should govern alternative lending.


Online Brokerage Price Wars, Part 2

Looks like last month’s price war was just the beginning. Here’s the current state of the stock market pricing war:

Typically, brokers change their prices once every five years. In the past month, they’ve dropped fees twice already. Last week, after Fidelity announced $4.95 trades, Schwab shot back by matching the price. TD Ameritrade, which is more popular for active traders, joined the battle by dropping fees 30%, from $9.99 to $6.95. Their competitor, E*TRADE, remained silent the longest, but ultimately followed TD to $6.95. Here’s what the low prices mean for the industry:

Redefining Discount

TD Ameritrade and E*TRADE are in the process of acquiring Scottrade and OptionsHouse, respectively. Tradeking is being acquired by Ally at the same time. Until this week, Scottrade’s $7.00 and Tradeking’s & OptionsHouse’s $4.95 were some of the lowest commissions in the industry, a major selling point for these firms.

Now that Fidelity and Schwab have dropped to $4.95, their super-discount competitors will have to drop their own fees even further, or find a new way to compete on something other than price. It’s likely that the battle will continue when these players cut fees below $4.95.

Price Wars Graph.png

Customer Value Reshuffled

With less revenue coming from trade commissions, the definition of “most valued customers” is changing. Brokerages now make more money off of management fees, interest on margin and cash balances, and fees on their ETFs & mutual funds. If you trade stocks yourself, your broker might start cross-selling to you, hoping to make more off of advice and fund fees.

Stockflix, Stockify, Dollar Stock Club

Remember paying $.99 per song? Online brokerages are still using the pay-as-you-go model the music industry abandoned years ago. We predict subscription models will make their way into the brokerage world. Instead of paying per-trade, investors will pay monthly subscription fees that include a certain number of trades, access to research, and other perks.

Less Now, More Later

Brokers should listen to their own advice and start thinking long-term. While a subscription model might not produce huge profits at first, it will provide steady revenue when trading behaviors die down. Per-trade fees generate huge profits when the market is booming, but those profits dry up quickly when the market spooks retail investors.

If you bought E*TRADE stock 10 years ago, you’re down 84%. Adopting a subscription model will save online brokers, and their shareholders, from the volatility that comes with depending on unpredictable market conditions. Instead of worrying about the next fee war, online brokers should start poaching Spotify execs.

Fintech News: March 3rd, 2017

This week, the ripple effects of dropping fees in the wealth management industry, and a robo-advisor just for Asian-Americans.

The Asset Management Pressure Cooker (Bloomberg)

As money continues moving to low-fee, passively managed funds, BlackRock, Fidelity and Vanguard are seeing assets soar to new highs. But the revenue that fund managers generate per dollar is falling, putting pressure on the securities industry to rethink the way they do business.

Ex-Scottrade execs see Asian-American, Chinese market ripe for robo advice (Financial Planning)

As robo-advisors have grown in popularity, new entrants have started marketing them to specific demographics, such as Ellevest for women, and FinHabits, for Latin Americans. Now, Scottrade execs are forming a robo for the Asian-American community in LA and NY.

E*Trade is the Latest Entrant in the Online Broker Price War (Yahoo! Finance)

After remaining silent as its rivals, Schwab, TD and Fidelity slashed fees, E*Trade joined the race by dropping its trading fee from $9.99 to $6.95.


Fintech News: February 24th, 2017

This week’s top stories: Why China is beating the rest of the world on fintech adoption, Wall Street gets ready to fight regulations old and new, and the data battles between banks and fintech firms continue.

In Fintech, China shows the way (The Economist)

By just about every measure, China dominates consumer fintech, generating over 50% the world’s mobile payments and 75% of P2P loans. How did it get so big so fast? State-owned banks were so slow to innovate that they opened the door to new entrants. China’s middle-class exploded and had mobile phones before they had credit cards.

Why a clear answer to the data-sharing debate remains elusive (American Banker)

Screen scraping is an outdated, insecure way to access banking data. Luckily, it’s being replaced by oAuth, which allows apps to pull data without using your login credentials. Next, the industry hopes to establish a single, widely-adopted standard for APIs.

Wall Street Girds for Regulatory War (Bloomberg)

Trump has pledged to roll back the regulations aimed at preventing another financial crisis. While the news has focused on the broad regulations of Dodd-Frank, smaller agency rules are just as important: the OCC, CFTC, and Fed will be more influential in the short-term.


A Letter to Regulators

Over the past few weeks, we covered the data battles taking place in fintech. As the CFPB deliberates on whether to defend data aggregation, we urge them to remember their mission to “empower consumers to take more control over their economic lives.” To grant data ownerships to banks, rather than consumers, would represent a stark failure of the CFPB to deliver on this mission.

We encourage anyone who cares about their data to write the CFPB at the email address below.  As Plaid, Yodlee, and other tech innovators have argued, continuing to innovate in fintech relies on customer data ownership. Here is the letter we sent to regulators:


FinTech News: February 17th, 2017

This week in fintech: stock trading vs robo-advisors, bitcoin shows signs of maturation, China’s PayPal is raising billions, and Nasdaq’s 2017 fintech predictions:

Why DIY Investors Still Aren’t Flocking to the Robo-Advisors (Forbes)

The robo-advisor is a fast-growing trend, but active investors aren’t going anywhere. Here’s why the market for active trading is growing, not shrinking, alongside the market for automated investment advice.

Is Bitcoin Growing Up? (Bloomberg)

As Bitcoin’s use cases become more “mainstream,” its price is becoming much less volatile. While there is no ETF for Bitcoin (yet,) futures contracts are now allowing more investors to hedge their positions or even short Bitcoin, which is helping to smooth out price fluctuations.

Ant Financial Raising $3 Billion to Fund Deals (Bloomberg Tech)

Ali Baba’s financial arm, the owner of AliPay, is raising $3 Billion in debt to fund its latest acquisitions, including the $880 million purchase of MoneyGram, which has a presence in the US. The fundraising comes ahead of their planned IPO, which is expected to value the company at $60 billion, even higher than PayPal.

State of Fintech For 2017 (NASDAQ)

Nasdaq put out some predictions for 2017 fintech. Among them: cryptocurrencies grow up, chatbots find a home in finance, and AI automates the back office.

Data Dive, Part 1: Trading The 2016 Election

How has investing changed after the election? In our first Data Dive of 2017, we use transaction data to find out.

Since Trump’s win in the 2016 election, the S&P 500 has rallied 10% and hit multiple all-time highs. The market may be on an upswing, but how has investor behavior changed? To answer this question, we’re taking a look at our transaction data, comparing behavioral patterns from the month before the election with those exhibited in the weeks after the news.

Here are some of our findings:

Order Size.pngBuy Low, Sell High?

Looks like some investors are locking in their gains after the Trump bump. Since the election, our average sell order size has shot up by 50% while the average buy order size dropped by 11%. It looks like investors have been hoarding cash since the election, maybe waiting for an opportunity to buy at a discount if the markets get shaky.

Peak Hours.pngLazy Mondays

Before the election, Monday mornings were red hot on the trading floor. Post-election, traders started waiting until the end of the trading day to hit confirm – maybe holding out until volatility settles around 2-3pm.

It appears traders continued taking their sweet time after Monday into the middle of the week. While Tuesday was the hottest day of trading before the election, Wednesday appears to have regained its title as “hump” day, claiming the highest average volumes in the weeks following the election.

Peak Trading Days.png


Draining the Swamp

tech-inflowsWhatever your political views, it’s fascinating to see how a new administration can affect people’s’ portfolios. For example, our data suggests that investors are “draining” tech stocks from their portfolios after the election. Despite a few high-profile endorsements, Trump’s win is widely considered a net loss for the tech industry, which relies on visas for highly skilled immigrants to power innovation. As a result, investing in tech companies means is riskier in 2017, and investor appetite for the sector has cooled off.

A Golden Opportunity

Gold Outflows.pngGold’s price tumbled 12% in the last weeks of 2016, but it looks like retail investors are staying put and holding onto the precious metal. While inflows remained relatively steady, our Gold-related outflows plummeted after the election. Given Trump’s unpredictability, this makes sense; Gold is seen as a safe-haven investment, and its value often increases during times of uncertainty.

Got a hypothesis for us? Interested in additional info? Email us or Tweet your data requests @TradingTicket for our next installment of the Data Dive series!

About the Author

James Barrios is a Management Science & Engineering Masters Candidate at Stanford University.  James will be investigating patterns, trends, and other useful data extractions over the coming months.  For this piece, James compared “Buy” and “Sell” orders placed before and after the November election.

Fintech News: February 10th, 2017

This week in Fintech: an investing guru is worried about Trump’s economics, why banks can’t copy startups anymore, and Wells Fargo opens up customer data access to Mint.

Banks Need Their Own Innovation Model (American Banker)

The traditional banks are appointing “Chief Innovation Officers” to copy existing products produced by startups. But analysts worry that they’re doing it wrong, since the startup model of “iterate fast” and MVPs isn’t suited to financial corporations. This column suggests more effective ways for banks to innovate:

Intuit Signs Deal With Wells Fargo to Share Customer Data (VentureBeat)

Even the most reluctant banks are opening up to the use of APIs. Following Morgan Stanley, Wells Fargo agreed to give data access to Mint (Intuit) this week.

A Quiet Giant of Investing Weighs In On Trump (The New York Times)

Seth Klarman is the Warren Buffett you’ve never heard of, and he’s worried about a Trump presidency on the markets. In particular, the longer-term effects of protectionism and inflation, which investors haven’t priced in while the S&P has rallied over the past 3 months.


