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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.

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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 Mint.com. 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 Mint.com.

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.

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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.

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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, Mint.com 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.

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Through the last ten years, since the advent of Mint.com, 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?
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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.

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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.

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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.

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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.

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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.

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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.

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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:

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  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.

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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.

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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.

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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.

Sources:

Oliver Wyman: The State of Online Brokerage Platforms, 2016 

Online Brokerage SEC Filings

PwC Fintech Survey, 2015

Aite Group 2016 Report

 

 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

 

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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.

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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.

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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.

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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.

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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.

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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.

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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.

 

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Fintech News: September 16th, 2016

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

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Source: WSJ.com

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.

 

 

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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.

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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

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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.

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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.

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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.

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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)

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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.

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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?

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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.

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How the IEX plans to thwart arbitrage.

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

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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)

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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.

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Traders Without Borders, Part 5: The United Kingdom

This week, we take a close look at the world’s first financial powerhouse: The United Kingdom. Stock trading is less popular across the pond, but the thriving gambling markets make up the difference in volume. However, as the public wakes up to the dangers of leveraged trading, self-directed stock trading shows signs of a comeback. Here’s the lowdown on retail investing in the UK.

The House Always Wins

dice3.pngIn the United Kingdom, you can gamble against your stockbroker. The British enjoy legally betting on anything from sports to presidential elections, so it’s only natural that they love betting on the financial markets as well. Meet the contract for difference, or CFD. CFDs let investors bet on a stock’s direction and “invest” in a company without actually owning any shares of it. CFDs can be purchased in any GBP amount and are exempt from capital gains taxes. What’s the catch? Most CFDs are highly leveraged, making them a risky way to generate massive gains (or losses) very quickly.

CFDs

You can lose more than your initial deposit when trading CFDs, even if the stock’s price only moves a small amount. In the US, CFDs are considered gambling and are illegal. In the UK, 12 out of the top 18 stockbrokers offer CFDs alongside traditional shares.

You Love Me Like XO

The UK’s discount retail brokers are nicknamed “XO” for execution only, a pretty accurate description of their product offering. Just like most Australian brokers, XO brokers offer few guidance tools and charge higher commissions than their American counterparts: typically around £10-12 per trade.

Screen Shot 2016-05-20 at 11.17.24 AMThese commissions are a vital source of revenue for XO brokers, representing 38% of their total revenue, versus just 20% for American discount brokers. Today, most actively trading Brits prefer the riskier CFD and FX markets. Those who own stocks mostly hold them in non-trading retirement accounts. Fees have dropped over the years, but most XO brokers still don’t have enough order flow to justify £5 commissions. At least not yet.

Back to Basics

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Stay away from CFDs, Michael.

Many high-profile CFD traders are going bankrupt, and British traders are waking up to the dangers of trading CFDs on margin. At the same time, traditional buy-and-hold investors are ditching high-fee advisors in favor of DIY investing. As a result, slow-and-steady XO stock trading is seeing a comeback, especially among high net-worth individuals. In the last five years, XO assets have grown 17% year-over-year, mostly from new accounts with 1-10 million in assets.

CompeerAs the market for share dealing grows and fees continue to drop, XO brokers will need a strong product offering to expand their market share. Luckily, the UK’s FCA has adopted principles-based regulations that allow for rapid innovation without the need to write new laws. Earlier this year, AJ Bell became the first XO broker to offer share trading on Facebook. As the market expands, we see more opportunities for mobile-first products that make trading more accessible to a younger client base.

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Fintech News: August 12th, 2016

How can we fix crowdfunding? Who will be the Uber of finance? Finding yield after 2008, and introducing the ETF’s sexy cousin, the PTF. This week’s fintech picks:

Will There Ever Be An Advisor Platform Like Uber Or Airbnb? (Wealth Management)

Capital_Markets_Advisory_iconThere are plenty of startups trying to become the “Uber of Financial Advisors.” The platform model might work for highly specific financial advice, if not for all-in-one advisors. Critics say the Uber model only works for services that require people to keep paying for lasting benefit. Our questions and concerns:

  1. If you need a financial advisor in the next 5 minutes, isn’t it too late?
  2. Will there be surge pricing?

Pain Points: Calling on Fintech

Income: Any Fintech to Fill In the Supply Shortage? (Daily Fintech)

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Yields are drying up. Can fintech fix this?

Everyone’s chasing “low-risk” yield after 8 years of near-zero interest rates. (Pour one out for the CDO…) Can financial engineering help us make money from our money?

Platform Traded Funds (PTFs): The Next Innovation? (Daily Fintech) 

A platform for ETFs – both actively and passively managed, with no minimums. Could this be the next big innovative financial product?

Risks in the Crowdfunding Industry (Bank NXT)

Beneath the high-profile crowdfunding uh-ohs, there are true underlying risks to the business model. Pooled risk, lack of transparency, and limited risk from platform providers are holding back the crowdfunding industry from fulfilling its many use cases. Ahem, regulators?

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Rounding The S-Curve: ChatBots are Just Getting Started

Today’s chatbots are new & fun. Someday, they’ll actually be useful.

S-CurveRight now, the tech news is flooded with announcements for new bots or IoT products that are “revolutionizing” some part of our daily lives. It’s easy to label any exciting new technology as “disruptive,” but in the case of bots and AI, we’re still in the first inning. As the underlying tech improves, bots will penetrate new verticals to solve the problems that mobile apps were unable to fix. In five years, 2016 will look like the chatbot stone-age, otherwise known as the bottom of the S-curve.

There’s an App for That?

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Think back to the app store in 2008. While apps were touted as the next big thing in tech, the top apps were mostly single-use widgets. They weren’t revolutionary, because they mostly allowed us to continue doing what we were already doing, this time with an app. But they were new, and that was enough to get us excited to download a flashlight app, a calculator app, and an app that made fart noises.

