Fintech News: May 27th, 2016

Messaging startup Symphony will release its first iPhone app next week (Re/Code)

sym_web_ga_24_emphasizewhatmatters_pillarSymphony, the secure messaging app backed by Goldman Sachs and other large financial institutions, is releasing its first mobile app for the iPhone. While it has been nicknamed a “bloomberg killer,” the company identifies itself as more of an “email killer.” Time will tell.

The DAO Might Be Groundbreaking, But Is It Legal? (American Banker)

AB052016DAOThe Decentralized Autonomous Organization or DAO, an automated, leaderless company, has raised over $150 million in funding. It promises to transform the way companies are governed and financed, by automating the work of managers and leaders. The one catch: it might not be legal, as the “tokens” it distributes to its employees may be regulated under securities laws, as they closely resemble equities.

 

The Retail Forex Industry is Far Behind in IP Adoption (Finance Magnates)

logo-transSome of the most popular platforms for retail trading are falling behind by not upgrading from IPv4 to IPv6. In plain terms, the internet has grown too large for IPv4 addressing, and IPv6 offers superior network security and end-to-end connectivity. It’s not just trading platforms though; overall, financial services is far behind the rest of the internet in upgrading to IPv6 capabilities.

Time for Fintech to Stop Thinking Small (American Banker)

Calling most fintech innovations small and meaningless, this blogger calls for a fintech industry think tank of behavioral scientists, economists, policymakers, marketers, and industry veterans to identify the largest problems in financial services today. This type of knowledge would cut out the hoards of fintechs that are, as other thought leaders have called them, lipstick on a pig, and uncover new large problems for startups to solve.

ETF Marketing, Powered by TradeIt

On January 1st, 1993, the SPDR S&P 500 exchange traded fund, known by traders as $SPY, began trading on the New York Stock Exchange. Since then, exchange traded funds, or ETFs have grown to $1 trillion in assets under management, making them one of the most popular investments for both professionals and retail investors. This week, we are excited to announce a new use case for the TradeIt API: ETF marketing, direct to the consumer.

Screen Shot 2016-05-29 at 3.11.28 PM

Mutual funds, meet the ETF. Source: World Federation of Exchanges.

The ETF represents one of the most consumer-friendly innovations in retail investing since the discount brokerage. With transparent fee structures and superior liquidity, the ETF has largely outpaced the mutual fund as the retail portfolio’s favorite companion to typical equities. Today, individual investors can diversify their portfolio, add dividend income, or invest in specific countries or sectors through specialized ETFs like $GLD, for gold, or $SDIV, for dividends.

ETF illustration (1)

TradeIt takes your ETF prospectus, and makes it actionable.

ETFs also protect novice investors by allowing them to diversify their portfolio without betting on specific companies in unfamiliar industries. However, with more competitive ETFs on the market each year, issuers often struggle to reach these consumers and educate them about their products. Here, we saw an opportunity to leverage TradeIt’s technology to benefit both the merchant and the consumer.

etf genericWith TradeIt capabilities, any issuer site can allow their traffic to purchase ETFs via their existing broker. Self-directed investors often read ETF fact sheets before making their decision to purchase, and TradeIt integration gives them a convenient way to access their broker and submit trade orders. For ETF issuers, TradeIt enables a “checkout aisle” on their website to optimize their marketing funnel. Ultimately, TradeIt helps ETF issuers leverage their product information by making it actionable for the customer.

Beginning this month, we are launching pilot programs with major ETF issuers and marketers to make the most out of their web content. Interested in participating? Please email info@trade.it.

Traders Without Borders, Part 2: Australia

This week on Traders Without Borders, we’re venturing over to the home of the most enthusiastic trading population in the English-speaking world: Australia. While its population is less than 10% of the United States, Australia is one of the hottest markets for retail traders across all asset classes. Here are some of the unique characteristics of Australia’s rapidly growing market for retail investing.

Higher Participation, Less Satisfaction

Screen Shot 2016-05-20 at 11.17.24 AMAustralia’s online trading participation is 3.5%, higher than both the US, at 2.4%, and the UK, at 1.5%. In the past year, Australians have become even more enthusiastic investors, as more are drawn in by the promise of high returns from overseas investments. Additionally, more and more Australians are choosing to self-manage their superannuation accounts, which are similar to American 401k accounts.

Despite the growing popularity of self-directed investing, Australians are less satisfied with their brokers overall, with just 68% satisfaction, vs 79% in the United States. One reason for this: Australians pay about 50% more in commissions than their counterparts in the United States.

Less Service, More Research

iPhone 6 _ 4.7 inch _ Silver 3

SimplyWall.St’s “snowflake” evaluates your stocks.

In the United States, brokers have achieved high customer satisfaction by offering a suite of products for research and trader education. Since the Australian market has historically been much smaller, most Australian brokers offer few or no advisory services. Thus, the average Australian investor uses 7 outside sources for research, and 6 for decision-making, with the most popular sources being websites and mobile apps. One of these websites, SimplyWall.St, saw an opportunity to help investors when it launched in 2014. “The simple fact is that Australians have been paying more for less brokerage, and products like ours help fill the service gap,” said COO Nick Van Den Berg.