Aggregation Wars, Part 4: Europe

Across the pond, EU regulators are building a secure consumer-oriented financial ecosystem. To stay relevant as a global innovator, regulators in the United States act fast in doing the same.

Last January, European regulators passed the PSD2 law, which grants ownership of account data to the bank customer rather than the bank. Under PSD2, financial institutions will be required to provide free access to their customers’ accounts to any third party that the customer authorizes.

The Customer is Always Right

Consumers win under PSD2, because it encourages competition in the digital financial product space. Instead of being forced to use their banks’ clunky services, Europeans can sign up for any sleek new service, then authorize it to connect to their bank. This new and open market has tech companies building products that are better functioning, customizable, and more mobile-friendly than the existing products offered by banks.


PSD2 in GIF format, source: Medium

Smarter, Simpler Regulations

In the United States, regulators are still years behind their European counterparts. The challenge lies in crafting laws that remain relevant as the technology evolves over time. To avoid over-regulating the industry and creating never-ending work for themselves, US regulators should build a framework of principles and “best practices” for the industry. Without micromanaging the details, they must foster:

  • Ease of Connectivity: the adoption of a universal financial “language” that makes it easy for banks, customers, and fintech companies to share data using the same protocol
  • Safety: Security standards that prevent unauthorized parties from accessing customer data
  • Consumer Protection: Acceptable use of customer information and disclosures

Acting Fast

It is time regulators take a stance in this debate with simple, forward-facing legislation. If Silicon Valley and New York are to remain competitive as fintech hubs, they need legislation that remains relevant as the fintech sector continues to evolve.

Price Wars: Online Brokerage Edition

Last week, Schwab cut its trading fee from $8.95 to $6.95, kicking off the 3rd Online Brokerage Price War – an occurrence that has happened every five or six years since the dot-com boom. Here’s what this “price war” means for the retail investor and the online brokerage community:

Short-Term Scramble

Schwab Fee Cuts.pngThe next few weeks will see Schwab’s competitors scrambling to reset marketing campaigns, hold emergency meetings at the executive level and rethink their 2017 operating models.

Two of Schwab’s largest rivals, E*TRADE and TD Ameritrade, are in the midst of acquiring super-discount brokers OptionsHouse and Scottrade, respectively. These brokers charge $5-7 per trade, but their acquirers have stuck to $9.99 trades since 2010. If E*TRADE and TD plan to start charging their newly acquired customers $9.99, then Schwab’s latest price cut might lure price-sensitive investors, at a time when their primary broker is distracted with integration activities.  

In the short-term scramble, we will be watching to see how Fidelity responds, if TD and E*TRADE sync their prices with their new acquisitions and what it means for lower-cost firms such as Interactive Brokers, TradeKing and TradeStaion, who are already being challenged by upstarts like RobinHood and TastyWork.

Falling Fees, Shifting Valuations

Historically, when one large broker slashes fees, the rest follow suit fairly quickly. That’s why online brokerage stocks plummeted 10% last week: they’ll all be forced to drop fees to stay in the game. Consumers should watch for new deals as brokers get more aggressive on their acquisition bonuses.


Why now? A Historical Reference

The first price war occurred in 2005, after online brokerage valuations tumbled 90% since the dot-com burst in 2000. Brokerages wanted to build their customer bases and rely less on commission fees, so they slashed trading fees, and started focusing more on mutual fund fees and parallel banking services, which provide steadier revenue streams than trading.

In 2010, as the US economy emerged from the financial crisis, brokers began wooing customers to get back into the markets, and lower-fee offerings were a key component of their pitch.

If we use history as a reference, the 2017 price war looks similar to its 2005 predecessor. The asset-gathering strategy is coming back into fashion, but this time it has a robo-twist. Schwab launched its own robo-advisor in 2015, which charges no trading fees but holds Schwab ETFs and a hefty chunk of cash. TD and E*TRADE followed suit last year, with “Essential Portfolios” and “Adaptive Portfolio.” It seems only a matter of time until Fidelity joins the robo-advised party.

In the meantime, low trading fees are getting new clients in the door, boosting trade volumes, and giving brokers a cross-sell opportunity for their more profitable offerings. In short, brokers are slashing fees in 2017 because they can’t afford not to.

The Bottom Line

The 2017 price war is just getting started. While brokers are working to figure out new revenue streams, consumers should keep their eye out for more price cuts, and more robo-advisor offerings, in the next year.

FinTech News: February 3rd, 2017

This week, more “fin” than “tech” news in the wealth management space. While FinTech startups continue fighting for open access to financial data, brokers continued fighting the new DoL regulation, and price wars continued with trading fees and fund expenses.

Fintech Startups Want to Save One Key Page of Dodd-Frank (The Wall Street Journal)

President Trump has threatened to do a “big number” on Dodd-Frank, which covers everything from banking regulation to credit cards to trading fees. Fintech startups are lobbying to keep Section 1033 in place, which gives them the right to access data from their customers’ bank accounts.

Brokers’ Ire Misdirected on Fee Rule (Bloomberg Gadfly)

Brokers are balking at the DoL fiduciary ruling by saying that it involves too much red tape, hurts consumer choices, and is too complex. However, this columnist argues that their biggest threat is investors moving towards low-fee investments that avoid conflicts of interest. He argues that brokers should focus on openly promoting high-fee products, rather than entering into backdoor arrangements with fund companies and passing the fees to individual investors without their knowledge. In the long run, client trust is the most important asset.

Online Brokerages Head Lower as Schwab Slashes Trading Costs (Seeking Alpha)

Charles Schwab reduced its trading fee from $8.95 to $6.95 – undercutting many of its competitors. The brokerage also joined the fund price war by reducing fees of mutual funds and some of their corresponding ETFs. On Thursday, brokerage stock prices fell from 5-10% on the news.

Aggregation Wars, Part 3: The Opposition

In last week’s episode of Aggregation Wars, we covered the big banks’ lobbying effort to stop aggregation. This week, we profile the fintech companies who are fighting for aggregation and for the consumer’s right to access their financial data.

FinTech companies are forming an opposition party in the battle over aggregation. Some are familiar, and others are behind-the-scenes. Here’s who’s defending your data ownership:

The Companies You Know

digit-account-and-text-610x591Mint, Acorns, Digit, Kabbage, Betterment. These fintech companies offer direct-to-consumer financial products like robo-advised brokerage accounts, automated savings tools, and loan-refinancing platforms. Some of these companies are financial institutions of their own while others, like Digit, are not. None of them compete directly with banks, but all of them require access to your banking data. For example, Digit analyzes your spending habits to help you save for custom goals like a vacation. Without open access to customer banking data, these tools could not exist.

The Companies Backstage

7394dd_3b3664e7ac814efd8e5bc9aa70cdf71e.pngBehind each of these shiny new apps, there is a network of technology providers who build “pipes” that connect to financial institutions: Yodlee, Plaid, Quovo, Intuit. Without stable, secure API connections to the big banks, these aggregation technology providers are stuck using more primitive (and less secure) screen-scraping technologies to grab user data. Clearly, these companies want open access to consumer financial information.

Joining Forces

The FinTechs you know and the ones you don’t are joining forces to fight for consumer data access. This month, they formed the CFDR, or the Consumer Financial Data Rights Group. The group’s goal is to convince the CFPB that secure data access is a win for all parties: FinTechs, banks, and consumers. More broadly, the group supports collaboration between banks, regulators, and FinTechs that will help them align around common goals: building a secure financial ecosystem that benefits and protects the consumer.

While “FinTech” might yield visions of nimble, garage-style startups, there is big money behind these growing companies: global FinTech investment reached $22 Billion in 2016, and that’s from Venture Capital alone. Still, it’s nothing compared to the deep pockets of the big banks. Hopefully, the CFPB will realize the potential of free-market competition for financial products, and the FinTech Industry’s suggestions will be received well.

What’s next?

The CFPB will continue to accept letters while it weighs the pros and cons of open access to financial data. As you read this, the ABA is working to discourage aggregation practices, and the FinTech-backed CFDR is working to improve them. You have until February 14th to contribute.

Next Up: Europe and Beyond

In the next installment of Aggregation Wars, we look take a look at the open API initiatives in Europe, The UK, Singapore. If the US is to remain competitive on the global fintech front, we will need to catch up to these countries with consumer-first regulations that encourage innovation, put security first, and lay the tracks for a more inclusive, consumer-friendly financial services architecture.

FinTech News: January 27th, 2017

This week, the battle over consumer financial data continues, with Chase offering tech companies a more secure way to access their systems and more similar deals likely to come throughout the year. However, without an agreed-upon protocol, these deals won’t be enough to protect consumers.

Fintech Companies Form Lobbying Group Focused on Data Sharing (Finextra)

Enabling technology providers (aggregators) and consumer fintech companies are joining forces against the big banks to lobby government support for open access to financial data.

JPMorgan, Intuit give Customer Wider Access To Bank Data (WSJ)

This week, JP Morgan Chase and Intuit announced a partnership that will give Chase customers access to Mint, TurboTax, and other financial tools, without requiring the customer to share login information with Intuit.

One Off Data Sharing Deals Aren’t Enough (American Banker)

After the JPMorgan-Intuit deal, consumer advocates praised the bank’s CEO for offering a more secure option for JPM clients. But these deals are not enough – the industry still needs to set standards and best practices for all banks to give access to all digital tools. This will put a faster end to screen-scraping and benefit the consumer most.