The way we use apps in 2016 would have been beyond comprehension to our 2008 selves, because apps have created completely new behaviors. In today’s ecosystem, the word “app” is almost meaningless; a good app’s value is the new behavior it enables: usually something that was previously impossible, or at least prohibitively difficult. Unfortunately, as the app economy seems to be reaching its peak, monetizing an app has become an uphill battle. The new opportunity is the chatbot.

Enter the bot

Earlier this spring, Facebook released the bot store, which allows us to chat with robots in the same space we chat with our friends: the Messenger app. Think ordering a cab from a bot or contacting customer service from a bot. Most of these chatbots are either app replacements or novelties, and the experience still feels like talking to a robot.

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R.I.P. Tay, Microsoft’s chatbot

If Microsoft’s “Tay” taught us anything, it was that the underlying technologies have a ways to go before chatbots can pass as real people. As GenCat’s Phil Libin has noted, most 2016 chatbots are “fart bots” similar to apps in 2008: cool and new, but not yet revolutionary.

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source: developer.facebook.com

This is all about to change. As the underlying technologies produce bots that are leaner, faster, and smarter than today’s apps, the trillion dollar opportunities will be the bots that solve the problems that apps cannot fix in entirely new ways. Innovation is not incremental improvement, it’s original creation. As Peter Thiel has said, creating value is moving from zero to one, not one to two.

We’re so excited to see bots and AI climb the steep slope of the innovation S-curve. Starting this summer, we’ll be posting monthly on the most exciting technologies and use cases driving the bot extravaganza in consumer finance and investment management. Over and out.

Fintech News: July 29th, 2016

You’re Not Fintech, And That’s OK (Financial IT)

200-1Every buzzword has its haters, and “fintech” is clearly no exception. This article jabs at companies who call themselves “fintech,” but who really just market existing financial services to a younger audience. The most impactful innovation takes place in the back offices of financial institutions, and most of these companies don’t call themselves fintech, but infrastructure. This columnist argues that back office innovators should drop the “fintech” label and avoid confusing everyone.

Will deposit accounts be the next wave of fintech innovation? (Daily Fintech)

prodOther_accent_HelpMeChoose_officialCheck_iconIt’s time for a new kind of checking & savings account. These products, the bread-and-butter of traditional banks, have remained largely unchanged since they were invented. Here are some of the fintech startups looking to change that, by letting you split up your bank account for different purposes (vacation bank account, rent bank account), set up automatic savings deposits, and more.

Fintechs can help incumbents, not just disrupt them (McKinsey)

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Source: McKinsey

According to McKinsey, fintech is moving up the value chain by working with banks instead of against them. Enablers are the new disruptors. The top category for enabling startups? Corporate and Investment Banking, where assets and relationships matter most. In this subsector, only 12% of startups are trying to disrupt existing business models, and most of these are blockchain solutions.

ETrade agrees to acquire OptionsHouse parent for $725 million (MarketWatch)

E*Trade acquired OptionsHouse, the discount brokerage known for its popularity with (not surprisingly) options traders. The deal is part of E*Trade’s strategic initiative to boost its offerings for derivatives traders. Many analysts predicted that 2016 would be a year of acquisitions for online brokerages, and with the sale of TradeKing earlier this year, it looks like they were right.

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Traders Without Borders, Part 4: Japan

This week on Traders Without Borders, we’re jumping further east to Japan, one of the hottest and most unique markets for retail investors. Japan’s economy experienced a bubble during the mid 1980s and ended in a decade of declines after it burst in 1991. Since then, retail investors have gradually returned to the market, but their investment strategy remains shaped by the “Lost Decade” of economic turmoil. Here are the unique characteristics that define the Japanese retail investing market today.

Forex First

Japan Forex VolumesJapan’s forex market dwarfs its equities market, generating around 400 million trades each month from retail traders. In fact, while Japan’s population represents under 2% of the world population, Japanese traders generate approximately 30% of global retail forex trades. The country’s entrepreneurial spirit has inspired many stay-at-home mothers to trade forex on the fly. While women constitute only 5% of British and American forex traders, they represent a whopping 25% of Japanese forex traders.

Proceed with Caution

 

Japanese investors keep a huge amount of their portfolios in cash: about 53%. For comparison, Americans hold just around 10% cash in their portfolios. For Japanese investors, who are accustomed to market turmoil, cash represents solid downside protection.

Japan Portfolio CompareWith solid cash reserves in their portfolios, Japanese traders are more patient than their international counterparts. A majority of Japanese investors would not re-evaluate their investments if they experienced a 20% decline, compared to just over one third of Asian investors as a whole.

After years of investing in a contracting economy, few Japanese investors are on the lookout for short-term gains. Rather, they invest for the long haul and stay resilient during market swings.

Stocks: Stick to Domestic

As part of their efforts to encourage individual investing, the Japanese government created the Nippon Individual Savings Account (NISA), which is expected to pull 1.3 Trillion Yen into the stock market for the next five years. The NISA account is similar to the American IRA; it allows investors to buy up to 1 million Yen a year in stocks, ETFs, trusts, and real estate with a five-year tax exemption on any gains or dividends.

unnamed.jpgThe result has been a higher allocation of household financial assets into risk-class assets. Because of the tax-advantaged internal market, Japanese stocks are more attractive than their foreign counterparts. Today, only 41% of Japanese investors are focused on international markets, versus 73% of investors globally.

Like other international exchanges, Tokyo’s JPX has enacted serious regulations to protect retail investors and regain their trust. As Japanese investors allocate more of their cash savings to their NISA accounts, we see opportunity in the Japanese market for mobile-focused solutions for retail investors.

