Fintech News: August 26th, 2016

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


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

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

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

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

Fintech’s license to fail (Bloomberg)

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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.

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

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

What is the IEX and how does it work?

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

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

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

How do retail investors benefit from the IEX?


Brokers decide which exchange to route orders to.

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

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

Want to save money?

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

Fintech News: August 19th, 2016

What to Expect when IEX Launches on Friday (MarketWatch)

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


How the IEX plans to thwart arbitrage.

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


Silicon Valley needs a few DeNiros

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

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

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

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

China is Disrupting Global Fintech (TechCrunch)


Tech to finance: China did it first.

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

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.


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


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.

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)


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?

Fintech News: August 5th, 2016

 The Great FinTech Robo Advisor Race (Forbes)

1-C9o-3tl-cnY8Sq4ROTyCbQ.jpegThe robo-advisor market is now crowded with incumbent brokers in addition to startups. While robo-advisors began as a way to get young investors to enter the market, today, they target anyone under the age of 55, as most middle aged investors are also interested in opening an algorithmically managed portfolio. This editor predicts an AUM race that will ultimately end in consolidation.

The 27 fintech unicorns from around the world, ranked by value (Business Insider)

From Adyen to Zenefits, these are the 27 largest fintech startups by valuation.

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Cover fee to the unicorn club: A valuation over $1 Billion. Source: LetsTalkPayments

Looking beyond the hype at fintech in Southeast Asia (TechCrunch)

Most of SE Asia’s innovation in assets and wealth management is concentrated around retail brokerages, with the exception of Singapore. There, the fintechs have begun to climb the value chain into B2B solutions and the FX trading industry.

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Most of the money is still in Payments. Source: TechCrunch 

You Don’t Really Own Your Securities; Can Blockchains Fix That? (American Banker)


Technically, the DTCC owns all your stocks.

Most publicly traded equities are technically owned by a third party depository, who holds securities for some 600 banks and broker dealers. This setup is largely unimportant for the individual investor, unless one of the intermediaries ends up going bankrupt during the three-day clearing window (think Lehman…) Blockchain can eliminate this liabilility, and the state of Delaware, where most public companies are incorporated, is looking into it as a solution.

Scottrade launches social media intelligence platform (Finextra)

Twitter dollarScottrade has added a social media event detection feature, Contix, to its ELITE retail brokerage subscribers. The tool helps traders stay up to date with market-moving news as soon as it happens. Contix boasts the capability to beat the major news outlets, announcing breaking news 15 minutes to 1 hour before it’s Wall St Chatter. Tools like this are especially useful to retail traders who often lose big time to algo traders.



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?


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.


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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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.