Fintech News: January 20th, 2017

This week: the fee-based securities industry is witnessing shrinking profits, how the internet is helping crush fees, and banks are losing out profits to digitization.

5 Ominous Signs for the Securities Industry (Bloomberg)

Investors prefer passively-managed funds, Vanguard is dominating inflows, and most of the money is going into dirt-cheap ETFs. Millennials love ETFs, and the traditional mutual fund players are struggling to grow their own successful ETFs. All of this is bad news for the old-school securities industry, which relies on charging 1-2% of assets in annual fees.

How the Internet & Early #FinTech Destroyed Actively Managed Mutual Funds (Kitces)

Before the internet, the average investor didn’t have the tools to know if their portfolio was underperforming the benchmark. This shift in access to information has made it harder for actively managed funds to justify high fees – one of the factors leading to the ETF price war that is currently underway.

Big Banks Face Big Profit Loss to Digitization (Finextra)

According to McKinsey, European banks risk losing 31% of their profits to digital disruption. This is driving banks to explore new revenue opportunities as platforms for digital financial services.

Aggregation Wars: Part 2, Bank Backlash

The Pandora’s Box of customer banking data has already burst open with the popularity of third-party financial products. Still, banks are doing all they can to restrict their customers from accessing their own data. What gives?

Aggregation has become a flashpoint between hundred year old banks, the CFPB and customers. In the first installment of this series, we looked at the history of aggregation technology, and its improvements since the first dot-com boom. This post explores the banking industry’s opposition to aggregation, and provides a path forward for US regulators.

New Enemy, Same Tactics

This year, the American Banking Association came out against aggregation technology, citing the same concerns and scare tactics they have relied on for twenty years. Today, aggregation technology is exponentially more reliable and secure than it was in the late 1990s. While the enemy has evolved, the banks are still using the same plan of attack.

In 2001, the OCC issued a “Guidance Memo” to banks that listed five risks posed by aggregation:

  • Strategic Risk
  • Reputation Risk
  • Transaction Risk
  • Compliance Risk
  • Security Risk

Since then, several of these concerns have been made obsolete by technological advancements. Others proved to be illegitimate in the first place. Regardless, the ABA’s latest arguments revolve around the same old concerns of “data usage” and “security.” In his 2015 shareholder letter, Jamie Dimon dedicated significant air time to criticize aggregators, and took direct action by cutting off JP Morgan’s customers from using While the security concerns are exaggerated, the rising popularity of PFM tools means that they are racking up significant server costs for the banks. In other words, JP Morgan doesn’t want to pay to import its customers’ data to

Enter the Regulators

The CFPB is a government watchdog set up to “make consumer financial markets work for consumers.” In November 2016, they held a field hearing in Utah to spark a public debate over aggregation. While the hearing made room for a healthy debate, it has opened the floodgates to banking industry lobbyists and the influential American Bankers Association, which continues to fight against aggregation.

If the CFPB plans to keep their promise to protect consumers, they should weigh popular consumer opinion against the lobbying effort of the big banks. In 2016, over 70% of customers trust the top tech companies more than their banks. A fair ruling will incorporate changing user behaviors and advancing technologies into its decision. Got an opinion? You can submit letters to the CFPB by February 14th, 2017.

Towards a Working Regulatory Framework

As it moves towards establishing new laws, the CFPB should stick to principles-based best practices that will remain relevant as the technology, and the debate over data ownership, continue to evolve. In particular, the industry will benefit from guidance around:

  • API Framework: Financial Institutions should identify 1-3 “Approved Vendors” to build and manage their APIs. The financial sector can trim inefficiencies using a standardized protocol for data, just as the healthcare sector has over the past ten years.
  • Customer Control Center: It must be easy for consumers to manage where their data is flowing. Banks should be required to provide a clear dashboard of all third-parties who are plugged in. This way, consumers can unlink their accounts from products they no longer use, keeping their data under control.
  • Re-examine OFX: As we mentioned in the first in this series, Intuit and Microsoft developed the OFX to avoid the Aggregation Wars.  Is now the time to re-examine a protocol that banks can support for distribution?

In our next installment of this series, we will take a closer look at the European regulations, and the lessons the US can learn looking forward.

Aggregation Wars, Part 1: Near History

Twenty years after the birth of the internet, aggregation remains a hot topic in financial services. Today, aggregation enables consumers to access all of their accounts in one portal, while also serving as a valuable data collector for financial institutions. In Europe, where regulators have supported aggregation, banks are learning to use it as a revenue-gathering vehicle. In the US, banks are still flip-flopping over whether or not they support the use of aggregation. As the battle continues to play out, we expect aggregation to play a key role in helping financial institutions, and associated technology providers, focus on what is best for the consumer.

This post marks the first of a 4 part series on aggregation:

  1. Near History
  2. Current Aggregation Wars
  3. Europe, Data and Confusion in the US FI Sector
  4. Putting the Customer First

Part 1: Near History

In 1997, Microsoft & Intuit created secure protocols for transmitting personal financial data, called OFX, in collaboration with Checkfree. Both companies had a vested interest in this technology: they were building their own personal financial management software (PFM).  At the time, however, financial institutions balked at the new technology, preferring to keep a tight stronghold on their customers’ financial data.

Around the first dot com boom, there were a growing number of venture backed aggregation services such as CashEdge, Yodlee, Teknowledge, and Vertical One. These services allowed consumers to access their financial information on PFM sites without having an “official relationship” with the financial institutions. This was a major win for the consumer, who could now manage all of their accounts in one place thanks to the early movers of PFM services: Intuit, Microsoft, and Yahoo! Finance.


During this time, some of the major banks joined the PFM “race” by building their own portals to aggregate customer accounts from other financial institutions. In the final part of this series, we will share a comprehensive review of the products & services services offered by banks for PFM- let’s just say you should get your magnifying glasses ready if you want to find the services or read the fonts.

In 2006, at the dawn of Web 2.0, disrupted the software vanguard, Intuit, with an online service that Intuit later acquired in 2009. Founded on the premise that Intuit’s service was sub-optimal, Mint leveraged Yodlee for aggregation and offered a graphically rich and engaging PFM experience that also incorporated best practices of contact management to engage customers (something that continues to be the challenge with the “liability” side of PFM. Finally, the value of aggregation started making sense to the consumer.


Through the last ten years, since the advent of, account aggregation has discovered countless new use cases, from PFM to providing data for banks, advertisers, hedge funds and wealth managers. Despite using aggregation for their own purposes, banks have surfaced a rotating set of objections to aggregation, citing security concerns, owning their customers, and data costs. We will elaborate on these contradictory objections in Aggregation Wars.

Over this period, the industry has seen oscillating phases of growth and consolidation. Notably, Yodlee bought VerticalOne right out of the gate in 2001; CashEdge sold to FiServ in 2011 for a rumored $465MM; Teknowledge filed for bankruptcy in 2013; ByAllAccounts sold to Morningstar for ~ $30MM in 2014; and Yodlee sold to Envestnet for $590MM in 2015. Some of these companies, like CashEdge, built popular consumer-facing products, while others, like ByAllAccounts, reached widespread adoption by wealth managers. With so many different use cases, it’s clear that aggregation technology is no one-trick-pony.

Most recently, two new entrants have been eroding incumbent market share with “newer” technology. Quovo and Plaid have managed the banks’ objections and provided clearer value propositions to the mobile developer community. Quovo’s focus on wealth management and Plaid’s “instant funding” product show that there is still plenty of room for innovation and growth of aggregation technologies.

The big questions for the future of aggregation will include:

  • How are Financial Institutions leveraging Aggregation for Wealth Management & Messaging Platforms?
  • What are the opportunities and threats posed by aggregation for Financial Institutions?
  • Who owns the customer’s banking data?
  • Which Messaging Platforms will Enable Aggregation & Wealth Management?
  • Which Wealth Management Platform Builds or Buys an Aggregation Service?
  • How will A.I. impact aggregators?
  • Will the CFPB become more assertive in supporting consumers?

Fintech News: January 13th, 2017

This week in fintech: the Bitcoin ETF faces SEC scrutiny, Singapore’s complicated relationship with automation, and another round of fintech predictions for 2017.

Bitcoin Price Could Soar if the Winklevoss ETF is Approved (MarketWatch)

By March 11th, the SEC will either approve or reject the Winklevoss Bitcoin ETF. Since the IRS classifies Bitcoin as a commodity, rather than a currency, the fund manager would have to purchase bitcoins as investor money poured into their ETF, driving up its price. While analysts don’t expect the ETF to have a long-term impact on bitcoin’s price, it would still help remove mainstream stigma around cryptocurrencies.

Singapore Tries to Become a Fintech Hub (The Economist)

While fintech entrepreneurs in most cities are betting against the big banks, their counterparts in Singapore are trying to strengthen them with fintech collaboration. The Monetary Authority of Singapore (MAS) announced a $158 Million investment in fintech, and most of the money will go to “enabler” fintechs, rather than disrupters.

Top Ten Predictions for the Fintech Industry in 2017 (Finance Magnates)

Another round of 2017 predictions for the fintech industry. As financial institutions’ stocks have rallied 20% since November, they will use 2017 to leverage this market cap to acquire more startups. IPO candidates: Stripe, SoFi, Credit Karma? Banks will start creating AI labs as it becomes the new buzzword, but no real use cases will emerge until years later.

Price Wars: ETF Edition

Taco Bell and McDonald’s aren’t the only companies chasing the dollar menu audience. The major financial institutions are in a price war, cutting their ETF expense ratios in a back-and-forth which has led to the steepest decline in fees since the online brokerage was invented during the first dot-com boom.