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Fintech News: July 22nd, 2016

This week in fintech: What Pokémon Go means for banks, trading social sentiment based on real-time sales, a chatbot to trade on Facebook messenger, and more bank execs scoff at fintech’s influence.

TD Ameritrade Takes Social Media Research to the Next Level (Finance Magnates)

TD Ameritrade is providing a new way to research consumer products companies. Clients on the Thinkorswim platform will now be able to access LikeFolio data for 25 high-volume equities, and trade off of social sentiment data. This integration is unique because the data is not opinion data from other traders, but actual sentiment from consumers buying the products.

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Trade what the people are buying. Source: LikeFolio

Kasisto’s chatbot will soon trade stock on Facebook Messenger (Venture Beat)

Screen Shot 2016-07-19 at 1.50.24 PMIf Siri replaced your personal assistant, MyKAI will replace your stockbroker. Built by Kasisto, MyKAI gives users market intelligence, reports on their portfolio’s performance, and places trades on their behalf.

By expanding beyond market information into actual trade execution, MyKAI marks AI’s growing influence in Wealth Management beyond the first generation of chatbots. With MyKAI, users can link their account from any major US broker and trade on Facebook Messenger. See Kasisto’s official announcement for more.

J.P. Morgan’s Jamie Dimon: Fintech’s Got Nothing on Us (The Wall Street Journal)

Another day, another banking exec who denies fintech’s influence. This time, Jamie Dimon touted clearXchange, which lets customers transfer money immediately across institutions, as the next great success for banks in fintech. Last month, he trashed startups that collect your bank data for their controversial privacy policies.

Lessons Pokémon Go Can Teach the Banking Industry (The Financial Brand)

025Pikachu_Pokemon_Mystery_Dungeon_Red_and_Blue_Rescue_Teams.pngThe power of AR, the power of gamification, the power of geolocation data, and the power of engagement. None of these forces are new or exclusive to Pokémon GO, but when an app shoots to the top of download charts worldwide, any digital business should take note of what it did correctly. Here’s what it means for mobile banking.

 

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Tipping Point: how brokers stay afloat with near-zero interest rates

Since the 2008 financial crisis, interest rates have remained near zero. Fearing an incomplete economic recovery, the Federal Reserve remains hesitant to raise them. At first, near-zero rates made stocks attractive to investors seeking yield, and brokers saw new accounts flourish. Today, the stream of yield-seekers has dried up, and new accounts are prohibitively expensive to brokers. To make matters worse, low interest rates eat up their spread revenue. Here’s how brokers can make up the difference on the balance sheet.

Broker Revenue: 1-2-3

Revenue StreamsDiscount brokers rely on a three-pronged revenue model: commissions, fees, and spreads. When existing customers place trades, brokers generate commission revenue, which averages $8.80 for equities and $9.50 for options. Fee revenue comes from charging customers for insufficient funds, management services, and phone-assisted trades. Finally, brokers generate spread revenue by charging interest on margin accounts and collecting interest on idle cash in their clients’ accounts.

Low Interest Rates Kill Spreads

Screen Shot 2016-07-18 at 2.27.18 PMUnfortunately, today’s low-interest environment requires brokers to charge less interest on margin accounts and earn less interest on their clients’ idle cash. As spread revenue dries up, brokers are being forced to rely more on commission & fee revenue by increasing their DARTs through new and existing clients.

In the current overcrowded market, new brokerage clients are increasingly expensive. Due to the huge customer acquisition cost, the broker will not break even on their marketing investment until a new customer places an average of 120 trades.

New customers: a tough sell


Brokerage CostsWhile the last 20 years of brokerage marketing have been focused on new customer acquisition, it appears we’ve reached a tipping point. Paired with an overcrowded market, inadequate mobile marketing solutions have driven the cost of marketing to new customers through the roof.

In addition to traditional ad-spend, incumbent brokerages are now offering cash bonuses up to an unprecedented $2,500 just for funding a new account. On top of that, the new normal is 60-90 days of commission-free trades, which force the broker to absorb four-figure losses, all in an effort to acquire a customer who won’t pay a penny in commissions until four months later. Talk about a buyer’s market.

It’s time for engagement marketing

When we first launched TradeIt, we built a product that encouraged new user behaviors that served the interests of both publishers and brokers. User place orders from a publisher’s platform. Publishers are happy because the user is sticky and spends up to 200% more time on their platform. Brokers are happy because their customer remains engaged and spends up to 300% more in commissions and fees.

 

ROI

*Industry Average CAC vs. engagement campaign with a major US broker.

Today’s retail investor demands mobile first, secure & convenient transactions, and access to personalized products that operate across brokers. Engaging existing customers will save brokers from shelling out cash bonuses, free trade offers, and expensive acquisition campaigns. Marketing to these customers has been shown to generate DARTs for 1/5th the marketing spend.

 

Given the tough climate, it’s time for brokers to focus on engaging their existing customers. The profits are right under their noses.

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Traders Without Borders, Part 3: Singapore

This Week on Traders Without Borders, we’re taking a close look at the retail market in Singapore, the closest contender to Hong Kong for Asia’s global financial capital and the home of SGX, the Singapore Exchange. Singapore may have been hard hit in the 2008 crisis, but the market holds many lessons in attracting young, mobile savvy and engaged investors to other developed markets. These are the unique characteristics of Singapore’s retail market today.

Optimistic & Tech-Obsessed Investors

With new regulations in place, Singapore’s retail investors are some of the world’s most optimistic. In a study from CFA Institute, 90% of Singaporean investors believe they have a fair opportunity to profit by investing, compared to only 70% in the United States.

