Fintech News: September 30th, 2016

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

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

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

Bloomberg Lets Subscribers Tweet from their Terminals (Finextra)

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

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

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

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

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

Alphabet Soup: Fintech AI Lingo, Deconstructed

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

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

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

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

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

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

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

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

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

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

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

Fintech News: September 23rd, 2016

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

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

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

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

The Banking Bazaar and The Bizarre Banker (The Finanser)

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


Fintech News: September 16th, 2016

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



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

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

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

Ant Financial snaps up EyeVerify (Finextra)

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



A Case for the Overbanked

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

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

The Multi-Bank Advantage

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


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

Overbanking, Simplified

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

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

A case for the overbanked

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

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

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

*Source: Oliver Wyman

Fintech News: September 9th, 2016

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

AI can make your money work for you (TechCrunch)

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

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

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

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

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

Fintech News: September 2nd, 2016

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

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

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

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

Boomers value tech for managing retirement savings (Finextra)

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

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

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

Not so fast! AI will save us from stupid trades

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

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


We all know the feeling.

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

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

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

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