These are the three forces driving the ETF price war:

1. The Walmart Effect

vanguard-effectThe three largest ETF issuers (State Street, BlackRock, and Vanguard,) control a staggering 84% of the $3 Trillion dollar market. Vanguard has used a client-owned corporate structure, paired with massive scale, to cut fees and grow assets for decades. However, it has traditionally focused on core ETF offerings that track indices, rather than sector-oriented products like Cybersecurity ETFs.

Recently, Vanguard has started expanding into more sector-oriented products, like international dividend or country-specific ETFs. These types of investments were previously dominated by smaller funds with higher expense ratios. However, as a recent Bloomberg article revealed, Vanguard’s entry has put downward pressure on smaller issuers’ prices, like Walmart opening up next to a mom-and-pop store.

2. Explosive Asset Growth

In the last three years, ETFs have seen record-high inflows as more investors shy away from high-fee and actively-managed products. Today, ETF assets under management stand at $3 trillion, a 430% increase since 2006, and this growth is only expected to continue. In fact, the market is expected to reach $10 trillion in assets by 2020.

asset-growth-ratesAt the same time, mutual funds have seen massive outflows as investors opt-out of their high fees and tax inefficiencies. While the ETF AUM has grown 430% since 2006, mutual fund assets have only grown by about 50%, and are expected to stop growing this year.

The expanding industry has issuers rushing to cut fees in hope of soaking up as much ETF market share as possible during this phase of rapid growth.

3. The Fiduciary Rule

Traditionally, ETF issuers used financial advisors as a sales funnel to retail clients. In this scenario, the financial advisor would develop a relationship with an ETF issuer, say BlackRock, and gain a thorough understanding of the products they offer, their structure, and their purpose in a client’s portfolio. Now, suppose the client asks for exposure to high-yield bonds. Their advisor would be more likely to recommend BlackRock’s $HYG, rather than Vanguard’s $VCLT which they know nothing about.

As a result of the sales funnel, the client often ended up purchasing ETFs from whichever issuer was most familiar to their financial advisor, regardless of the expense ratios. For mutual fund investors, the value chain was even more congested. “Soft dollar” arrangements allowed fund managers to artificially reduce their expense ratios by paying for services with order flow. As a result, many investors were paying hidden, undisclosed fees which ate into their returns.

Luckily for investors, this kickback scheme sparked an outrage that resulted in new regulation nicknamed “the fiduciary rule.” The fiduciary rule requires financial advisors to act in the best interest of their client at all times. In short, the fiduciary rule requires financial advisors to suggest low-fee products, and ETF issuers are dropping their fees in order to keep the advisor sales funnel alive.

Thanks to consumer-friendly regulations, an expanding industry, and the Walmart effect, the ETF price war is saving investors billions of dollars as the fees on their investments continue dropping towards zero.

Fintech News: January 6th, 2017

This week: how AI is being used in Wealth Management, customer data brings risks alongside opportunities, and what exactly is causing the up-and-down in Bitcoin price?

Beyond Robo-Advisors: How AI Could Rewire Wealth Management (American Banker)

Banks are moving past the simple robo-advisor in favor of more sophisticated models, which use artificial intelligence to scan market data and world events, identify new trends and use their knowledge to beat the markets when trading.

Customer Data is a Liability (American Banker)

Traditionally considered an asset, customer data is becoming a liability as more data increases the number of hackers looking to steal it.


The 2 Factors That Drove Bitcoin’s 20% Overnight Price Plunge (Forbes)

Earlier this week, Bitcoin prices reached all-time highs around $1,100. Since Wednesday, they’ve come crashing back down to the $900 range, representing a 20% loss. What caused the rally and subsequent decline? A large part of Bitcoin’s price is driven by China’s currency controls; when Chinese citizens expect a currency devaluation, they buy Bitcoin, then swap it back into other currencies. This week, the Yuan surprised Chinese citizens by strengthening, which brought Bitcoin’s price down.

While Bitcoin has historically been volatile, its usage as a currency is much higher than it was in 2013, when the price dropped 50% overnight. Because of this, the decline in price was much less dramatic this time around.

Fintech News: December 9th, 2016

This week in fintech: Transforming financial UX in 2017, a changing regulatory environment and what it means for financial advisors, the Fed expresses interest in Bitcoin and Blockchain:

10 UX Design Trends for 2017 (The Financial Brand)

As financial institutions become more customer-centric, their UX is becoming more important. Notably, UX in 2017 will be transformed by deeper understanding of financial psychology, mobile domination, increased personalization, and alternative UIs: think chatbots, intelligent assistants, and VR technology.

What Advisors Can Expect from Fintech Next Year (Investopedia)

In the last year, advisors have been scrambling to comply with fiduciary rules, using new tech solutions. Donald Trump has promised to dismantle Dodd-Frank and fiduciary rules, which requires all financial advisors to act in their clients’ best interests. However, FinTech continues to build solutions for advisors to become fiduciaries. Despite Trump’s promises, the overall long-term trend is still heading towards consumer protection.

Regtech thrives on change: welcoming Trump, Brexit and China (Daily Fintech)

RegTech, also known as FinTech’s homely cousin, is making back-office financial services more efficient, replacing old legacy infrastructure. In the US, less regulation will not necessarily mean less RegTech, since any change in existing laws opens up new opportunities and clients for RegTech solution providers.

Fed Outlines Approach to Monitoring Fintech (The Wall Street Journal)

On Monday, the Fed released research on the future of Fintech regulation. While it contained no firm policies, it underlined the need for more studies especially on Bitcoin and Blockchain.

Fintech News: December 2nd, 2016

This week: what the election means for Bitcoin, the promise of chatbots for fintech, and seven signs the industry is maturing:

How Trump Became Bitcoin’s Unlikely Savior (Payments Source)

Last year, as banks started using blockchain, the underlying technology of Bitcoin, it seemed like the currency’s spotlight was fading. Then, Trump was elected. His promises to close off cross-border remittances have caused new spikes in Bitcoin volumes and the price has rallied over 10% since election day.

Bracing for Seven Critical Changes as Fintech Matures (McKinsey)

As the fintech industry and its regulations mature, startups are becoming more cautious, forming more B2B partnerships, and consolidating by selling to larger incumbents. On the horizon, there will be lots of new opportunities as new digital ecosystems develop and the trove of customer information continues to grow rapidly.

Walk, Don’t Run, Toward the Fintech Bot Revolution (VentureBeat)

Finance executives are buzzing about Chatbots – but customers are not. Customers don’t want to talk to a bot, they want to be supported and helped with their needs. Right now, most bots are only able to do this with a highly specific expectations. Letting them operate outside these boundaries usually damages the customer satisfaction. So financial services should start small, by automating simple tasks with clear start and end points. As the bots’ underlying tech improves, they can allow them to take over more complex tasks.

Addicted to Stocks: Completing the Financial User Hook

In the past fifteen years, content for DIY investors has taken off. To continue growing into household names, these platforms must leverage behavioral science, using the methods of Facebook and Twitter to get users hooked on their platforms.

Free websites and mobile apps have democratized the stock market, giving DIY investors tools that were previously reserved for institutional investors at hedge funds and big banks. While the number of these platforms has skyrocketed, the market remains highly fragmented, with many smaller players struggling to grow. Yahoo! Finance remains one of the top resources for investors, thanks to its most important innovation: the “watchlist” feature, which keeps its millions of users sticky to the platform, some ten years after they built their first watchlist.

hooked.jpgSince 2005, hundreds of new content platforms have popped up, but none have managed to grow into household names. So why is there is no “Facebook of finance?” The answer involves a bit of behavioral science.

Right now, the #1 bestseller in product management is “Hooked: How to Build Habit-Forming Products.” It identifies the “hook” that gets users addicted to platforms like Facebook, Instagram and Pinterest, to the point where they check these sites as soon as they have a moment of free time. This simple feedback loop consists of four steps:

  1. Trigger: something that gets the user onto the platform
  2. Action: A user-initiated action that anticipates reward
  3. Variable reward: leaves the user wanting more
  4. Investment: a reason for the user to seek another trigger (Repeat cycle)

For any stock-market content, the hook looks more like this:


  1. Trigger: finding a stock they want to buy
  2. Action: buying that stock
  3. Variable reward: watching its value go up or down
  4. Investment: searching for a new winning stock (Repeat cycle)

The good news for financial publishers is that step three takes care of itself. Once the user buys a stock, its value is bound to go up or down and provide a variable reward. The bad news is that to take action, the user must leave the publisher platform complete a trade on their broker’s platform.

Because of this, the user subconsciously attributes both the action and the variable reward to their broker, even though the publisher provided the original trigger/trade idea. By requiring their users to take action on another platform, financial publishers are missing out on the full value of their content. Additionally, user departure severs the “hook,” deactivating the addicting feedback loop that leads 1/5th of the planet to log into Facebook every day.

To build a base of sticky & engaged users, financial publishers must reclaim the user hook with a bridge to action. By offering the ability for users to transact and manage their portfolios, financial publishers can become the one-stop-shop for stock market research, transactions and monitoring of returns. In other words, they can reclaim the Action and the Variable Reward, igniting the “hook” and building a base of users who can’t beat the urge to keep returning to their site.

Financial publishers work hard to create triggers. It’s time they use a bridge to action to finally get their users hooked.

Fintech News: November 25th, 2016

Fintech this week: Data privacy is already an illusion, the fate of a maturing robo-advisor market, and the dangers & benefits of wide-scale passive index investing. Happy Thanksgiving!