Singapore optimistic

Source: CFA Institute

Singaporeans are also the most social investors in the world, with 26% reporting that they consider their social networks most trustworthy for investment advice. When choosing a financial institution, Singaporeans are some of the world’s most tech-obsessed, with 81% of investors using their smartphones to trade. 50% of Singaporeans say that access to the latest technology is more important than having a person to help navigate their investment strategy. In the United States, only 27% of investors believe this, most of whom are younger millennial investors.

Outward-Facing

SGX Trade Volumes

Source: SGX

Most of Singapore’s retail investors look overseas for opportunity, since the city-state has a small domestic market and a population of only 6 million. In the past, Singaporeans have flocked to Chinese companies, but they have shifted their preference towards US-based investments since 2015. Together, overseas investments represent almost half of the share volume traded on SGX daily.

Retail-Friendly Regulations

Singapore’s retail investors were devastated in 2008 by the financial crisis, and again in 2013, when a penny-stock crash washed away $8 billion of market value in three days. Since then, SGX has enacted regulations to protect retail investors, in an effort to lure them back with the promise of a level playing field.

Singapore Participation

Source: Investment Trends

First, they introduced a minimum trading price of S$0.20 on all listings. This essentially bans the hyper-volatile micro-cap stocks that caused the 2013 penny stock crisis. Second, they reduced the lot size from 1000 to 100 shares. This reduces barriers to entry, offering small-account investors access to reliable blue-chip stocks that were previously owned by institutional investors only.

Since these changes were initiated, retail participation has taken off, especially with younger generations. Today, 29% of new brokerage accounts come from investors aged 25 and under, compared to just 19% in 2011. 5.2% of Singapore’s population now trades online, giving it one of the highest participation rates worldwide.

A Model for Others

American exchanges need to step up their protections for retail investors, as evidenced this winter by rampant high-frequency trading fraud. Since 2013, Singapore’s exchange has done just that, and participation has skyrocketed. Today, SGX serves as a success-story for retail-friendly regulations that build trust and increase participation. Other developed markets should follow suit.

With strong protections in place and waves of new investors entering the market, it’s clear that Singapore’s retail investing market is poised for growth over the next few years. We see opportunity in building mobile-first solutions for their social, tech-savvy investor population as it continues to grow.

Fintech News: July 15th, 2016

Vanguard, the Unlikely Savior of Active Management (Vanguard)

Actively managed mutual funds have seen $76 billion in outflows since January, except for Vanguard. While Vanguard has established itself as the Walmart of passively-managed funds seeking to match the market (rather than beat it,) its actively managed funds have seen net inflows while its competitors have floundered. The secret? An average expense ratio of .27%, compared to the competition’s .79%.

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Money is flowing from high-fee to low-fee, not necessarily passive to active funds.

$XBTC is the first Bitcoin ETF (Finextra) (Finextra)

bitcoin-and-ethereum-sitting-on-a-tree@2xThe first bitcoin ETF may soon become a reality, allowing investors to trade bitcoin just how they trade a stock. Critics say that defeats the purpose of bitcoin, since the virtual currency derives its value outside of government-backed currencies.

Slump Might Turn Anti-Bank SoFi Into a Bank (Wall Street Journal)

OG-AH685_201607_G_20160711182427SoFi’s CEO once called traditional banks “the second biggest waste of human capital outside the IRS.” Now, as venture capital dries up in lending, he might have to act like a bank to compete with them. This includes seeking regulatory approval in certain states, offering credit cards, and partnering with giant financial institutions.

38 Fintechs Raised $300 Million in June (Finovate)

Fintechs are raising 100% more money and closing 90% more funding rounds than they did in 2015. This June, in investing: Smartkarma, for Asian investment research; Macrovue, for theme-based investing, Sernova Financial for clearing services.

Introducing: Forex, Powered by TradeIt

TradeIt integrates forex trading capability via partnerships with top forex brokers.

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In the coming weeks, users will be able to trade forex on any mobile app in TradeIt’s network. Beginning with the top 2 forex brokers, we expect to expand our forex roster to reach full market coverage by the end of the year.

We’re determined to build a seamless retail investing experience. By enabling portfolio viewing and order placement from any mobile app, we eliminate pain points for all parties involved. We help publishers increase user engagement, we generate order volume for brokers, we save time for end-users. Win win win.

Screen Shot 2016-07-08 at 8.00.08 PMWe’re excited to extend these benefits from the equity & ETF markets to the retail forex market, which represents $185 Billion in daily trade volumes. TradeIt’s multi-broker API is now multi-asset, and we are one step closer to turning our vision of seamless retail investing into a reality.

We continue to prioritize our end-users’ needs. Forex has been the top request over the last 6 months. What else would make investing easier for you? Tweet us @TradingTicket.

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Fintech News: July 8th, 2016

Why More 401(k) Plans Offer Brokerage Windows (The Wall Street Journal)

JScreen Shot 2016-07-07 at 6.40.46 PMust 1% to 4% of 401(k) participants take advantage of brokerage windows, but more and more 401(k) plans are starting to offer them. For plans, brokerage windows are an easy way to slim down their core offerings while still letting participants invest in the funds they used before.

StockTwits Has a Big Week: New Funding, New CEO (Finovate Blog)

iphone.pngOne of the largest social trading networks returned from a long weekend with big news: $2 Million in new funding and a new CEO, Ian Rosen. Rosen has a background in supply-side lending, at Even Financial, and finance media, from his time at MarketWatch. Howard Lindzon, StockTwits’ former CEO, will remain active as chairman.

In race to be Asia’s fintech hub, Singapore leads Hong Kong (CNBC)

While it lags behind Hong Kong in traditional financial services, Singapore is setting itself up to be the fintech leader. State funding, light regulations, and opportunities for start-ups to test their products in sandboxes have all been part of the city-state’s aggressive approach towards attracting fintech investments.

