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.

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.

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.

 

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.

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.

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.