Is Indexing Worse than Marxism? (The Wall Street Journal, Op-ed)

As investor money flows from active to passively managed funds, fund managers warn of the dangers of widespread index investing, where individuals invest in companies because they’re part of an index, not because they see strong growth and profitability in them. This columnist disagrees, and with active traders growing as well prices are still determined by company fundamentals.

2016 Will be Remembered as the Year When Data Privacy Was Killed (Let’s Talk Payments)

Three of the largest US tech companies know basically everything about you. Will 2016 mark the end of data privacy, or is it already dead?

What We Learned About Robo Advisors in the Last 19 Months (Let’s Talk Payments)

As the robo-advisor market matures, it faces new growing pains and new opportunities. The industry’s narrative has changed too, as more incumbent wealth management companies have built their own robo-advisors. Despite huge growth, robo-advisors continue to struggle with high acquisition costs and a client base that has little money to invest.

Fintech News: November 18th, 2016

The Next Generation of Hedge Fund Stars: Data-Crunching Computers (The New York Times)

The future of hedge funds isn’t the billionaire stock picker like George Soros or Carl Icahn, it’s a supercomputer guided by mathematical trading equations. The industry is witnessing a split, with some funds moving to long-term performance strategies and others embracing quantitative strategies. For example, BlackRock’s quant trading arm uses satellite images of China’s largest construction projects to trade their real estate market.

Wells Fargo makes move into robo-advisor market (Financial Times)

Wells Fargo has joined other incumbent firms in creating its own robo-advisor product, through a white-label with SigFig, one of the original robo-advisor startups. Experts say it will restore trust for the company, since algorithms rarely create fake accounts and PIN numbers.


Three market opportunities in Insurance Asset Management (Daily Fintech)

New opportunities arise where WealthTech and InsurTech overlap.

Long Live the DIY Investor

DIY investing is alive and well. And no, we’re not talking about $ETSY.

We hear this question all of the time: will robo-advisors cannibalize the online brokerage industry? Is DIY investing a thing of the past? Both are great questions, since robo-advised assets are expected to double each year through 2020. Despite analyst predictions to the contrary, recent data suggest that self-directed investing is growing, not dying. Where is all the robo-advised money coming from? For the most part, it’s flowing out of savings accounts and traditional financial advisors.

Broken Barriers to Entry: Horizontal Growth

In the past 10 years, the online brokerage industry has lowered fees, slashed account minimums, and built more education & research tools across the board. The result has been an explosion in the number of accounts, which has grown by 4% YoY since 2007 as more women, millennials, retirees and boomers have decided to take the reins on their investments.

More Engagement: Vertical Growth

broker-dartsThe subset of active investors & traders has grown twice as quickly as the overall investor population. The active subsets trade more often than their buy-and-hold counterparts, and the growth of this demographic is represented in the brokers’ trade volumes. Since 2007, the number of trades from retail investors has increased by 6.7% each year, on average.

This uptick is only the beginning. Mobile devices are driving engagement across the consumer-finance industry, but especially for active investors. Mobile banking is great, but there’s rarely a need to check your banking app more than once a day. Mobile investing is another story: during market hours, active traders stay engaged nonstop, no matter where they go.

Where are Robo Assets Coming From?

lost-revenueSince robo-advisors encourage a “set-it-and-forget-it” mindset, they attract the client base of a financial advisory, not a retail brokerage. Self-directed investors prefer to be in complete control of their own investments. Whether they want to “beat the market” or simply invest in companies they believe in, they are not interested in handing off the responsibility to anyone, whether it is a human advisor, or an algorithm.

The “HENRY” (high earner, not rich yet) is a key customer for robo-advisors. HENRYs today have just enough money to start investing and begin saving for retirement. As less and less employers offer 401(k) plans, more HENRYs are opening IRAs with robo-advisors. It is safe to say that most of the money pouring into robo-advised accounts would otherwise end up in a savings account or in the hands of a human financial advisor.

As these HENRYs build wealth over time, many will embrace self-directed investing after maxing out their robo-IRAs. Smart robo-advisors will build self-directed products before these former-HENRYs start shopping elsewhere. If anything, the growing popularity of robo-advisors will eventually boost the DIY-investing market even further, by letting young investors dip their feet in the markets.

Finally, as we saw during Brexit and the 2016 Presidential Election, market anxieties remain a huge problem for robo-advisors. Even “passive” investors want to feel a sense of control over their assets. For robo-advisors, adding a self-directed offering will help retain client assets when the markets get stormy.

As robo-advising goes mainstream, human financial advisors may be in trouble. Self-directed investors are another story. They invest “the hard way” because they trust neither man nor machine with their assets. The robo-advisor may someday replace the financial advisor, but it shows no signs of killing the DIY investor.


Oliver Wyman: The State of Online Brokerage Platforms, 2016 

Online Brokerage SEC Filings

PwC Fintech Survey, 2015

Aite Group 2016 Report



Fintech News: November 11th, 2016

Traders got screwed by betting on big data, what Trump means for fintech (tl;dr: nobody has any idea) and how to gain digital loyalty through customization.

Trading Stocks during the US Election, the Curious Case of Votecastr (Finance Magnates)

Instead of asking people who they voted for, Votecastr recorded the demographics of those exiting the polls, then reverse engineered the expected results. Many stock traders saw this as the ultimate prediction tool, since it didn’t rely on voter honesty. Unfortunately, the prediction technology turned out to be wrong in 5/7 swing states. Kind of like every other political poll!

Would Trump Policies Help or Hurt Financial Tech? Yes. (American Banker)

The president-elect supports government surveillance, which may clash with data privacy companies. His anti-regulation leanings could put a damper on “RegTech.” His job policies could cost banks by outlawing the outsourcing of jobs. Net neutrality and cybersecurity are still complete wildcards. On the flipside, reducing the corporate tax rate will make it cheaper to repatriate overseas funds. This would help the likes of Apple and Facebook.

Role of digital in driving customer engagement (Finextra)

How to hold on to customer loyalty in the digital age: get your product integrated in Twitter, Facebook, Snapchat, and personalize the experience as much as possible.

5 Steps to Choosing the Right ETF

ETFs have exploded in popularity as a cheaper, more tax-efficient alternative to mutual funds. But not all ETFs are created equal. From hidden costs to average trade volumes, here are 5 stats every investor should double check before taking that ETF to the checkout aisle.

1. The Ingredient List

etf-nutrition-factsAll ETFs trade like stocks, but they’re not always made of stocks. ETFs can contain bonds, commodities, REITs, futures, and more! Whatever the holdings are, you’ll want to examine them very closely in the fund’s prospectus. Otherwise, you’ll have no idea what you’re buying.

Some ETFs short major indices and even provide leveraged returns. However, these shorting & leveraged ETFs are only appropriate for short-term speculation. Over time, these ETFs diverge far from their original indices, because they are priced on futures contracts, not underlying equities.

In the months leading up to the 2016 Presidential Election, The CBOE Volatility index, $VIX, has soared 62%. However, because of their pricing structure, volatility ETFs have actually lost value during this time. See the chart below, which shows how derivative-based ETFs can disappoint in the medium and long-term.


Be careful with futures ETFs.

2. The Price Tag

Across the board, ETFs have lower fees than mutual funds, but some are more expensive than others. The key number to look for is the expense ratio, which is baked into the cost of all ETFs as a hidden fee. It might surprise you to hear that some ETFs are more expensive than mutual funds, with some charging expense ratios up to 2.5%.

price-tagWhile 1% in fees might not sound like a lot, compounding interest adds up over time, and fees really eat into returns. Say, for example, you switch from a 1%-fee ETF to a comparable 0.1%-fee ETF. Assuming equal performance, your 30-year returns will be 38% higher with the low-fee ETF.

For most sector-based ETFs, there’s a low-fee alternative from issuers like BlackRock, State Street, or Vanguard, which has established itself as the “Walmart of ETFs.” For more specialized ETFs, boutique issuer firms are often the only option, but their highly specific products (like the cyber-security ETF $HACK) justify higher fees to some investors.

3-5. The Fine Print

Before hitting that “buy” button, there are a few more fine points to consider:

  1. Liquidity: most investors want highly liquid ETFs with a small bid-ask spread, so they can sell at a fair price any time they want.
  2. Commission: depending on your broker, you may be able to trade certain ETFs commission-free. If you are trading in small quantities, this is especially important for your bottom-line returns.
  3. Active vs Passive: While less common, actively managed ETFs are out there, and they usually carry higher expense ratios. Make sure you check the holdings more often if you buy active.

So whatever your investment strategy, don’t skimp on your ETF research. By checking expense ratios, examining holdings, and choosing liquid, low-spread options, you can be confident in choosing the best ETF to help you reach your goals.

Fintech News: October 28th, 2016

This week in fintech: IBM’s supercomputer tackles insider trading, billionaires start socially conscious investing, and the CFPB sides against big banks who hoard your data.

Watson and Financial Regulation: It knows their methods (The Economist)

Ever since developing the first ATM, IBM has been automating financial institutions. Now, the company’s supercomputer, known as IBM Watson, is learning to automate compliance back-offices, using artificial intelligence to catch insider trading and money laundering before it happens.

Investing’s Crowded Conscience (Bloomberg Gadfly)

On a grand scale, nobody has quite figured out how to get millennials to invest. Now, one of the most famous billionaire hedge fund managers is giving it a go. Paul Tudor Jones has announced he’s building an index of the most socially responsible companies, and will eventually issue an ETF that tracks the index.