Mobile’s Future Is Here – Too Bad So Many Banks Are Stuck in the Past (American Banker)

In financial services, mobile is evolving from just a channel to the heart of the relationship between the institution and the customer. It is quickly replacing the physical branch for many functions, and banks are struggling to keep up, especially the smaller ones. Next on their plate? Omni-channel capabilities, which let customers begin an application on one device, and finish it on another.

Fintech News: July 1st, 2016

This week in fintech: confusing automation with AI, wealth managers and digital maturity, UK fintech after the brexit, and how robo-advisors dealt with volatility after the brexit.

Wealth managers must up digital game to fend off fintech threat (Finextra)

hold_invest-300x252Capgemini’s World Wealth Report shows limited digital maturity in the wealth management industry, even though 67% of high net worth clients now demand at least partially automated advisory services. 86% of clients under 40 say that digital maturity is a significant factor in deciding whether or not to increase assets with their wealth management firm. Less than half of wealth managers are satisfied with their firm’s technology offerings.

Examining Robo-Advisor Performance During Brexit (Hedgeable)

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Source: Hedgeable blog

Hedgeable, a robo-advisor that differentiates itself with a combination of active and passive management strategies, used the Brexit aftermath to show off how it outperformed its peers. Its peers would argue that the market has since regained most of its losses, and it’s only been  a week. One of the most enduring criticisms of robo-advice is that it has yet to endure a large market downturn, when retail investors panic.

After trading halt, Betterment suffers its own Brexit shock (Financial-planning)

Betterment took the opposite approach to Hedgeable by freezing trading for its clients. While it probably saved them from losing money after markets recovered this week, it may have lost some of its clients trust by not allowing them to change their risk profile.

The Age of Artificial Intelligence in Fintech (Forbes)

Financial services firms are exaggerating their use of AI, which has been a hot topic in fintech this year. Many of them are confusing automation with artificial intelligence. Automation is replacing a repetitive task with a machine, and is nothing new. Artificial intelligence replaces judgment-based human decision making, and in many ways is still in its infancy.

UK Fintech: Life after Brexit (Chris Gledhill – CEO of Secco)

One of London Fintech’s thought leaders speaks out after the Brexit, reflecting on the responses he received since posting #Brexit good for UK #FinTech weeks before the vote. He sticks to his choice of long-term self determination over short-term economic stability, underlining the importance of immigration and regulation to London’s fintech industry, with or without the EU.

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Staying Relevant: 5 Lessons from Millennial Investing Apps

Love or hate them, millennial-focused investing solutions aren’t going away any time soon. Startups offering robo-advisory and automated microinvestment solutions (mostly in the form of mobile apps) have acquired swaths of customers with small account sizes. While some of these startups, like Acorns, have targeted users with little money to spare, others, like Hedgeable, have targeted HENRYs (high earners, not rich yet.) All of them are betting their customers will remain loyal when they actually become rich. If this happens, these apps have the potential to seriously disrupt incumbent brokerages.

The bare-bones product these startups offer is similar to a low-fee, risk-adjusted target-date fund, something incumbents like Vanguard and Fidelity have offered since the 1990s. While these products are decidedly not-that-innovative from a financial engineering standpoint, the true achievements of these startups are their mobile-friendly UX design, beginner-friendly onboarding processes, and customer service that caters to their young users’ preferred communication channels.

We compared the mobile offerings of the top incumbent brokers with those of the millennial-focused startups. For the full findings, see the spreadsheets.

Millennial Broker Mobile Product Comparison

Incumbent Broker Mobile Product Comparison

For a quicker view, here are the top five takeaways for how to attract young customers, who might be poor today, but strive to be rich in 20 years.

Don’t Scare The Rookies

Most new investors don’t yet know what they’re doing. When they download an incumbent broker’s app, they get bombarded with promotions for advanced charting tools, stock screeners, options trading, analyst ratings, and more. They might find these features handy someday, but right now they don’t even know what they’re used for. By pushing these advanced trading products, incumbent brokers scare off potential customers by convincing them they aren’t ready to invest yet.

Sell them success, not technical tools.

iPhone 6 _ 4.7 inch _ SilverWhen new investors download a millennial-focused investing app, they are greeted with a sleek interface and a gentle introduction into how the product works, with no technical charts or numbers in sight. Instead of selling them access to complicated, stress-inducing tools for self-directed investors, millennial-focused apps sell potential customers the hand-holding necessary to get on the path to achieve that success.

Visuals > words.

Millennials communicate with images, videos, emojis, GIFs etc: essentially everything except written words. They are more likely to engage with your product when you tell them a story through visuals. They don’t want to read an email telling them to set monthly contributions. However, if they see an interactive graph of the potential returns they could generate, they may actually contribute.

Don’t make them call

1i65YBa7While their parents prefer to pick up the phone, millennials prefer to connect with brands on social media, messaging platforms, and through mobile apps. If you force them to call, talk to a robot, and wait through elevator music for customer service, you’re already doing it wrong. And if you don’t actively engage with your existing and potential customers in their preferred digital spaces, you shouldn’t expect to win their loyalty.

Tweet like their friends, not their grandparents

Once you’ve penetrated your customers’ favorite digital spaces, content always trumps promotion. Millennials are notoriously averse to blatant product-pushing tactics, and much more receptive to content-based marketing. In our survey of incumbent vs startup brokers, startup’s tweets gained 200X the engagements per follower, with jokes, rhymes, and other tweets that only broadly relate to their products.

Ads are annoying, but content drives sales.

Many incumbents, on the other hand, are still tweeting thinly-veiled invitations to open an account or check out their latest stock screening tools. To build loyalty with young people, incumbents should cut the try-hard tactics and create great content. When you make your audience giggle at a tweet, or gasp at a blog post, you create true, lasting value through social media. Otherwise, you’re just another ad to scroll past.