Ultra Concentrated

Screen Shot 2016-05-20 at 11.26.06 AMJust like your favorite laundry detergent, the Australian broker market is 3X concentrated. In both the United States and Australia, the top five brokers make up about 85% of the retail market share. However, the Australian market is much less distributed among these five players. Their #1 broker, CommSec, controls around 60% of the market share when you include it’s white-label platform for Westpac, one of Australia’s major banks. The next four major brokers, Nabtrade, CMC, E*Trade, and belldirect, have just 25% of the market share combined.

Screen Shot 2016-05-20 at 11.26.24 AMIn the United States, the largest brokerage firms share the wealth more evenly; while the largest broker still controls a sizable 38% of the market, the next four brokers enjoy almost half of the entire market share. Additionally, note that the sheer size of the United States market means that all of these top five are huge in comparison to the Australian brokers – one reason they have been able to offer superior product suites for so long.

But as their market expands, new brokers enter the market, and retail investors become increasingly international-facing, the incumbent Australian brokers may experience a shakeup as their customers’ demand more services for lower costs. When this happens, diversifying their product offering will be an important pillar to stay relevant in the market.

Fintech News: May 20th, 2016

SigFig, an Automated Investment Firm, Will Team Up With UBS (The New York Times)

Screen Shot 2016-05-19 at 5.29.12 PMUBS has made a strategic investment in SigFig, a robo-advisor that targets higher net worth clients than its competitors. UBS plans to provide the service to its RIAs, allowing them to spend less time constructing portfolios and more time talking to clients. This move adds UBS to the ranks of incumbents building their own robo-advisor platforms.

Silicon Valley venture capitalists raise more money, give less away (Reuters)

275ae4d1446ea182f1cf07b8a2fd82e2Venture capitalists are waiting for winter and holding onto their acorns. Instead of pouring money into new startups, they’re focusing on keeping their existing investments alive. As they hoard cash, tech VC and private equity “dry powder” has increased to $382 billion, its highest level in years.

Betterment and Robinhood clash on how to disrupt investing (TechCrunch)

At TechCrunch Disrupt last week, two fintech unicorns butted heads. The CEO of Betterment argued in favor of passive, index fund investing, and the brokerageg strategy of “making money off your money without you knowing it.” Robinhood’s CEO defended his company’s mission to offer stock trading without commissions as a tool for investors who may not be saving for retirement or building their nest-egg.

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Frenemies Betterment & Robinhood. Source: TechCrunch

Why Britain is beating the US at financial innovation (TechCrunch)

The US created legislation to protect retail investors after the stock market crashed in 1929, but Britain didn’t follow suit until 2000, when the internet was already commonplace. At this point, it was clear that a rules-based set of laws would never keep up with innovative finance. So Britain built principles-based regulation that adapts quickly to new technology. Here’s what it meant for equity crowdfunding and other new fintech sectors across the pond.

Mobile Security: Ahead of the Game

Among retail investors, there is serious concern around brokerage security. While just a few years ago the SEC reported that advisers had a 74% rate of being cyber-attacked, that has changed. The great news for investors is that mobile devices have improved an already improving security landscape for online investing.   In addition to mobile being a first line of defense, luckily for investors, brokers have stepped up to the plate with strong security features to keep intruders locked out. We surveyed the top US brokers to find out which technologies are helping keep their assets safe. Here’s what investors can do to add even stronger protection to their accounts.

Stick To Mobile Devices

appletouch_bg2Today, the most exciting security advancements are built for mobile devices. Mobile fingerprint readers add an extra layer of security by encrypting user credentials and requiring TouchID authentication. Voice recognition and eye-scan capabilities are just around the corner. Already, some finance apps are beginning to release “selfie auth,” which uses facial recognition technology to verify their identity.

Malware & Phishing Emails


malware__bg2Millions of desktops are infected with malware, which sits idle in the user’s browser, waiting to copy their username & password credentials. On mobile devices, strict approval processes in the Apple and Google app stores prevent most malware; it is estimated that there are less than ten thousand mobile device malwares, and most are confined to jailbroken devices.

Another common desktop scam: phishing emails. A user receives an email that looks like it came from their bank, clicks a link leading to a site that looks like their bank’s site, and unknowingly enters their login credentials on a fraudulent site. Mobile phones are mostly immune to phishing, since banking emails deep link a user to their mobile banking app, not their website.

Your Password: Choose Wisely

A Verizon study this year found that 63% of financial data breaches involve weak or default passwords, so investors should start by creating a secure password. Sites like howsecureismypassword.net can tell you how long it would take a computer to crack your password, so you can test out all of your old favorites. As a rule of thumb, always use the maximum amount of characters allowed by your broker, mix symbols, numbers and caps, and change your password every 6 months.