Cordray ‘Gravely Concerned’ by Attempts to Obstruct Screen Scraping (American Banker)

The CFPB is supporting fintech companies who rely on gathering bank information from their customers. Technically, your bank, not you, owns your data. However, the CFPB has finally taken a side, saying “consumers should be able to access [their data] and give their permission for third-party companies as well.” In other words, back off, Jamie Dimon.

Fintech News: October 21st, 2016

This week in fintech: Embracing fintech culture over fintech adoption, what finance can learn from disruption in the music industry, the invisible bank of the future, and the advantages of dollar-cost averaging.

Fintech adoption vs fintech culture (Bank NXT)

Banks are being called “all talk, no action” and it sounds just like this week’s presidential debate. While banks invest heavily in internal “innovation labs,” many struggle to implement these labs’ ideas into the larger organization. These banks should focus more on embracing a culture of change that rewards challenging the status quo, and less on ways to “out-innovate” the market.

From Sony to Spotify: What the Music Industry Can Teach Banking About Survival (The Financial Brand)

In a nutshell: “just because customers used to consume a product or service in one way, doesn’t mean that method will remain the preferred means of consumption forever.” From Sony’s Walkman to Apple’s iPod to streaming services like Spotify, the music industry has undergone transformations that many predict will occur in financial services.

The bank of the future will be invisible – KPMG (Finextra)

KPMG released research predicting the “invisible bank” of the future, where banks control the internal infrastructure, and consumer-facing products are built by the likes of Facebook, Apple, and Google. The most successful banks will embrace the platform model by driving down costs, building third-party partnerships, and locking down on security.

How Regular Investing Smooths the Market’s Ups and Downs (The New York Times)

Regularly timing your investments is one of the best ways to avoid stressing over market volatility. This strategy, known as dollar-cost averaging, removes the risk of trying to time the market. If you are putting away money every month, you are already taking advantage of dollar-cost averaging. Otherwise, newly popularized automated investing products make it easy to start.

The Big Red Button: Robo-Advisors in a Bear Market

The next bear market will present new challenges to robo-advisors, forcing them to build around the value of human connection and customizable investments.

For the past five years, the robo-advisor has had a good run. Since the aftermath of the financial crisis, algorithmically-managed “robo-advisors” have grown their assets by 250% each year. The robo-advised portfolio was popularized by challenger startups like Betterment and Wealthfront, but incumbents have followed suit in the past two years with their own robo products. Robo-advised assets are near $100 billion today, and are expected to skyrocket to $8.1 Trillion by 2020.


While the robo-advisor industry was taking off, so was the stock market. From its bottom in March 2009, the S&P 500 has seen steady returns averaging over 12% annually, and continues to hit all-time highs on a regular basis. For passive investors, the market has provided no reason to panic in the past six years. The second-longest bull market in history has made it easy for younger, less affluent clients to dismiss the value of a human advisor and invest their savings with a low-fee robo-advisor.

Because they have built a young client base, robo-advisors will have an especially tough time holding onto assets when the market turns south. Consider:

  1. Young clients saving for retirement have high-risk portfolios with considerable downside potential.
  2. Young clients have never endured a market downturn. They have only experienced the latest six-year recovery, watching their money grow no matter where it was invested.

The Moment of Truth

The true value of a financial advisor is not “beating the market,” it’s keeping clients calm during a downturn. When the markets are booming, a financial advisor’s job is pretty easy. When the market tanks, panic sets in and the phone starts ringing. The robo-advisor has yet to prove it can replace a human advisor when times are tough.

To Liquidate or Not to Liquidate

In the robo-sphere, there is no clear consensus on how to manage anxious clients. Betterment and Wealthfront both discourage their clients from switching their risk profile and only allow them to change it once a month. However, when the Brexit vote caused investors to panic this June, Betterment froze trading for its clients for three hours. While this may have prevented some clients from selling low, it also caused some to lose trust in an algo product that doesn’t allow for human override.


Most robo-advisors restrict tweaking your portolio.

Other robo-advisors, like Hedgeable and E*TRADE’s Adaptive Portfolio, also employ active strategies for risk management. Instead of holding put, these robo-products reallocate funds to less risky assets when volatility kicks in. While this feature may be enough to calm some investors, it is still algo-controlled and unlikely to satisfy investors looking for a big red “override” button.

The Human Touch Returns

Some time in the future, long-term investors may trust algorithms enough to not bother intervening on their own. Right now, investors are still warming up to the idea of not being able to tweak their portfolio on their own. Until this behavioral pattern changes, robo-advisors will need tools that capture their clients’ trust during times of volatility, even if it leads to lower returns in the short term.

bad tradeFor less confident investors, having someone to call might be enough. More sophisticated investors may demand more autonomy in a downturn, such as the ability to override and tweak their default portfolio. In the end, robo-advisors will need to prioritize the loyalty of their sophisticated clients over their commitment to passive-only investing.

Right now, the portfolio override button is like the steering wheel on the self-driving car. It’s comforting to know it exists, even though you are more likely to crash if you use it.

Fintech News: October 14th, 2016

This week: UBS and Merrill Edge both launch their own robo-advisor, compliance offices warm up to automation, and Google’s huge fintech opportunity.

How Google is Poised to Become a Dominant Investment Manager (Forbes)

make-money-online-and-googleUnlike the Chinese tech giants, Google, Facebook and Amazon have been hesitant to enter financial services. But Google has a unique comparative advantage if it does. Google can see real-time search trends, giving it an informational advantage over traditional managers. The company is also collecting a database of high quality satellite imaging. This would allow them to track everything from business supply chain operations to the number of cars in a store’s parking lot.

UBS to launch UK ‘robo-advice’ service (Financial Times)

UBS is joining other incumbent banks by building their own robo-advisor to compete with startups. They will offer the service to accounts over £15,000 and charge 1% in fees for passive investing, and 1.8% for active investing. This move comes at a time when wealth managers are grappling with the decline of human advisors, the traditional mutual-fund sales channel.

‘A Robot Could Alleviate This Drudgery’: Bank Compliance Meets AI (American Banker)

One of AI’s most promising use cases is compliance, where parsing through thousands of pages of laws and regulations is expensive and time-consuming for banks. Other easily-automated tasks include catching money launderers and detecting rogue employee behaviors.


Fintech News: October 7th, 2016


This Is What Millennials Actually Use Venmo For (Bloomberg)

The largest US banks are teaming up to build Zelle, their own Venmo-killer, but are they too late? This article looks into emoji usage on Venmo, and the stickiness and brand loyalty that the payments app has built with Millennials. The most popular emojs? Anything related to drinking, eating, traveling, and paying rent.


Source: LendEdu

When Will Fintech Regulation Grow Up? (American Banker)

Fintech Regulations have lagged behind the industry. Here’s what US regulators need to do to catch up to their peers in the UK, Singapore and Hong Kong.

Free Stock Trade App Robinhood Monetizes With $10/Month to Buy on Credit (TechCrunch)

Robinhood, the free-trade brokerage, has released a premium subscription plan, Robinhood Gold. For plans ranging from $10 to $50 a month, clients can trade during after-market hours and trade on varying levels of margin. This program’s success will pan out interestingly, as finance is one of few industries where subscription models have not taken off.

Scottrade: Who Will Acquire It? (Barron’s)

Scottrade revolutionized the discount brokerage when it introduced $7 trades in 1998, keeping the price steady ever since. Now, in the latest episode of online broker acquisitions: Scottrade is reportedly getting bought. Possible bidders include TD Ameritrade and Charles Schwab.

Seeing Sideways: the Distributed Customer Experience

Since the late 1990s, the online investing experience has been monopolized by online brokers. From physical branches to call-centers to websites and mobile apps, online brokers acted as a one-stop-shop for their customers to research and transact. Need to research a stock? Check your broker’s website for analyst ratings, fundamental data, and a risk profile. Need to check on your investments, place a trade, or add money to your account? Go to your broker’s website or app.

Today, the broker’s monopoly on the customer experience is weakened due to three new market dynamics:

  1. The internet has given investors endless places to conduct research.
  2. Investors expect highly customizable online experiences.
  3. Investors can now research and transact from third party websites and apps.

Brokers should not fear the distributed customer experience. They should embrace it as an opportunity. Brokers offer a product that is not replaceable: the ability to place trades at fast execution speeds, a safe place to store investments, and a funding portal. Whether the customer logs in via their broker’s website or via Snapchat, the broker still receives a commission when they place a trade. In other words, in the fragmented digital landscape, the broker’s most valuable asset is its ability to serve as a platform and a marketplace.

Brokers who adapt to this change will capitalize on the assets generated by their platform; brokers who resist will struggle to hold onto market share as their competitors tout a more customizable product suite.


Adaptive Brokers

Adaptive brokers will embrace their platform capabilities by extending their APIs across the digital landscape. This will create touch points with their customers in the apps and websites that they already visit regularly. The adaptive brokers will go to the customer instead of waiting for the customer to come to them.

For adaptive brokers, APIs will become powerful asset gathering vehicles. By integrating their product across the landscape of third party content producers, they will leverage these third party apps and websites as sales and product channels. Rather than devoting huge resources to developing their own niche products, adaptive brokers will plug into the niche products that their customers already use. From the customer’s point of view, the adaptive broker is tech savvy, customer focused, and flexible: all critical selling points to millennials, 75% of whom care more about up-to-date technology than in-person customer service.