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500% Confidence in Mobile First

For several years, digital companies and their executives have praised the “mobile first” strategy: start with a product that works well on a 4” screen, and it won’t be hard to make it work on a full-size computer. Try building your product mobile second, and you’ll be compressing an entire desktop interface into a fraction of its original size, hoping not to lose frustrated users in the process.

When we first launched TradeIt, we were lured by incumbent investing brands to build desktop solutions while we continued to have a mobile strategy. After almost a year of activity, we no longer dedicate resources or time to custom desktop solutions. Instead, we’ve sharpened our focus on mobile apps, messaging platforms, and AI & bot solutions. These three factors drove this decision:

  1. User Behavior
  2. Security & Trust
  3. False Profits

1. User Behavior

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Source: Mary Meeker’s Internet Trends Report, 2016

People spend 60% of their digital time on mobile devices, and this stake is only increasing as mobile continues to replace desktops for investing information. As we illustrated in the changing eco-system, many incumbent brands are maintaining legacy websites and ignoring the massive mobile opportunity under their noses. The agile competitors are building user-friendly mobile apps and chatbots that leverage behavioral analytics to constantly keep their users engaged. As a result, they’ve captured a valuable user base with high household income and high levels of education, while incumbent sites lose sticky & valuable users.

Screen Shot 2016-06-26 at 2.29.39 PMTradeIt’s mobile partners see 800 times more conversions to order than their desktop counterparts. Mobile users tend to be hyper sticky, so when they browse an investment app, they browse with intent to trade. The average order size is 500% higher on mobile than it is on desktop, so you could say we are 500% confident in mobile trading.

2. Security

In the early days of building one of the larger investing sites, the team spent countless hours trying to solve for “desktop security” with large financial institutions. As desktop became ubiquitous, the security risks increased, and users became trained to be skeptical of online security, prompting them to navigate to their financial institutions via advertising “buttons,” bookmarks, search and icons.

appletouch_bg2Mobile has superior verification technologies that allow app publishers to create secure and convenient experiences that incorporate users’ financial information. As we wrote about previously, native mobile apps are vetted by Apple or Google, smartphones require a password log in, and apps can enable TouchID in addition to existing credential requirements. There are 4 lines of defense for security when using a smartphone for consuming financial institution information in publisher apps- that is 4 more lines of defense than a desktop browser.

3. False Profits:

A common rule of thumb is that a business’ value is based on its capacity to generate future profits. Desktop profits are a shrinking, and most sites talk about harvesting. While investors are already migrating to mobile for investing news & information, financial service marketers have not caught up, and still spend disproportionately on legacy media. Changing user behaviors essentially guarantee that desktop ad performance will continue to decline, leaving financial publishers searching for replacement dollars.

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Source: Mary Meeker’s Internet Trends Report, 2016

As a result of the ad-spend disparity, publishers struggle to financially support their mobile investment products, which are growing at top speed while their desktop traffic remains stagnant. Financial advertisers will need to find the apps that have captured the mobile generation of engaged users, which entails partnering with a fragmented list of partners. With only 10% of financial advertisers budgets dedicated to mobile, the mobile ad opportunity is open for business. As one client told us, “mobile is table stakes” at this point, and financial marketers shouldn’t plan on arriving late.

Why the title “False Profits?” Today’s desktop ad spend is not sustainable. Users spend their time on mobile, so that is where the true value lies for advertisers. Through mobile ad partnerships with first movers, we’ve seen mobile produce strong returns on ad dollars. The mobile ad opportunity is huge, and we would rather be early to the mobile blastoff than shower in desktop’s false profits, before the dollars inevitably dry up.

TradeIt will continue to offer self-serve desktop solutions on our developer site, but our team is focused & dedicated to building great retail investing infrastructure for mobile, messaging and AI. Our metrics and measurements have spoken, and mobile first is the best route forward.

 

Fintech News: June 24th, 2016

E*Trade study reveals what investors want from mobile services (Finextra)

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Source: E*Trade Insights

Experienced investors have continuously evolving mobile preferences. Key findings from E*Trade’s study released this week:

  • Mobile trading is trending upwards. Total mobile trades mobile options trades increased 24% and 41%, respectively, since last year.
  • 2 out of 3 investors believe mobile is critical to monitor their investments.
  • 57% of millennials place orders on their smartphone or tablet, and 65% use their smartphone to research new investments.

See the full report at E*Trade Insights.

Britain Votes to Leave EU; Cameron Plans to Step Down (The New York Times)

It is too soon to say how the Brexit will affect London’s fintech hub. Some fintech CEOs have praised the Brexit as a way to escape bureaucracy and regulations that stifle innovation. Others have warned that these benefits will be outweighed by the difficulty of recruiting engineers, many of whom hail from Eastern Europe.

The Rise of FinTech in Supply Chains (Harvard Business Review)

FinTechs are climbing the supply chain and making it easier for buyers and suppliers to do business. By allowing the buyer to extend its payables, while also speeding up the payment to the supplier, these fintechs grant both parties more liquidity and stability in the timing of payments. These are likely companies you have never heard of, a group of many B2Bs in fintech who are truly disrupting the back offices.

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Fundings & Acquisitions:

Lots of money flowing this week, including huge funding rounds from European neo-bank Number26 and aggregation software Plaid. Two stock gift-card suppliers merged, and robo-advisor Personal Capital hired a former Yodlee exec.

stockpiletrioNumber26 raises another $40 million for its vision for the future of banking (TechCrunch)

Plaid Raises $44 Million to Allow Fintech Startups Access to Customer Data (Finance Magnates)

Stock Gifting Platform Stockpile Acquires SparkGift (Finovate)

Personal Capital Brings on Former Yodlee CFO (Finovate)

Micro-investors, beware of macro fees

“Set it and forget it” mobile apps are a great way to dip your toe into the stock market, until you read the fine print.