 

Broker TouchID? 2-Factor Authentication
Broker A Yes Yes, free
Broker B Yes Yes, free
Broker C Yes Yes, free
Broker D

Yes

No
Broker E Yes Yes, free
Broker F No No
Broker G Yes No
Broker H No Yes, free

Double Layer Protection

2stepauth_bg2Many brokers offer 2-factor authentication, which requires users to enter a numeric PIN, received via SMS, in addition to their password. However, none of the brokers activated this feature automatically; the user has to seek it out on the security settings page. Security-savvy investors should activate 2-factor auth; by requiring both “something you have” and “something you know” to login, 2-factor auth can keep an account secure, even if its password alone is easy to crack. Since they receive an SMS for each attempted login, users with 2-factor auth are alerted when someone attempts to access their account, allowing them to contact their broker and eliminate fraud before it begins.

For security-conscious investors, a strong password and 2-factor auth are no-brainers. To fight the factors they can’t control, investors should stick to mobile devices, which reduce the risk of malware and phishing emails and take advantage of state-of-the-art identity verification technologies.

Fintech News: May 13th, 2016

This week in fintech: JPMorgan fires back against startups who pull their data, an investment platform specifically for women, how marketplace lending dug itself into a ditch, and new regulations facing roboadvisors. Continue reading

Traders Without Borders, Part 1: Hong Kong

We’re excited to introduce the Traders Without Borders series, consisting of bi-monthly analyses of retail investing markets across the world. Drawing from qualitative observations and quantitative data from private and government surveys, we focus on the ways in which international markets differ from that of the United States, and the distinct opportunities they carry for new entrants. First up: Hong Kong.

Unlike most western countries whose exchanges are heavily institutional, stock exchanges in Hong Kong and China are dominated by retail trades, which make up over 80% of their order flow. Most retail investors trade through banks rather than brokerages, and non-equity securities, such as bonds and futures, are not nearly as popular as they are in the US, though ETFs are gaining popularity among more serious traders. Overall, we saw that, when compared to the US market, the retail investing market in Hong Kong benefits from higher participation, a larger proportion of active traders, stronger smartphone penetration, and a cultural appreciation for trading as a form of entertainment.

Anyone can trade

In Hong Kong, people experience fewer barriers to entry when it comes to self-directed stock investing. Many banks encourage their customers to open a trading account alongside their typical checking or savings account, even if they do not explicitly ask for it. As a result, retail participation in capital markets is much higher than many western countries, where banking and investing have historically been delegated to separate institutions.Screen Shot 2016-05-09 at 5.11.05 PM.png

While only 2.4% of the US population has placed an online trade in the past 12 months, an impressive 21% of the Hong Kong population has done so. While the US still has 4 times as many active traders as Hong Kong, its general population is 50 times larger.

More Active

Screen Shot 2016-05-09 at 5.10.45 PMHong Kong investors trade much more frequently than their counterparts in the US. Hong Kong’s retail investor pool contained very few inactive traders, with just 20% of investors abstaining from trading in the past 12 months, compared to around 40% in the US. (HKEx) In a survey by State Street, 73% of investors in Hong Kong trade at least once per month, compared to only 53% in the United States. As a result of more active traders, total average annual trades are higher in Hong Kong at 41 vs 17 in the US.

 

More Mobile

Screen Shot 2016-05-09 at 5.09.36 PMSmartphone penetration is high in Hong Kong, where the two most popular phone models are the iPhone 6 and iPhone 6 Plus. Highly accustomed to financial services and transactions on mobile devices, Hong Kong users have overwhelmingly adopted mobile trading. A survey from Investment Trends found that 80% of online investors use mobile devices for trading purposes. In the US, this number was a bit lower, around 60%, though an additional 12% of US respondents have plans to begin trading from their mobile device in the next year.

More trades, more fun

Though difficult to quantify, cultural attitudes towards trading have a large impact on financial market structures in both the US and Hong Kong. While most US traders see the stock market as a way to achieve their financial goals, investors in Hong Kong are more interested in stock trading as a form of entertainment.

Screen Shot 2016-05-09 at 5.10.56 PMAn interesting result is that high net worth traders in Hong Kong trade more often than their less wealthy counterparts, while the opposite is true in the United States.

For investors who believe that stocks are a form of gambling, then a larger portfolio means more to play with. Conversely, for investors who see the stock market as a vehicle to retirement, a larger portfolio means more is at risk for placing a bad trade.

 

While there is a need for more research on the reasons behind this culturally different approach to investing, it is clear that Hong Kong’s Stock market holds opportunity for new entrants who focus on the high-net worth active trader demographic through mobile-first solutions.

 

Sources:

HKEx Retail Investor Survey, March 2015.

A Snapshot of Investor Households in America, FINRA, 2015.

The Global Online Broking Report, Investment Trends, 2014.

The Self-Directed Investment Market, Celent, July 2010.

 

Fintech News: May 6th, 2016

This week in Fintech: Cutting the Bloomberg Cord, which Wall St jobs will be taken over by robots, a pro-Brexit bank CEO, and CBS’s “60 Minutes” outlines fintech for prime time viewers…

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