By opening up to third party integrations, adaptive brokers will empower themselves to create their own great products down the line. Armed with customer engagement data from third party apps, brokers will learn how their customers interact in diverse environments, and use those insights to optimize their own product offering.

Resistant Brokers

On the other hand, resistant brokers will have a tough time in the distributed digital landscape. New investors will be turned off by a broker that forces its customers into a mediocre one-size-fits-all experience. Thus, customer acquisition costs will skyrocket as new investors choose more adaptive open-platform brokers. Even existing customers will be less engaged for resistant brokers, since engaging with their broker requires going out of their way to navigate to the broker’s app.

Most importantly, change-averse brokers will miss out on crucial customer interaction data, as they do not have access to the websites and apps where their clients research their investments. Without a real-time feed into what drives customer engagement, antiquated brokers will lose touch with their customer base, and struggle to build innovative products that stay up to speed with the competition. From the customer’s point of view, change-averse brokers will appear technologically out of touch and ignorant to their desire for customization.

The Customer Experience, Reinvented

The message to brokers is this: embrace the distributed customer experience, or you risk losing the customer all together. Your APIs are an increasingly important way to understand what drives client engagement while creating new touchpoints with current and potential customers. The digital landscape is changing, and brokers will only be fully disrupted if they fail to adapt.

Fintech News: September 30th, 2016

This week in fintech: private valuations come back down to earth, Bloomberg terminals allow outbound Tweets, how do retail investors want to feel, and defending a fintech product from incumbent copycats.

Fintech Unicorn Pain as the Public/Private Valuation Inversion Comes to an End (Daily Fintech)

This article takes a closer look into the high-flying valuations in fintech, and predicts some of the pain ahead as these valuations come back down to earth. Some companies are avoiding raising money in the meantime, while others seem to be reigning in high growth to find a shortcut to profitability.

Bloomberg Lets Subscribers Tweet from their Terminals (Finextra)

The Bloomberg Terminal has added another product to its long list of third-party integrations: Twitter. Part of Twitter’s value is that it serves as a real-time database for breaking news. This partnerships brings that data to a demographic who always stay on top of the financial news in real-time: active traders.

E*TRADE Unveils Emotional Triggers for Digital Investing (E*TRADE)

E*TRADE researched what investors want to feel when using an online tool to manage their investments. The top responses? For boomers, confidence and peace of mind. For millennials, enthusiasm, excitement, and joy. This research continues to guide product development for brokers, who are eager to attract millennial investors and gain their loyalty before they become wealthy.

Fintechs might be scalable but are they defensible? (Daily Fintech)

In the early days, single-product fintechs can offer a better solution than incumbents, and sell it at a high margin. However, when this product is easy to replicate, the incumbents will inevitably make their own, and can usually offer it at a lower price. At this point in the cycle, fintechs need to continuously communicate their value to their customers vs the competitor’s product. Banks have not figured this out yet. It’s time fintechs use behavioral analytics to build a customer retention strategy.

Alphabet Soup: Fintech AI Lingo, Deconstructed

AI is a hot topic for financial innovators, but few can keep up with the technical terms. Don’t drown in the alphabet soup of jargon. Here are the most used AI terms in plain English.

AI: Artificial Intelligence. A computer that can understand natural language and develop learning skills. More sophisticated than automation, AI enables computers to make complex, judgment-driven decisions that mirror the human process, and then learn from the outcome of those decisions.

Analogical Reasoning: The ability to solve a new problem by comparing the outcomes of past experiences. Humans do it all of the time, computers are just learning.

ANN: Artificial Neural Networks. Machine learning models that seek to imitate the structure of the brain’s neural network.

API: Application programming interface. A set of protocols that allows two (or more) systems to interact with each other. When you choose “log in with Facebook,” on a third party website, an API to connects the two systems. Internal APIs enable connectivity across financial institutions. External APIs connect third-party developers to those institutions’ systems.

Chatbot: A computer program that simulates human conversation through artificial intelligence. Some predict the chatbot will replace the bank teller.

Deep Learning: A subset of machine learning that uses multiple processing layers to make decisions.

NLP: Natural language processing. A computer’s ability to derive meaning from human language through machine interpretation of text and speech recognition.

Robo Advisor: Wealth Management of the Future.  A digital financial advisor that assesses your goals and risk tolerance to build an algorithmically managed investment portfolio with little or no human interaction. Soon to be powered by AI.

SDK: Software development kit. A set of development tools that makes it easy to implement an API. SDKs can contain pre-built screens, or a designated workflow to help developers communicate with APIs.

Weak AI: Artificial intelligence that uses few layers of processing, and focuses on a small set of tasks. Most AI in use today is weak AI.

Fintech News: September 23rd, 2016

How Technology is Changing the Way You Trade (Finance Magnates)

How is technology changing trading? Markets are more accessible for retail traders and the brokerage landscape is more competitive, giving consumers more features for less fees. White-label solutions allow smaller players to set up shop quickly by using somebody else’s platform, and traders are freed from their desk by mobile apps. Negatives? The interpersonal aspect of trading has diminished, and high-frequency trading can create excess volatility.

U.S. House Bill Aims to Set Up Sandbox for Fintech Innovation (The Wall Street Journal)

The US is losing financial innovators to the UK, where a “sandbox” regulatory program allows startups to test their ideas alongside regulators from the FCA, the British version of the SEC. There are similar programs in Singapore and Hong Kong, and soon there will be one in the US. Congress members have stressed that it will keep business in the US while forcing regulators to get up to speed with what’s happening in the marketplace.

The Banking Bazaar and The Bizarre Banker (The Finanser)

Banks need to focus on creating and owning FinTech marketplaces. Rather than locking their customers into a mediocre end-to-end experience, they should embrace the marketplace of open platforms linked through APIs. With an open platform available, they can attract top third-party innovators to build superior customer experiences, while still keeping a hold on their own customers and their data.


Fintech News: September 16th, 2016

It’s Not Creepy, It’s the Future (The Wall Street Journal)



In chess, a Centaur is a half-human, half-machine that is better than either the human or the computer alone. Now, the centaur is coming to financial planning. Human advisors aren’t going out of business; they’re using artificial intelligence to do the dirty work. By using AI to analyze huge troughs of data, advisors buy themselves more time for the emotional side of financial planning: understanding their client’s story, moods, fears, goals and dreams.

Banks urged to wait 2 or 3 years before offering bots to customer (Venture Beat)

A new report from Forrester agrees that bot technology is still too rudimentary for the mass market. It urges banks to hold off for a few years before offering a banking bot to their customers. In the mean time, they should start exploring APIs and platform improvements in preparation for the eventual use of customer-facing bots.

Ant Financial snaps up EyeVerify (Finextra)

Ant Financial, the fintech arm of Chinese tech giant Alibaba, raised eyebrows this week by acquiring EyeVerify, a US-based cybersecurity startup. EyeVerify’s core product is a technology that uses a smartphone’s front-facing camera to verify a user’s identity. Ant Financial has repeatedly denied plans to expand into the US market; they will use the EyeVerify product in their own products as an extra line of defense.



A Case for the Overbanked

As more customers spread their wealth across multiple accounts, financial institutions need to develop new marketing strategies to engage their existing customers.

In retail financial services, a new demographic is emerging: the overbanked. An overbanked customer has accounts with at least three different financial institutions. As new technologies take the hassle out of overbanking, the demographic is growing rapidly, threatening to upend the traditional relationship-based banking model.

The Multi-Bank Advantage

The overbanked tend to be tech-savvy and wealthy. They have high financially literacy, but no financial loyalty. They deny having a “relationship” with any financial institution. For checking, they hold an account with a large bank with plenty of local ATMs. For savings, they benefit from superior interest rates with an online-only bank. For investments, they have a discount online brokerage account for active trading, and a separate index-investment account for long-term retirement goals.


Their end-goal is to maximize returns and minimize fees. They would rather switch banks than start paying fees to their current bank.

Overbanking, Simplified

The good news for penny-pinchers is that thanks to technology, overbanking is no longer the headache it used to be. Comparison engines like NerdWallet make it easy to shop across providers for the best deals. Aggregation products like Mint allow consumers to view and manage all of their accounts in one place. Even transferring money between banks has become a breeze. This year, the country’s largest banks teamed up to create ClearXChange, a technology that enables same-day transfers between institutions.

Thanks to these new technologies, multiple accounts no longer means visiting multiple banks, remembering multiple passwords, or waiting days for your money transfers.

A case for the overbanked

eggs-in-basketOverbanked customers achieve peace of mind in addition to bottom-line savings. Since the financial crisis of 2008, people have been reluctant to keep all their financial eggs in one basket. Having multiple accounts also ensures constant connectivity; brokers and banks experience occasional service outages, so it’s reassuring to have a backup account to place a critical trade or withdraw cash in case of an outage.

Today, 38% of investors are able to get a better deal by looking outside their primary provider.* Most retail investors have two or three brokerage accounts. With comparison engines, aggregation software, and same-day transfer capabilities, it’s no longer a hassle to shop around for financial products.

As these enabling technologies become more popular, it’s no surprise that overbanking is on the rise. Last year, more than one-third of consumers shopped for financial products outside their primary bank.* While this trend continues, financial institutions will need to develop new ways to engage their existing customers, as loyalties increasingly depend on rock-bottom fees.

*Source: Oliver Wyman

Fintech News: September 9th, 2016

This week in fintech: how AI will help max out your returns, a $500 million funding round, and the growing need for new solutions in compliance.