Recently, micro-investing has taken off as young investors sign up for “set it and forget it” apps. These apps have generated buzz and panic in the financial services industry. Last month, they attracted the scrutiny of JP Morgan’s CEO, Jamie Dimon (so they must be doing something right.) They claim to democratize the investment industry by allowing young people to “invest with $5” or “invest the change” from their purchases into a portfolio of exchange traded funds, or ETFs.

Low Balances, High Fees

Screen Shot 2016-06-17 at 12.05.09 PMIn practice, small-time micro investors pay more than double the fees of traditional investment vehicles. There may be no account minimum, but the smaller account holders get ripped off in the end. How is this? For small accounts, micro-investing apps charge a flat $1.00 per month for their service, which doesn’t sound like much to an inexperienced investor. However, for an account with just a few hundred dollars in assets, $12 per year amounts to a 4% fee, a higher percentage fee than most financial advisors or even hedge funds.

Over five years, if a budding investor deposits $50 each month into a micro-investing app, the monthly $1.00 fee will eat up 12% of their returns, compared to an ETF portfolio from a traditional brokerage. Depositing less than $50 each month? That monthly buck will swallow even more of your potential returns.

Hate fees? Try DIY

If you have an account balance around $2,500, $1.00 per month only amounts to a fee of .5%. However, at that point you have enough investable assets to open an account at a traditional brokerage. Then, you can construct your own portfolio of diversified ETFs for free. You’ll also have access to research & education tools, real humans to call or email, and you’ll learn how to research your holdings for a lifetime of responsible investing. Essentially, if you have enough assets to make a $1 monthly fee sound reasonable, then you have enough to invest through a reputable broker who can help you achieve your financial goals.

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Most ETF issuers offer free portfolio generators. Source: iShares

With a Fidelity brokerage account, clients can trade iShares ETFs commission-free. Open a Fidelity account, use iShares’ free portfolio generator, and you’ve got a portfolio of $ITOT, $IXUS, $IUSB, and $IAGG without paying a penny in fees. Similarly, TD Ameritrade offers over 100 commission-free ETFs from SPDRs, Vanguard and more. Go to Vanguard’s ETF recommendation engine and you can build an ETF portfolio with the lowest expense-ratios on the market, at no commission from TD.

The Future of Micro-investing

Charging high fees for low balances is unfair at best, and predatory at worst. Still, micro-investing products have done an excellent job getting young people “over the hump” and making their first investment. Rebuilding trust with this generation, who grew up during the financial crisis, is nothing to scoff at, and neither is a user-friendly mobile interface.

Traditional brokers should mimic what micro-investing apps have done right, as many of them already did with robo-advisors last year. By adding micro-investing solutions to their more profitable wealth management offerings, incumbent brokers can gain loyal young customers today. When these customers develop more complicated needs, their brokers will inherit a massive cross-sell opportunity.

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Fintech News: June 17th, 2016

Why Passive Investing Increases Corporate Activism (Knowledge @ Wharton)

Many market observers have assumed that passive investing decreases pressures on individual CEOs or board members to produce real change in their companies. However, a recent study found the opposite: since funds are stuck with certain stocks, fund investors have extra incentive to improve those companies, compared to active investors who can simply drop any investment in a poorly run firm.

The Blackrock tale told in the UK: ETFs & Robo-advisors (Daily Fintech)

roboIn the US, 50% of ETF volume is from retail. In Europe, it is only 5%. European robo-advisors are lagging their US counterparts in AUM, customers, revenues, but is it an emerging opportunity or a dead-end to chase the European market?

Five factors that differentiate Africa’s fintech (CNBC Africa)

africa_origami_01.jpgUnlike North American and European fintech, African fintech has no established financial services to “disrupt.” Instead, they’re building an entirely new infrastructure from scratch. 80% of the continent has no access to financial services. The desktop market never developed; the mobile market is coming first, and big data is a bigger deal.

The Wealth Management Relationship: The Data or the Advisor? (Finance Magnates)

As wealth continues to move towards younger, tech-savvy hands, the debate continues: are human advisory firms becoming irrelevant? Robo-advisors are betting that data is important enough to replace humans, but might need to spend more time thinking about how to leverage their data for decisions.

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APIs Drive Collaboration in Retail Investing

In retail investing, an essential player is working behind the scenes.

Application programming interfaces (commonly abbreviated APIs) have grown 1000% in the past five years, witnessing a period of explosive growth. By enabling different companies’ networks to “talk” to one another, APIs have become a driving force behind retail investing innovation, empowering incumbents to stay relevant and allowing startups to gain fast traction through partnerships.

APIs in finance

Source: programmableweb.com

Now, what exactly is an API? Commonly compared to translators, or the waiters in a restaurant, APIs are the messengers that act as essential bridges between different companies’ networks. Companies use APIs to expand their brand’s reach and drive engagement from their users. For example, Twitter and Facebook use APIs to enable their users to “like” or “share” posts from third party websites. E-retailers like Amazon use APIs to sell products within complementary apps, penetrating untapped communities of potential customers and driving sales growth.

For any company, an API is a tool to connect a product with new communities. As more companies learn to leverage APIs to cash in on new and existing customers, the API economy has exploded. The number of publicly available APIs doubled in just 18 months, from 2013 to 2015, and shows no signs of slowing down. Rather, spending on API management is expected to increase by 300% by 2020, according to Forrester Research.
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Despite its initial hesitancy, the financial world has embraced the API; as more banks have made their APIs publicly available, it is becoming a distinct disadvantage not to have one. Between 2009 and 2013, the number of financial APIs increased by 470%, and it continues to grow today. In retail investing, brokers use APIs to integrate trading, account opening, and other financial services across a variety of third party mobile apps and websites, ensuring that their product weaves seamlessly into their customers’ daily lives.
Today, innovation in retail investing has just breached the tip of the iceberg, making it one of the most exciting areas of FinTech. As an API technology provider, we reject the popular “disruption” narrative in favor of a more nuanced reality: API technologies offer an evolution rather than a revolution, bringing incumbent brokers up to speed with the increasingly mobile and app driven investing market.

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The Future of The $Cash Tag: Big Money in Social Investing

The unkept promise of Twitter’s “cashtag” feature has opened an opportunity for TradeIt to provide a frictionless social investing experience to followers of the platform’s leading financial influencers.

The cashtag came to Twitter in 2012, enabling its users to see stock results by typing a dollar sign, followed by its ticker symbol. Instead of searching #Apple and filtering through endless tweets about the latest iPhone, the idea was that social investors could search $AAPL and enjoy search results that analyze the company from an investor’s perspective. At first glance, the cashtag, which generates 100 million daily impressions, seems like the perfect feature for Twitter to leverage itself in the social investing world.

Twitter’s Late Entry to Finance

Unfortunately for Twitter, social investing was not a new concept in 2012. StockTwits, one of the most successful social investing platforms, has raised about $9 million in venture funding, and had already been using $TICKER tags for the same purpose since 2008. After Twitter launched the cashtag, StockTwits CEO Howard Lindzon accused Twitter of “hijacking” his company’s technology. In a blog post, he asserted that Twitter’s problems would detract from its competitiveness in social investing. Specifically, he stressed the importance of his curation and spam filtering features, something Twitter might be too distracted to implement. He said, “you can hijack a plane, but it does not mean you know how to fly it.”

Three years later, it appears Lindzon was right. StockTwits has grown from about 300,000 to 580,000 monthly users, while on Twitter, clicking on a cashtag still bombards users with a feed of tweets about the company that is largely just noise. Cashtag feeds are also clogged with so many pennystock promotions that some have spam rates of up to 99.7%.

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Top 5 $Cash Tags, Fall 2015

For investors, searching a cashtag is almost useless for making a trade decision. Investors use social networks to gauge popular sentiment on the stock and read observations on its past performance record. Without providing digestible information on a company or stock, the cashtag becomes a mere novelty, with no additional utility over its hashtag counterpart.

The Opportunity: Seamless Investing

While Twitter might never be as innovative as other apps that focus exclusively on investing, it does have some clear advantages over these smaller players. Most importantly, it has built a reputation as a platform for breaking news—a place you go to find out what is happening right now. In the trading community, where a fraction of a second can change everything, this is an important loyalty. Further, the sheer size of the network gives users free reign to choose which accounts they follow and take advice from. Everyone has their owninvesting strategy, and any information they might want is likely available on Twitter. With these advantages, Twitter is ready to position itself as a major player in social investing. However, this won’t happen unless it develops new capabilities for the cashtag.

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This opportunity comes at a crucial time for Twitter, which continues to disappoint its investors as it struggles to add and hold on to new users. The company recently made headlines when it laid off 8% of its workforce, with some speculating that it is on the decline. Analysts have said that as social media shifts away from text and towards images, it is only a matter of time until Twitter is largely obsolete. This is an oversimplification. Some information is perfect for Twitter because it is non-visual and “unsexy,” yet shareable. I think it’s safe to place investing advice in this category, as I doubt people are planning to track their stocks on Instagram.

The most popular cashtags on Twitter, which include $AAPL, $GOOG and $GE, are reaching millions of daily impressions, and can spike the moment one of their stocks behaves erratically. In the past few months, we have tracked the most influential users of the top 45 cashtags, who tend to fall into one of two categories: financial news providers and stock tip providers. The news provider category is made up of news agencies and their editors, like @CarlQuintanilla or @CNBC. These accounts typically have high follower counts and act as an informational, rather than instructional, resource for traders.

The second category of influencers is made up of individual investors and traders who share specific stock trade ideas, usually with an accompanying disclaimer releasing them from liability. Many of these accounts are individuals who have made a hobby out of day trading, some are professionals on Wall Street, and others, like @JustinPulitzer, have managed to make a living by providing stock tips to their followers. Unable to make money directly from Twitter, many of these influencers have their own personal websites where they sell their stock picks for a subscription fee.

Untapped Gold

This pocket of retail investors is untapped gold for Twitter, as these accounts provide advice that often leads to direct financial gain. In the current situation, nobody is satisfied: influencers resort to outside resources to gain subscribers, Twitter is making no money, and followers either pay for subscriptions or are restricted to free accounts. This inefficient system is maintained because Twitter is a free service acting as a distributor of highly valuable information.

Of course, Twitter has always been free, and will remain so. However, it has the potential to incorporate new services that keep its users in the app for longer, increase advertising revenue, and reward stock picking accounts when their followers follow their advice. At TradeIt, we are determined to build products that make investing easier, and one of our strategies is to identify the spaces where investors make their decisions (news apps, social media) and make it possible for them to trade within those spaces. Right now, we seek to eliminate the inconvenient journey between publishers (customer reviews) and brokers (the shopping cart) that retail investors experience.

With this goal in mind, we are rolling out the TradeIt Influencer Outreach Program, which is designed to work with top cashtag users to build a frictionless trading experience for their followers. We believe in connecting with these influencers at the ground level, providing them with customer assistance and listening to their wants and needs as we continue to develop products that transform the online trading community. If Twitter won’t develop adequate trading features from the top-down, it seems like we will have to do it from the bottom-up.