AI can make your money work for you (TechCrunch)

AI is still in its early stages, but soon it will serve more specialized functions. For investors, that means maxing out your returns by keeping your money in balance between checking, savings, and investments. Here’s how AI will help you max out your investment returns.

SoFi Looks to Raise $500 Million in Latest Test for Fintech (Wall Street Journal)

SoFi is one of the largest privately held fintechs, is looking to close one of the largest fintech funding rounds of the year, marking a new test for the growing online-lending industry. As the company expands beyond HENRYs into students with good-but-not-great credit scores, it faces tougher competition from incumbent lenders.

You’ve Heard of Fintech, Get Ready for ‘Regtech’ (American Banker)

Back-office innovation is taking off as the less-flashy but more-lucrative version of consumer fintech. Compliance is one of the costliest bottlenecks, slowing down new initiatives and leaving them months behind their startup competitors. Now, a new flurry of “regtech” startups are improving banks’ internal processes, allowing them to keep pace with their more agile competitors.

Fintech News: September 2nd, 2016

Taxing times for Ireland as EU takes a bite out of Apple (Silicon Republic)

EU-apple-taxThis week, the EU ruled that Apple owed Ireland billions of dollars in taxes. For decades, Ireland has attracted tech talent and become a major player in Europe’s fintech scene by lowering its corporate tax rate to 12%. The EU’s decision threatens Ireland’s reputation as a credible, tax-friendly place to do corporate business in Europe.

Fintech Startup Transferwise Moves Away From Banks (Wall Street Journal)

Transferwise, one of London’s fintech stars in P2P lending, is moving away from relying on banks by becoming one. In the US, this requires state-by-state applications, 37 of which are already active.

Boomers value tech for managing retirement savings (Finextra)

While Silicon Valley continues to focus on solutions for millennial investors, studies repeatedly show that boomers are underserved. In this study, boomers value wealth management technology just as highly as their millennial counterparts, discrediting the idea that boomers don’t have any need for technology.

It’s the fees stupid! Fee Adjusted Return On Capital (FAROC) (Daily Fintech)

While talks about improving UX are common, the real innovation in consumer fintech is the continuous downward pressure on fees – especially in asset management. Vanguard has been paving the way for 40 years with low-cost index funds, and the new expectation of low-fee products leaves little room for B2C marketing efforts.

Not so fast! AI will save us from stupid trades

Which stock did you lose the most on? If you’re like most investors, you’ve made a few losing trades that still keep you up at night. What if you had a financial analyst at your side, watching your every trade? Advances in AI will make this a reality with the personal trading assistant.

Apple’s Siri taught us that the “intelligent assistant” is a promising use case for AI: a bot that helps you perform everyday tasks and chores. Siri’s a bit of a generalist, but these bots are scaling into more specific verticals and will soon become experts at more specific tasks. For retail investors, AI will enable an intelligent assistant that stops you before a bad trade.


We all know the feeling.

As any investor knows, continued success requires that you stick to a strategy. You make your biggest mistakes when your emotions run high and you stray from your usual strategy. You might get greedy and miss the opportunity to sell at a profit. Or you might panic during a downturn and sell before the next day’s recovery. Instead of trading on company fundamentals, you traded on a whim, and paid dearly for it.

chatYour AI-powered trading assistant will make these snap judgments a thing of the past. Most of the time, it sits around quietly, letting you do your thing. It’s not showing any signs of life, but the machine learning algorithms in its “brain” are analyzing the data behind your trades to figure out the ins and outs of your personal trading strategy.

bad tradeThen one day, you hear about a new biotech company that’s heating up fast, and word is spreading on Wall Street. Heart pounding, you look it up, glance at the fundamentals, and fill out an order to buy 1,000 shares. Before you confirm the trade, your trading assistant stops you with a popup: this trade is abnormal for you. Usually, you invest in biotech companies in the late stages of FDA approval; this company is years away from that. Are you sure this is a good trade

Most of us see ourselves as rational human beings, and 99% of the time, we are. Unfortunately for investors, acting irrationally 1% of the time is expensive. Those 1% bad trades can cause the majority of the losses in our portfolios. We need someone with no emotions to alert us before we break the rules of our own investing strategy. Luckily, advanced AI will bring us just that: no more stupid trades.

Fintech News: August 26th, 2016

This week in fintech: a futuristic theme. Bots threaten thousands of banking jobs, big data’s impact on the customer experience, to license (or not to license) a neo-bank, and growing complexity of the robo-advisor product suite. These columnists share their visions of technology’s impact for the long haul.


How Many Banking Jobs Will Bots Kill? (American Banker)

Bots will eliminate many of the mind-numbing jobs in finance, especially in operations, wealth management, algo trading and risk management. While the short-term prospect is scary (lost jobs,) in the longer-term, it will free up more laborers to do more intellectually stimulating work. According to the banks, at least.

Big Data Is Useless Without A Big Strategy (American Banker)

Banks, who traditionally used analytics for reporting purposes only, are cozying up to the data-driven customer experience. Still, they are vastly understaffed in their data science departments, who decide exactly how they use their data effectively. One goal for the long-term: identify the customers who are profitable, and figure out how to retain them.

Fintech’s license to fail (Bloomberg)

Screen Shot 2016-08-26 at 10.16.20 AM

Banks’ net interest margins have fallen fast. (Source: Bloomberg)

British neo-banks want to control their own “pipes,” secure their own deposits and determine their own growth. Most importantly, they need a tight grip on their customer data to cross-sell new products. But registering as a bank has its pitfalls; it takes huge scale (more fundraising) to become profitable, and regulation slows down product development. While many startups are dying to get a banking license, some of those who have one are already seeking to get rid of it.

What data feeds your robo-advisor? (Daily Fintech)

Right now, most robo-advisors only use primary data sources: stock and ETF fundamentals. However, as their product matures, they may begin to integrate higher-level data, like P/E ratios, volatility measures, earnings estimates and sentiment data. As the robo-advisor grows more complex, it will begin using all of these forms of data at once, eventually looking more like a quant-based hedge fund than a target-date fund.

Fast as Lightning: How to get your order to the IEX

On Friday, the Investors Exchange, or IEX, launched for a select group of US equities trading. Within two weeks, it will be up and running for all US securities. If the IEX succeeds at its mission, it will level the playing field for retail investors, who have been getting ripped off by high-frequency trading for years. Here’s how retail investors can profit off of the changing landscape.

What is the IEX and how does it work?

About ten years ago, a group of guys working on Wall Street realized that they were not getting the fair price on their trades. Over and over again, the price of the stock would go up the moment they tried to buy, and go down the moment they tried to sell.

The culprit here was a silent predator: High Frequency Trading. By making sure they had the shortest cables to all of the exchanges, HFT firms used microseconds of speed to their advantage. When they saw an investor’s order to buy a stock, they would quickly buy it themselves, temporarily driving up the price, then sell it back to the investor at the higher price. When an investor placed an order to sell, they did just the opposite.

iex-group_416x416For a small-time investor, this amounts to a few pennies lost every time you place a trade, but these pennies add up to big losses over time. The IEX is a new stock exchange that has a speed limit. By creating a 350 microsecond delay for trade orders, it thwarts the efforts of HFT firms to rip off retail investors without their knowledge.

How do retail investors benefit from the IEX?


Brokers decide which exchange to route orders to.

There are many conflicting factors that determine which exchange your order is routed to. Your broker is required to seek the best price on your behalf, but HFT firms manipulated the markets. You still got the “best price” at the time your order was executed, it’s just that the best price was lower a few microseconds beforehand.

Retail brokers don’t tell you where your order was executed, and up until now, there wasn’t much reason to know. Now, if your broker routes your order to IEX, you will get a better price: the fair market price.

Want to save money?

Call your broker and ask about direct routing capabilities. While none of the major US brokers advertise this capability, two of them offer it if you pick up the phone and ask. Two others are “looking into it” for the future, and two more show no indication of a plan to offer it. Sounds like they need a nudge from their clients.

Fintech News: August 19th, 2016

What to Expect when IEX Launches on Friday (MarketWatch)

The IEX is the newest US stock exchange, and the only one that prohibits high frequency traders from ripping off retail investors. It’s launching today, and will be fully operational with all US equities within a month. The exchange is putting pressure on other exchanges to come up with their own solutions that protect retail investors.


How the IEX plans to thwart arbitrage.

Failtech: Financial startups are ignoring the wealthiest Americans because of their age (Venture Beat)


Silicon Valley needs a few DeNiros

The oldest and richest Americans need fintech solutions the most. Americans over 55, who have 70% of the country’s disposable income, are in dire need of solutions to protect their identities, credit score, and passwords.

In Silicon Valley, where the average CEO is 38 and the average employee is 30, fintech solutions are plentiful, but they all cater to millennials. Sounds like they need some elderly marketing interns to tap into the big money.

The exodus from banks to financial apps: How data aggregation is transforming financial services (Venture Beat)

Since 2008, customers are spreading their assets across multiple financial institutions to avoid “keeping their eggs in one basket.” Data aggregation is giving rise to a plethora of third-party apps and websites where consumers can access their banking data from multiple institutions all at once. This is disrupting the traditional relationship, where the bank owns the entire customer.

China is Disrupting Global Fintech (TechCrunch)


Tech to finance: China did it first.

Fintech has seen the most adoption in China, but why? They have a large population who skipped the desktop era and went straight to smartphones. They have a liberalized financial industry, and horribly inefficient banks. Culturally, the Chinese don’t have the same bias towards brick-and-mortar institutions, and they love cutting out the middleman. Here’s what developed markets are learning from China.